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Chinese Loan Defaults Cost US$ Billions

China closes ITICs in Hainan By James Kynge in Beijing - 29 Feb 2000 18:35GMT

China has shut down an international trust firm in the southern province of Hainan and is set to close several more, signalling a renewed effort to clean up the operations of some 240 "Itics" - the vehicles through which local governments raise funds overseas.

Foreign creditor banks, which have lent several billions of US dollars to the international trust and investment companies, may have to take a "haircut" on debt repayments as the Itics are closed, merged or restructured, officials said.

The collapse in 1998 of the Guangdong International Trust and Investment Corp (GITIC), with debts of US$4.7bn, has forced its foreign creditors to write off a significant portion of their lending to GITIC.

The Hainan Hong Kong and Macao International Trust and Investment company was closed on Saturday because its debts far exceeded assets and "it seriously violated business rules", a government official, who declined identification said on Tuesday.

The trust company was small in comparison to many among China's Itics.

But in spite of its small size, the closure of the Hainan Hong Kong and Macao Itic is indicative of something much bigger, officials said. It signifies that authorities are preparing to shut or restructure the other Itics in Hainan, and thereafter throughout the country over the next several months.

"The general idea is that after the restructuring is over, only one Itic will be left in each province and municipality, apart from in Beijing, where there may be a few left," said one official.

The management of the Hainan Hong Kong and Macao Itic closure revealed that payment of foreign creditors is not a top priority. A task force set up by the Bank of China's asset management company, China Dongfang Asset Management Corp, has identified compensation for individual depositors as its top priority.

Other Hainan Itics have ceased operations and are awaiting either closure or restructuring. Saige Itic on the island has failed to pay staff for more than one year and has suffered a recent run on deposits, officials and Itic executives said. It is expected to be put into receivership soon, officials said.

The province's largest foreign borrower, the Hainan Itic, has ceased taking deposits and making loans, although it is still seeking creditors to help cover liabilities. The provincial government is keen to avoid closure for the Hainan Itic because of the negative impact that this would have on the provinces international reputation.

Its options, and those of another troubled Hainan-based Itic, the Huitong Itic - which has borrowed heavily from South Korean creditors - are limited to a bail out by either the provincial or central government, or closure and possible rebirth following a restructuring arranged by one of the "big four" state banks' asset management companies.

"I don't think the local government can afford to bail out all of the Hainan Itics. They will have to close them," said one financial official on the island in southern China.

-- Bill P (porterwn@one.net), February 29, 2000

Answers

Bill ... Could this be the " first dommino " for Asian banks/U.S. banks , coupled with a falling market later this week ? Looks pretty problimatic for a slide on the slippery slope to a hog wallow !

Don't ask me what the latter means ; I just made it up ! Eagle

-- Hal Walker (e999eagle@FREEWWWEB.COM), February 29, 2000.

Hal, I agree.

Perhaps, China has an economic plan to get Taiwan without firing a shot:

Close ITICs, default on loans, buy gold with India to bust the cabal of short sellers, sell US treasuries and short the NASDAQ .com issues. Parley oil with the Arabs and Indonesians. And invest in Euro bonds to further erode the dollar. The Powers that Be would sell Taiwan out in a New York second, me thinks. Beats the hell out of unleashing all that radiation and what if the winds changed and were blowing toward mainland China.

Yep, this looks like the first shot from a well planned strategy - this may involve more than the USS Kitty Hawk.

Slippery slope to a hog wallow for sure.

-- Bill P (porterwn@one.net), February 29, 2000.

If China is playing so many games with this country, then why do we keep importing so much stuff? Wouldn't we have some leverage with the import products from China, and refusal to continue imports, if concessions were not met with Tiawan?

-- suzy (suzy@nowhere.com), February 29, 2000.

...and why do we want to give them 'most favored nation trading status?' All that foreign import stuff is coming from the U.S. multi-national corporations, you know. They just happen to be using Asian slave labor to make the stuff, but they gotta compete, you know.

-- Y2kObserver (Y2kObserver@nowhere.com), February 29, 2000.

We import from thme because their prices are the lowest.

We are the ones addicted totheir low prices especially for raw materials like magnesite, bauxite, graphite, etc.

Their finished goods also undercut all other nations as well as our own. I suspect our economy needs China as much or more than China needs us. If we quit buying from the Chinese I expect US prices for steel, cars, textiles, clothing etc would go up by 10% or more.

-- Bill P (porterwn@one.net), February 29, 2000.

We could always ask for Taiwan in exchange for writing off the debt. They don't control Taiwan, and we are going to lose the money anyway! Win-Win!!!

-- Mad Monk (madmonk@hawaiian.net), February 29, 2000.

Brilliant MadMonk. Just brilliant!

Any of you gubment guys hanging around reading posts, maybe the MadMonk has the answer.......

-- suzy (suzy@nowhere.com), February 29, 2000.