China’s chief auditor has discovered 94.4 billion yuan (R162bn) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals.
Twenty-five bullion processors in China, the top producer and consumer of gold, made a combined profit of more than 900 million yuan from the loans, according to a report on the National Audit Office’s website.
Public security authorities are also probing alleged fraud at Qingdao port, where copper and aluminium stockpiles may have been pledged multiple times as collateral for loans.
Steps by the Chinese government to rein in credit by raising borrowing costs in recent years created a surge in commodities financing deals that Goldman Sachs estimated to be worth as much as $160 billion (R1.7 trillion).
“This is the first official confirmation of what many people have suspected for a long time: that gold is widely used in Chinese commodity financing deals,” said Liu Xu, a senior analyst at Capital Futures. “Any scaling back by banks of gold-backed financing deals might lead to a short-term reduction in Chinese imports and also spur some sales by companies looking to repay lenders.”
As much as 1 000 tons of gold may have been used in lending and leasing deals in China, where commodities including metals and agricultural products are used to get credit amid lending restrictions, according to World Gold Council (WGC) estimates.
Gold declined in London yesterday for the first time this week on concern that an advance to a two-month high was curbing physical buying and as investors weighed the outlook for the US economy.
Any clamp-down by Chinese authorities on financing deals involving the metal would probably put downward pressure on gold prices in the short term, Jens Naervig Pedersen, an analyst at Danske Bank, said.
China’s gold imports from Hong Kong fell 20 percent last month from April as increasing volatility in the Chinese currency made the precious metal less appealing to mainland investors.
Net imports totalled 52.3 tons last month, compared with 65.4 tons in April and 106 tons in May last year, according to calculations by Bloomberg based on data released by the Hong Kong Census and Statistics Department yesterday.
Mark To, the head of research at Wing Fung Financial Group in Hong Kong, said the audit office’s report was unlikely to have a significant impact on the underlying demand for gold in China.
The WGC said it was confident that any fraud in China would not affect its overall estimate for gold demand.
The National Audit Office’s report was delivered by its chief, Liu Jiayi, at a National People’s Congress meeting on June 24 and posted on the office’s website. The report covers a period beginning in 2012 and does not specify an end date, nor does it identify companies or banks.
investigation at Qingdao focused on Decheng Mining and its owner, Chen Jihong of Singapore, said two bankers assisting public security officials. Chen had been detained, Singapore’s foreign ministry said.
He was involved in a separate inquiry in north-western Gansu province, said the bankers, who asked not to be identified because they were not authorised to speak publicly.