A shockwave is looming in China’s multi trillion dollar “shadow banking” system, with an unprecedented default only days away on a $500 million investment product sold to hundreds of people.
Staff at China’s biggest bank ICBC pushed the “Credit Equals Gold #1 Trust Product” by promising returns of 10 percent a year, far more than traditional deposits, investors say.
But the coal company it was supposed to fund never obtained key licences for its activities, state media reported, and now the firm that structured it, China Credit Trust, says it may not be able to repay 3.0 billion yuan ($492 million) due on Friday.
The situation is a test case for cleaning up the risky “shadow banking” system in the world’s second-largest economy.
Analysts said the government could use a default to send a message about the danger of speculative investments, while showing Beijing’s commitment to reining in the vast pools of capital threatening financial stability.