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China's banks take steel traders to court

China’s banks take steel traders to court

(4 September 2012 – China) China’s banks are pushing hard to recover loans from steel traders in a sign that China’s financial system could be under more strain. As Chinese leaders contemplate another round of stimulus to boost the economy, banks are trying to lessen the bad debts that continue to pile up.

The government threw 4 trillion yuan (A$620 billion) into China’s economy in 2008, especially to the steel trade, a crucial sector in supplying the country’s massive construction and infrastructure growth.

Those loans, while offering a quick-fix were often excessive, poorly managed and sometimes not even needed, by the end of 2011 the steel industry had a total debt of A$400 billion.

'After the financial crisis, when the government released its stimulus, banks begged us to borrow money we didn't need,' Li Huanhan, the owner of Shanghai Shunze Steel Trading, told a judge at a recent hearing. 'We had nothing to do with the money, so we turned to other investments, like real estate.'

Results at China's big banks show profit growth is at its weakest since the global financial crisis, while bad loans rose for a third straight quarter to 456.5 billion yuan (A$71.8 billion) by June, the China Banking Regulatory Commission said this month.

'The court cases you see are usually when things get desperate,' said a loans official at a Shanghai branch of Bank of Communications, who asked not to be named because of the sensitivity of the subject.

'We've had people go missing. Some have fled overseas, while others just take on a new identity and move somewhere else.'

In the Shanghai courtroom, lawyers for Minsheng Bank told Li after the hearing that banks were desperate to recall loans as they had heard of some borrowers going missing with tens of millions of yuan still owed.
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