After receiving dozens of phone calls and text messages from banks touting cheap, unsecured and easy-to-get consumer loans, Eric Zhang visited one of China’s largest lenders in June and borrowed 400,000 yuan (US$57,530) at an interest rate of 4 percent.
However, there was a catch — he had to sign a letter promising the money would not be invested in property or stocks. That did not stop Zhang. A few days later, he had found a merchant who helped him make a fake purchase and move the cash to his brokerage account.
“I don’t think the bank can track the money and identify its real use,” said Zhang, who works at a private equity firm in Shanghai.
“It’s a great trade for me,” he said, after seeing his fresh stock investments surge 6 percent in one month.
Zhang’s story is playing out across China as retail investors embrace the euphoria of the biggest bull run since 2015. Banks and financing platforms are being swept along as punters look for quick cash to bet on the world’s most volatile equity market. It is a dangerous strategy both for already overextended households as well as lenders, one that is drawing closer scrutiny from regulators.
Authorities are also partly to blame. With the economy reeling from the pandemic, policymakers have pumped out liquidity and eased curbs on shadow banking to backstop small businesses and struggling families.
The easy money has fueled arbitrage with retail investors and corporates tapping the cheaper rates to invest in everything from high-yielding structured deposits to wealth management products and stocks.
Leverage has climbed even as millions of Chinese lost their jobs during the pandemic. Household debt rose to a record 59.7 percent of GDP in the second quarter, doubling from 2012, thanks to a housing boom and the rise of online lenders such as Ant Group (螞蟻集團), which has made it easier for consumers to borrow via its ubiquitous Alipay app.
The build-up of risk has unnerved regulators. In a notice to banks last month, the People’s Bank of China asked lenders to report data on consumer credit extended jointly with Internet platforms to give it a clearer picture of about US$6.6 trillion in outstanding consumer loans. Credit extended by fintech startups, peer-to-peer lenders and many other channels remain unregulated.
“Unlike credit card debt, the use of consumer loans is harder for banks and regulators to monitor,” said Chen Hao, a Shanghai-based analyst with CIB Research. “Once money goes into the stock market, it will bring sizable risks to banks given the current volatility.”
The CSI 300 Index has gained 13 percent this year. Trading has surged, with daily turnover exceeding 1 trillion yuan for 17 consecutive days. Outstanding margin debt on exchanges has risen at the fastest pace since 2015, to more than 1.4 trillion yuan.
Unlike in most major markets, China’s individual investors account for the lion’s share of local stock trading and have been prone to extreme swings in sentiment that can have ripple effects on the economy.
State media fueled the bull run in a bid to show the world that China was emerging from the virus outbreak. Beijing has since tried to cool the fervor by clamping down on illicit margin lending platforms, but the fear of missing out is extreme.
Contract chipmaker United Microelectronics Corp (UMC, 聯電) yesterday said it has signed a memorandum of understanding (MOU) with Polar Semiconductor LLC to collaborate on the production of 8-inch wafers in the US. The collaboration aims to strengthen 8-inch wafer manufacturing in the US amid Washington’s efforts to increase onshore manufacturing of semiconductors, contribute to supply chain resilience against shifting geopolitical dynamics, and ensure a secure domestic supply of power semiconductors critical to automotive, electric grids, robotic manufacturing and data centers, the companies said in a joint statement. Under the MOU, Polar and UMC will identify devices for Polar to manufacture at
TARIFF TALKS: The US secretary of commerce is eyeing more than US$300 billion in investments and said Taiwan would train US workers, but Taipei has denied the latter US Secretary of Commerce Howard Lutnick said the US is expecting a large investment pledge from Taiwan in trade talks, while President William Lai (賴清德) listed areas that need improvement in order for projects to be completed. “We’re in the midst of discussions,” Lutnick said on Wednesday. “But the fact is, this administration’s goal is to bring semiconductor manufacturing to America.” Lai on Wednesday said Taiwan is supportive of US President Donald Trump’s goal of reindustrializing the US, including efforts to ramp up semiconductor production. Such a goal would require the US to reduce its reliance on Taiwan as a key source
The demise of the coal industry left the US’ Appalachian region in tatters, with lost jobs, spoiled water and countless kilometers of abandoned underground mines. Now entrepreneurs are eyeing the rural region with ambitious visions to rebuild its economy by converting old mines into solar power systems and data centers that could help fuel the increasing power demands of the artificial intelligence (AI) boom. One such project is underway by a non-profit team calling itself Energy DELTA (Discovery, Education, Learning and Technology Accelerator) Lab, which is looking to develop energy sources on about 26,305 hectares of old coal land in
Netflix on Friday faced fierce criticism over its blockbuster deal to acquire Warner Bros Discovery. The streaming giant is already viewed as a pariah in some Hollywood circles, largely due to its reluctance to release content in theaters and its disruption of traditional industry practices. As Netflix emerged as the likely winning bidder for Warner Bros — the studio behind Casablanca, the Harry Potter movies and Friends — Hollywood’s elite launched an aggressive campaign against the acquisition. Titanic director James Cameron called the buyout a “disaster,” while a group of prominent producers are lobbying US Congress to oppose the deal,
RSS