China

83 Tons of Fake Gold Bars discovered in China

Kingold Jewelry, one of China’s largest gold jewellery manufacturers, has reportedly been accused of depositing 83 tonnes of fake gold bars as collateral against loans from 14 institutions.

According to an article by Small Caps, the gold bars, which were valued at CNY20.6 billion (over USD2.8 billion), have been discovered to, in actuality, be gilded copper.

Two New York-based law firms have begun investigations into securities fraud on the behalf of Kingold Jewelry’s investors on the back of the discovery.

Kingold Jewelry has denied the allegations of what would be one of China’s largest gold loan fraud cases. The loans were obtained by the firm over the course of 5 years.

The reports come shortly following the admission by Luckin Coffee to accounting fraud, which stood at USD310 million; this case in itself sent shockwaves through the market and may have blocked the pipeline of Chinese firms seeking to raise funds on US markets, according to an article by the South China Morning Post.

According to an article by Zero Hedge, this is not the first time China has been the setting of a ‘Ghost Collateral’ scandal. In 2014, the piece states, a significant portion of the loans issued in the nation were backed by non-existent collateral, or collateral which had been rehypothecated by more than one debtor, resulting in banks accepting that they would never recover much, if any of what was pledged.

An excerpt from a Reuters report, which looked in to the extent of China’s ‘Ghost Collateral’ crisis, noted that in one instance, a pile of steel pledged as collateral against a USD3 million loan reportedly vanished from the warehouse in which it resided.

Having initially loaned the funds to Shanghai Hanning Iron and Steel Co. in 2012, when China CITIC bank took ownership of the steel following the firm’s failure to meet payments, the 291-tonne pile of steel was no longer there, despite a banker stating that it had been when he surveyed the collateral in 2013.

At the time of the Reuters report, Fitch Ratings said that it had estimated non-performing loans in China’s financial system could be as high as 15-21%, with the cost of clearing said bad debt as high as USD2.1 trillion.