Issue highlighted after Henan company bilks credit unions out of $2b
The Shanghai Gold Exchange clarified on Tuesday that a domestic report on a case involving fake collateral bars of gold is partly incorrect, as the cheating company was not one of its designated suppliers.
According to the report by caijing.com.cn on Monday, -Boyuan Mining Co, a company based in Central China's Henan Province, obtained nearly 13.8 billion yuan ($2.01 billion) from small lenders by offering as collateral bars of gold that were mostly made of another metal.
An expert told the Global Times on Tuesday that it's inappropriate for government regulators to roll out standards for using gold as collateral. He also said that a case involving such a large amount of "fake gold" like the one in Henan is very rare.
The fraud came to light when Tongguan Rural Credit Cooperatives Union in Northwest China's Shaanxi Province found it was unable to contact Zhang Qingmin, a representative from Boyuan Mining, regarding an overdue loan of about 20 million yuan, according to the report. Boyuan Mining had secured the loan with what Tongguan Rural Credit presumed were gold bars.
Later, when Tongguan Rural Credit began to sell the bars, it discovered they were not entirely made of gold. As an investigation proceeded, Tongguan Rural Credit found that it had given Boyuan Mining more than 11 billion yuan in loans secured with the bars.
The police suspected that Zhang, along with four others from the Boyuan Mining, obtained more than 2.8 billion yuan using the bars from the Chang'an Rural Credit Cooperatives Union in Shaanxi.
Caijing cited several sources who said that the bars received by Chang'an Rural Credit as collateral were actually a mix of gold and tungsten which made up about 62 percent of the bars. In May 2016, police arrested Xu Jianbo, a major shareholder of Boyuan Mining, the report said.
A manager at a Shanghai branch of China Construction Bank, said on the condition of anonymity that many major banks in China accept gold as collateral. "But there are very few people who would use this service," she told the Global Times on Tuesday.
Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, said that it's hard for the government to launch uniform policies on using gold as collateral.
"Government policies in the banking sector mainly target systematic risks. They can't deal with all the individual cases," he said.
