More Defaults Coming From China’s Shadow Banking System

China has just settled a high-profile failure of one shadow-banking product and already another has emerged, with analysts expecting a wave of potential defaults ahead.

“We definitely expect to see more trust-related products souring through 2014 and maybe next year as well,” with the difficulties likely coming from stressed industries, such as coal, as the economy slows, said Ruta Cereskeviciute, senior economist at consultancy IHS.

In January, a trust marketed by ICBC with the moniker “2010 China Credit / Credit Equals Gold #1 Collective Trust Product” said it likely wouldn’t be able to pay investors back as the 3 billion yuan, or around $496 million, trust used its funds to make a loan to unlisted coal company Shanxi Zhenfu Energy Group, which has since collapsed.

Local media have since reported the trust firm reached an agreement allowing investors to recover their invested principal, but that they would sacrifice their final interest payment. Some reports have said that the Shanxi government may have contributed funds to the bailout.

CNBC

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