China's Collateral Rehypothecation Fraud Is Systemic

Tyler Durden's picture

It's official - everyone's involved! According to the 21st Century Business Herald, at least 17 financial institutions involved in copper, aluminum and other nonferrous metals financing business face losses of almost 15 billion Yuan (not including the contagious rehypothecated collateral chains involved) due to the over-invoicing of the Qingdao port. Crucially, it appears that the evaporation of collateral (i.e. multiple loans secured by the same collateral) has been confirmed officially and banks such as Standard Chartered have already ceased any new business via this supposedly secured channel.

Via Caijing (via Google Translate),

According to the 21st Century Business Herald, Qingdao, where at least 17 banks involved in copper, aluminum and other nonferrous metals financing business, which 17 banks, including China Eximbank, the establishment of diplomatic five rows of workers and peasants, China, Minsheng, Industrial, Investment, CITIC five medium-sized banks, also includes Prudential, Qilu, Rizhao, Weihai, Weifang, Shandong and other local financial institutions, coupled with a remote city in Hebei banking firm.


Informed sources said 17 financial institutions involved in the financing amount Qingdao Port trade finance business in non-ferrous metals 14.8 billion yuan from top to bottom, including single-family Eximbank in 4 billion and down, accusing him of involving an amount of more than 1 billion are down.


At the end of the first quarter of 2014, the outstanding loans in foreign currencies, Qingdao 998.46 billion, of which the balance of the manufacturing sector was 228.53 billion; 15 billion equivalent to 1.5% of total outstanding loans to local financial institutions, manufacturing 6.5% of the loan balance .


Qingdao Port nonferrous metals repercussions in the financial institutions financing fraud also caused the divergence. Next, the bank is bound to tighten credit financing, a thorough investigation of existing financing facilities of collateral, which will further exacerbate the bad debt exposure process.




As early as the end of April, the CBRC supervision quarterly meeting, the China Banking Regulatory Commission had warning, "the steel industry trade violations financing model has been copied to sign the copper, coal, iron ore, soybeans and other commodities trade finance field."



Commodity trade finance risks for the first time and industries with excess capacity, and real estate financing platform tied to become the focus of regulatory agencies in the field of credit risk prevention.


For a number of foreign banks involved in financing scam Qingdao Port nonferrous metals foreign banks, including Standard Chartered Bank, had previously announced a halt for some Chinese metal financing business from new customers.

The effects are already clear in Copper and Iron Ore prices.. next we see if the physical gold bid re-appears as CCFD unwinds continue and crediot contracts for all but the most creditworthy names in China (and there's not many of them left).

h/t Sean Corrigan

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falak pema's picture

ringa ringa roses.

Thought Processor's picture
Rehypothecation is simply counterfeiting on a larger scale.
Murf_DaSurf's picture



Whelp, ...I am just shocked that I am NOT shocked..

Skateboarder's picture

Jesus burgerflippin Christ, these guys are complete failures at continuing Ponzi schemes. All ya had to do was call it something like "extended rehypothecation" and ta-da, not only does it become legitimized in practice as another layer of the 'economy,' but also becomes a legitimate 'science' taught in B-skools everywhere.

kaiserhoff's picture

Awe yoah rehypothecation ah berong to us!

THX 1178's picture

"Rehypothecation is simply couterfiet on a larger scale"

Bingo. We can say the same about fiat currency and creating money from loans.

TeamDepends's picture

Word is Ghana has plenty of whatever you need.

BigJim's picture

All they need to do is lower the required collateral ratios and all is good, no?

So if the PBoC announce that, instead of needing (for example) a tonne of copper to borrow a million yuan, all you actually need now is approximately enough to copper-plate (say) a medium-sized kettle... well, the problem vanishes.

I'm only partly joking.

Carpenter1's picture

Damn it. I was just about to believe it was time to short, now with this news, I'll have to buy more FB and TWTR.



Bangin7GramRocks's picture

Can't Blythe Masters invent a new "financial product" for the Chinese market? Her past "innovations" created 10 extra years of theft for the crooked class in America.

Urban Redneck's picture

The financial product already exists, it merely needs to be implemented. The most critical aspect is to create FUNGIBILITY. Gather all the toxic OTC paper, put it on an exchange (and make sure no one ever stands for physical delivery of more contracts than are actually availability for delivery). There might some guys from the CRIMEX looking to relocate in the near future who could help out.

There is no reason why a commodities exchange cannot trade both spot and futures contracts with an option for either physical delivery or cash settlement (particularly since the front month contract becomes a spot contract if it isn't rolled).

Kick the can, and make MOAR money doing so.

This isn't rocket science.

Dr Benway's picture

And how long before the phantom collateral created by manipulated shares (in various jurisdictions) is unwound? Chinese companies create such collateral by forming an investment cartel, holding assets purportedly trading at a "market" price, while the cartel owns almost all shares and controls the price. See for example UND.AX or LHB.AX or SST.AX. These are carried at "market" values while as few as three related entities own 99% of their shares.

The Australian market is absolutely stuffed with shares kept at deliberately inflated prices by small cartels. Besides as collateral, the ramped shares are also used by complicit cartel fund managers, who unload the inflated fake assets on granny investors with impunity while charging fees on the unrealized "profits" created by the ramps.

For more information on international securities fraud, check out my recently updated blog, banned in Australia:

0b1knob's picture

And how much of the gold "imported" into China is just one shipment of gold rehypothecated 20 fold and sold to 20 different suckers?

The amount of gold "held" in various parts of the world just doesn't add up.   Some sucker somewhere is holding gold plated tungsten or a piece of paper that will never be honored.  And yes I'm looking at you Germany.... 

thisisjustarandomusernameicreatedforzerohedge's picture

>>> "The effects are already clear in Copper and Iron Ore prices"


well technically Copper is still up or at least basically net 0 since this began...

and, let me get this straight, there is less copper than we thought, so supply of copper is lower... so price is supposed to go down? WTH


as for the "17 banks" this banks were doing the same thing so it's less a bottom line loss as much as a paper normalization loss


and these banks and those that use copper as collateral have plenty of tools to 'secure' themselves thanks to the PBOC loosening of lending and rates as we just saw last month in China new lending hit new recent records, so there is a huge amount of new lending and liquidity entering the market so all these entities can secure themselves -- which at least in the short run supports a soft landing and prevents this from contributing to any sort of immiment hard landing (though to be fair it could make a distant hard landing even harder)


so basically:


1. now everyone needs more copper to secure their previous loans

2. copper is 'cheap'

3. PBOC just gave everyone easier and cheaper loans to buy stuff with

4. banks and lenders will CONTINUE to use copper for security; they'll just be more dilligent to make sure it's actually there

and this is going to make copper continue to crash?



g speed's picture

Copper has value in industry which has been secondary to its value as a leverage tool (thanks to the great China growth at all costs). Now that the leverage tool value of copper is gone all that remains is industrial value--which is money wise much less. Price goes down --copper is now delivered instead of ware housed as collateral-demand falls and-price goes down. Price goes down then copper is less useful as collateral--price continues to fall till market balances and fair value is discoverd --that is supply meets demand.

Anasteus's picture

The fact that copper is gone perhaps also means the leverage tool value of copper is gone, but the price of metal is certainly not. In fact, quite the opposite, it means that copper is apparently more valuable being located elsewhere (who knows where) than in the original vaults backing the leverage.

It is the leverage value itself which is gone.

pakled's picture

"Rehypothecation is simply counterfeiting on a larger scale."



And sans the need to go to the trouble of actually counterfeiting! What's not to love?

doctor10's picture

The New York and London Boyz and Girlz have got about a hundred years more experience than their Chinese wannbe

Beijing Whales

Ignatius's picture

"Rehypothication fraud".  Isn't that repeating oneself, like saying "Duckbill Platypus" or "Corrupt Politician"?

ebear's picture

Brought to you courtesy of The Department of Redundancy Department.

Taint Boil's picture



I wish I could be here 100 years from now to see what the history books will be saying about this time. Well.... assuming there are still books and people.



Lumberjack's picture

This I can assure you, our progeny will dis-own us.

Skateboarder's picture

Which progeny? The one getting stuffed with drugs and nonsense?

Lumberjack's picture

Their progeny will probably be more harsh.

oddjob's picture

The tribe will write history to suit themselves like it always has been.

kaiserhoff's picture

Maybe not.

  Middow east go boom!

Bernoulli's picture

History books? I'm a bit sceptical. Maybe there will be no more "new" books in 100 years from now. People won't be able to write proper sentences anymore and nobody will be able to concentrate long enough to read a whole book. And more importantly: Nobody will care about what happened 100 years ago when people even nowadays are not interested in what happened in the last two decades.


what's that smell's picture

"I'd gladly pay you tomorrow for a nonferrous metal today" Wimpy-san

"Tomorrow Never Comes" Elvis Presley

pakled's picture

Oh, the books will still be there. The Eloy will have them in that big weird looking building. But they will crumble in your hands the moment you touch them.

Death and Gravity's picture

Did someone expect otherwise?

DirkDiggler11's picture

So, I should go long of physical copper in yuan terms, and short copper via puts in $USD terms. Where or where is Dennis Fartman when you need him !!!

Kaiser Sousa's picture

"dont worry...we've got your fucking metal..."


Dewey Cheatum


now i suppose the phony paper prices of Gold and Silver will skyrocket on the open Monday....


oddjob's picture

Fret not about the price, just make sure you actually hold it.

SilverIsMoney's picture

I love how these asshats in economics always make up new words to avoid telling the truth. Start calling it what it fucking is - counterfeiting!

Bernoulli's picture

Yes, but the creditor happily "believes". they don't care whether the collateral is there or not. or whether it has been rehypothecated 300 times already.

Same as the bank customers happily believe that their money is really there.

It's like they are asking for it... 

QQQBall's picture

MFG rehpothecated client accounts, right? Pledging something that is non-existent smacks of the F-word and I don't Fook.

maneco's picture

Yes they did it through their London office as there is no limit to how many times you can hypothecate assets in London. In New York there is a limit to how many times one can hypothecate. I guess it explains why there are so many banks and brokers from all over the world in the City of London.

g speed's picture

the US limit is 1.4 times (i think) however if you use money in those accounts to buy assets (debt or paper) then 1.4 times what?? Mark to market is gone and has been replaced with market to fantasy. Rehypothacate rules are toilet paper. Some claim JPM ended up with the MFG hypothicated product but what was that? And they wouldn't give it back now would they??

maneco's picture

I remember at the time hearing that Jon Corzine went long PIIGS(Portugal, Ireland, Italy, Greece and Spain) government debt. I guess JPM is doing well now considering the drop in yields of European peripheral debt.

Devotional's picture

good for Gold, right?

dracos_ghost's picture

Nope. It's a harbinger of what's going to happen when GLD/SLV go tits up. Instead of the physical zooming to infinity, it will be mercilessly sold off -- as evidenced at least for copper and gang.

Makes no sense. Maybe huge off balance sheet purchases of physical at distressed rates in lieu of default by China? In any fashion, if the copper side of this corruption is true, why isn't copper at $1T. The same argument has been bandied about here that 'when they find out about GLD/SLV rehypothecation fraud PMS are going to the moon Alice'. Well it's happening in copper and the end result -- bupkus. Doesn't bode well for PM EOTWAWKI hopes.

The only good news is that China is looking at it. They'll kill these fucking banksters. Like him or not, Li does not seem willing to take any guff from the old guard.

ThroxxOfVron's picture

" They'll kill these fucking banksters."


We should kill them, too.  

Everyone should sse that it is actually the only sensible thing to do when the Banksters/Fruads are found to be nothing but counterfeiters robbing ALL OF US first in inflated prices/gouging, inflated taxes on the inflated purchases; and though the renting of real assets and real estate they bought with their counterfeit credit/money.

I 100% fully support the use of guillotines, firing squads, or whatever means is most expedient and inexpensive.  

It's time to wipe the parasites out completely everywhere that they can be identified.

shadescale's picture

They need to keep the bodies of course, and trot them out in front on the first and last day of every finance-related class.

Kinda like displaying heads on pikes at the gates of medieval London.

litemine's picture

But isn't Goldman Sacks holding life insurance on their employee's. Kind of like the Insurance held on the Twin Towers purchased a few days before,  and the massive  shorts bought on the Airlines that hit them . Boy someone has a very good Crystal Ball.

Gringo Viejo's picture

Just another reminder that if it's not in your physical don't own it.

Kaiser Sousa's picture

you meant...

"it aint there..."


Winston Churchill's picture

Depends what you mean by 'there',or is "their" ?