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Chinese Trust Products Sound Great (Just Don't Ask Questions)

Tyler Durden's picture




 

Remember CDOs? Murky, illiquid investments, backed by bulge-bracket firms that offered lots of yield over similar-rated corporates - just don't ask questions. As SCMP's Shirley Yam reports, China's so-called "trust" products, promise high returns with big-name backing, but a scheme touted at Ping An Bank highlights just how murky the world of mainland investment offerings is. After reading this, we suspect, that last trace of faith that the PBOC has the Chinese shadow banking system under control (and a growth renaissance is due any moment) will be eviscerated.

 

As The South China Morning Post's Shirley Yam reports, last year, a sales staffer at Ping An Bank, emailed him an investment proposal titled Ping An Wealth - Handan Hyundai Modern Logistic Port Project.

Hyundai? The South Korean conglomerate? That's interesting.

 

George clicked on the e-mail to find a trust scheme that promised a fixed annual return of 9 per cent to 11 per cent over two years. It was looking for a total investment of 1.2 billion yuan (HK$1.5 billion).

The scheme looked real.

The proposal said the project involved an investment by Hyundai RNC Investment, which was fully owned by Hyundai Engineering and Construction (Hyundai E&C) - an arm of Hyundai Group.

 

Hyundai RNC guaranteed repayment with cash flow from Hyundai (Handan) International Auto Trade City, a US$1 billion project that included apartments, offices and hotels, according to the proposal seen by Money Matters.

 

It said Ping An Trust, one of the industry's key players, managed the product with a long list of risk-control measures. The proposal bears the logo of Ping An Trust.

 

It looks even more real if you search for the project online in Chinese. In July 2012, Xinhua reported the investment "by Fortune 500 corporation Korea Hyundai Group".

 

In the official media of Hebei province, where the project is located, there have been lots of reports and pictures of the investment. Among them is the Hebei government making Hyundai RNC's chairman an "honorary citizen".

 

On YouTube, a video shows Hebei officials meeting some Koreans who are said to be key Hyundai personnel. There is also a website for the project, which is described as an investment of Hyundai E&C.

Yet, when George (who is in the financial industry) searched for the project in English, it was a completely different story.

There is no mention of the project or Hyundai RNC on any of Hyundai's official websites or in any of its publications.

 

George found the Hyundai RNC website, where family links led to a Japanese adult-entertainment platform and two fashion sites. The website has recently been closed down.

 

So is it a Hyundai project or not? Money Matters decided to contact all the parties involved.

 

Hyundai E&C spokesman Son Chang-sung said: "Hyundai RNC is not a subsidiary of Hyundai E&C. The Hebei Auto City is not an investment by us. Nor have any of our officials visited the project."

 

A call to the number listed on the project website was passed to the administration department, where a woman said: "We don't take media questions." Questions that were faxed were not answered.

 

Money Matters phoned Shen Shan, who is listed as the contact person for the project's developer in its business registration. Shen said: "Why are you calling me? … I am not an employee of them … I am not involved in the (Auto City) project."

 

In the meantime, the developer is tangled up in a bitter legal battle with a peer which, it said, had jeopardised its cash flow, according to information posted by both sides on mainland chat rooms.

So what did the Ping An people do to verify the dubious project before pitching it to depositors?

The answer is even more surprising. Ping An Trust spokesman Liu Wei said: "We have never issued the product. Nor have we authorised any institution to sell the product."

 

Ping An Bank spokesman Xie Shaoping said: "Our bank has never sold the product you mentioned." Xie did not comment on the distribution of the scheme by one of its sales staff.

 

That leaves the sales staffer who sent the proposal. Money Matters reached him via his work e-mail, "seeking his comments on some trust products".

 

He replied within an hour saying that he was more than happy to help. Specific questions on the "Hyundai" product e-mailed to him have, however, received no response so far. Nor can he be reached by phone.

Welcome to the mainland's US$1.2 trillion investment trust market, where insufficient internal controls, fierce competition and a muzzled media have made room for all sorts of funny dealings.

If the sales staffer had been working for a bank in Hong Kong, his conversation and e-mail exchange with George would have been recorded. George would have been called up by the risk-control people to check if the sales staffer had explained all the risks.

Where the money collected from this investment proposal will end up is anybody's guess.

Could George's case be an isolated one?

Well, the same "Hyundai" product was marketed by Kunlun Trust, which is owned by China National Petroleum Corp, early last year, according to Kunlun's website.

++++++++++++++

So we have renegade sales people in banks selling deals that are anything but what they appear to be, far out of the purview of any regulator, to people desperate for yield (and convinced by a government that no harm will ever come to them) on behalf of firms that are absolutely desperate for liquidity... and the same collateral is used numerous times... rings some awfully worrisome bells as these trusts appear nothing more than giant ponzis (or at best, securitized derivatives levered on the promise of a firm that the customer is clueless to comprehend).

Still think the PBOC can contain this trust market if there is one default or two, or ten?

 

 

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Mon, 04/07/2014 - 21:27 | 4634364 ZippyBananaPants
ZippyBananaPants's picture

That's waysis

Mon, 04/07/2014 - 22:44 | 4634498 TruthInSunshine
TruthInSunshine's picture

They should've let the forest fire clear the dead wood & kindling back in 2008, but their intent was never to do what was best for the majority of people or overall economies of the globe; their intent was to use the crisis to further perpetuate massive theft from the taxpayers and to further entrench KronyKapitalism, allowing the friends & relatives of the inner sanctum to further concentrate the pace of their illicit wealth transfers and prepare for the true, epoc economic meltdown, which has yet to fully take place, but is approaching, and will shock a new generation of the world's citizens in a manner that the 1930 to 1938 period did.

The banks, bankers & financial institutions must be dealt a mortal blow if their is about hope of staving of a massive, unprecedented global economic
meltdown, and the financialization (which suffocates, and does NOT enable or enhance true capitalism) off emerging and developed economies must be reversed.

Look to the corrupt Chinese elite who are fleeing China with millions or even billions of illicit KronyKapitalism "gains" as a good current event example of
the proof of what has merely begun to unfold globally.

Tue, 04/08/2014 - 08:05 | 4635071 RafterManFMJ
RafterManFMJ's picture

Oh come on, the rich and connected are in no way above the law. What poppycock. This just in, from policestateusa.com

"DELAWARE — A member of a billionaire family who received a felony for raping a child is dodging prison time because a judge says “he would not fare well” behind bars. The judge’s preferential treatment exposes a glaring crack in the justice system.

Robert H. Richards IV admitted to both molesting his infant son and raping his daughter between the ages of 3-5. He ultimately plead guilty to a single count of fourth-degree rape in a deal struck with prosecutors. Richards is legally a rapist and is listed on the sex-offender registry."

See?

Mon, 04/07/2014 - 21:37 | 4634380 Greenskeeper_Carl
Greenskeeper_Carl's picture

Curious to see how this type of news is recieved here. There are many here who are convinced that china is going to back their currency with gold any day now, making the renminbi the new global reserve currency. Surprise surprise they are a complete shitshow just like all the rest. Their economy is a facade just like all the rest. Just calling it like I see it, not defending the USD.

Mon, 04/07/2014 - 22:02 | 4634441 Toburk
Toburk's picture

The people who think China is going to back its currency with gold are simply wrong, there is no reason and there never has been any reason to beleive so.  In fact, if China made its currency convertable to gold, the yuan would be destroyed instantly.  China's money supply has exploded by so much, that there simply is not enough gold in the world to back it without an enourmous devaluation.

Mon, 04/07/2014 - 22:49 | 4634572 Redneck Hippy
Redneck Hippy's picture

All that gold going to China isn't going to the Bank of China, it's going to millions of Chinese who know their currency is turning to shit.  When its time to move to Vancouver of SF, Auntie is going to take all her gold jewelry with her.

Mon, 04/07/2014 - 21:53 | 4634417 NoDebt
NoDebt's picture

Ya know, it's shit like this that makes one seriously consider just buying gold and bypassing all the who's-backed-by-who, who's inventing stuff out of thin air, legal disclaimer bullshit.

Mon, 04/07/2014 - 22:01 | 4634427 NoDebt
NoDebt's picture

Dunno, but to me it looks like if they get to Jan 2016 in one piece, they're home free and sledding downhill.  Hell, it worked for Europe where banks were selling sketchy "products" to unsuspecting Moms and Pops.  And those people really DID lose money.  Still, Europe didn't blow up.  

Future's so bright in China, I gotta wear shades.

Mon, 04/07/2014 - 22:08 | 4634433 syntaxterror
syntaxterror's picture

Yellen on the phone right now trying to buy in.

Mon, 04/07/2014 - 22:00 | 4634435 NoDebt
NoDebt's picture

<Buuurp!>  Ah, much better.  Please disregard my previous posts.  I was experiencing gastro-intestinal upset and wasn't myself at the time I made the comments.  

Mon, 04/07/2014 - 22:13 | 4634483 Godisanhftbot
Godisanhftbot's picture

"If it's Chinese It's Crooked" Sun Yat-sen

 

And no , he wasn't talking about the women

Mon, 04/07/2014 - 22:32 | 4634529 hero HNL
hero HNL's picture

Whenever you hear hyundai or any korean company, watch out or you will be very sorry.

 

koreans are world famous scammers & anything they make are famous for shoddy construction & breakdowns, such as roads, buildings (Petronas Tower in Malaysia), bridges, stadiums (in Malaysia), trains in the Ukraine, exploding smart phones, steal mill (in Indonesia....Posco mill exploded), auto (too many recalls in the US & falsifying mileage), etc.....

 

koreans & chinese WMP's are a great combination for ripping off people. LOL!

Mon, 04/07/2014 - 22:33 | 4634533 Unknown Poster
Unknown Poster's picture

It all sounds like High Bankruptcy Trading.

Mon, 04/07/2014 - 23:15 | 4634627 NOZZLE
NOZZLE's picture

Only culture on the planet where you can still find 10 chumps greedy and dumb enough to buy the same pile of cotton 10 times over and then write secured paper against the same pile to 10 more chumps promissing 15% interest.  The proceeds of all those transactions are then used to by real estate in the United States and $50,000 purses at Nieman Marcus

Tue, 04/08/2014 - 00:00 | 4634696 AdvancingTime
AdvancingTime's picture

China has started to unravel. Every country has unofficial lenders, but in China individuals, companies and even local governments who can not get loans from state-controlled banks have been on a borrowing binge from these unofficial sources. China is awash in overcapacity and debt.

After several years of growing debt loads concern is rising the whole unstable pyramid is about to come crashing down. This could bring China and possibly the global economy with it. The economic efficiency of credit has begun to collapse in China and the unwinding of China’s giant credit spree could be vary painful. More on China's credit trap below.

http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html

Tue, 04/08/2014 - 01:00 | 4634789 Godisanhftbot
Godisanhftbot's picture

 What do you call 5 billion angry Chinese?

 

 Sir.

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