| SHANGHAI, March 13
SHANGHAI, March 13 Growing jitters about the
financial health of bloated industries in China have prompted
many banks to cut lending in these sectors by as much as 20
percent, banking and industry sources with knowledge of the
At the same time, the China Banking and Regulatory
Commission (CBRC) has called on banks to submit their regular
report of outstanding loans owed by various sectors, but has
asked them to include loans linked to derivative products and
debt financing, the sources said.
The inclusion of these two areas is a "new development",
said one banking source.
The move, which comes in the wake of a landmark corporate
bond default by Chaori Solar as well as the default
of a coal-related high-yield trust product, underscores the
regulator's concerns about financial risks posed by heavily
indebted sectors, such as steel makers and shipbuilders.
"The specific sectors to be audited are steel, cement,
aluminium smelting, flat-glass and shipbuilding," said another
bank source, who received a CBRC document outlining the
It was not clear what derivatives lending or debt financing
the CBRC was focusing on.
But the sources said one area of concern may be bank lending
to clients who used commodity imports such as steel or copper as
The prices of both metals have tumbled, partly in response
to growing debt concerns in China following the Chaori default.
Beijing has tried to crack down on industrial sectors with
surplus production capacity for much of the past 10 years, but
with little success.
They are now feeling the heat as the government tries to
restructure the economy. Beijing relied for years on investment
and exports to fuel double-digit growth but is trying to shift
towards an economy more reliant on consumption and services.
That change has involved a string of measures aimed at
ensuring uncompetitive industrial producers are forced to
China's cabinet, the State Council, has said that credit
must be cut to these sectors and that no new project approvals
are allowed until 2017.
Beijing has also seized the opportunity to raise
environmental requirements on highly polluting industries,
putting more pressure on their operating costs.
The CBRC has not set any targets for a reduction in lending,
but banks started to cut loans to struggling sectors late last
year, banking sources said.
Some steel mills received letters from their banks this
month telling them that their 2014 credit limit would be 20
percent below the amount they borrowed in 2013, industry sources
A source at mid-sized Shanghai Pudong Development Bank
said it had already significantly scaled back
lending to shipbuilders.
"Beijing has already given enough warning that they are
cracking down on these sectors and many of them are already in
dire straits," said another bank source.
"With steel prices tumbling, many of these mills and trading
houses are having a really bad time. Everyone knows that and we
are taking steps to reduce our risks," this source said.
The squeeze has already caused a cash crunch for smaller
steel mills and some commodity traders, especially in steel and
Some 16 steel mills in the top producing province of Hebei,
around Beijing, have stopped production due to financial
troubles, provincial governor Zhang Qingwei said last week. Some
mills in northern Jiangsu province have also closed down.
For firms who used those commodities as collateral to get
loans, the tumble in local steel rebar and iron ore
prices this month has led to margin calls, sparking a
wave of panic selling by firms who needed to repay loans,
Iron ore for immediate delivery to China fell
8.3 percent on Monday, the largest one-day percentage fall in
4-1/2 years, to $104.70 a tonne, data compiled by the Steel
Index shows. It was at $107.40 on Wednesday.
Traders estimate as much as 30 percent of China's iron ore
stock piles, which reached a high of 86.8 million tonnes in
January, is tied to financing deals.
While refined copper is also a popular financing tool, the
sharp drop in prices has not led to panic selling because banks
required companies to fully hedge their exposure on the London
Metals Exchange when they issued these trade loans.