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China finds $15 billion of loans tied to falsified gold deals

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[June 26, 2014]  SHANGHAI (Reuters) - Chinese gold processing firms have since 2012 used falsified gold transactions to borrow 94.4 billion yuan ($15.2 billion) from banks, the country's chief auditor said.

Commodities such as copper, rubber, soybeans and bullion have commonly been used in China for financing, where traders or investors borrow against the commodity with the aim of investing the money in high-return areas such as real estate or shadow banking.

Most such deals are legitimate, but revelations of borrowing based on fake transactions in the gold market by the national auditor, which comes on the heels of alleged metals financing fraud at Qingdao Port, may prompt authorities to launch another crackdown on commodity financing.

Spot checks on 25 companies that process bullion, such as jewellers, showed they made a combined profit of more than 900 million yuan by using the bank loans to take advantage of the difference between onshore and offshore interest rates, as well the appreciation of the Chinese currency, according to a report published this week on the National Audit Office's website.
 


Chinese firms could have locked up as much as 1,000 tonnes of gold in financing deals by the end of 2013, the World Gold Council said in April, indicating a big slice of imports has been used to raise funds due to tight credit conditions, rather than to meet consumer demand.

At current prices, that would be worth about $42 billion.

The audit report covered a period beginning in 2012 and did not specify an end date. It did not identify any companies or banks.

The audit office also said it found problems with the country's coal, corn and cotton reserves.

A spot check of 12 emergency coal reserve sites found that average monthly stocks were about 30 percent lower than the target volume in 2011, and 18 percent lower than stipulated in 2012, the report said.

The quality of these reserves was also a problem.

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Some 2.43 million tonnes of cotton stocks, accounting for 27 percent of the country's total reserves, were kept in open storage as of June 2013, while some 70 percent of corn imported by China Grain Reserves Corp (Sinograin) contained impurities exceeding the stipulated 3 percent, the report said.

A reserve official at Sinograin, responsible for purchasing and storing grain to ensure food security, was sentenced to life in prison last year for taking 14 million yuan in bribes.

Some 110 Sinograin employees were also investigated for taking bribes from grain retailers in exchange for awarding storage contracts, according to reports last year by state agency Xinhua.

Beijing's anti-corruption campaign, which had focused on energy giant PetroChina earlier this year, has begun to turn to the commodities and mining sector.

(Reporting by Fayen Wong)

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