Over the years we have periodically reported a random gold bar discovered to be counterfeit in the Manhattan diamond area, which instead of yellow precious metal would be filled with gilded tungsten or, in some cases, copper. This news would cause a short wave of indignation, prompting physical gold holders to conduct ultrasonic random checks of their inventory, after which interest would decrease and why not: the buyer, after all, be careful in gold, as in any other market, and if someone spends thousands to buy fake gold, this is Darwinism in action.
Another market that seemed stubbornly immune to any fake that physical gold in China, which was strange considering that over the past ten years, China has become the world’s largest counterfeiter of various, mostly industrial metals, used to secure bank loans better known as “phantom pledge“, and which adds insult to injury, will often be rehypothecated This means that often several banks will have claims to the same (fake) asset.
Everything’s gonna change with the discovery what could be one of the biggest gold counterfeiting scandals in recent history. And yes, we are talking not only about China, but also about the city, which has become synonymous with everything scandalous about China: Wuhan itself.
Given this preamble, we present to readers Wuhan Kingold Jewelry Inc., a company which, as the name implies, was founded and operates from Wuhan, and which describes himself on his site like “Company with gold future.”
Looking back, it probably meant a “copper” future, because as wonderful caixin exposure Found Over the past five years, more than a dozen Chinese financial institutions, mainly trust companies (that is, shadow banks), have provided Wuhan Kingold Jewelry 20 billion yuan ($ 2.8 billion) for pure gold as collateral and insurance policies to cover any losses. There was only one problem: “Gold” turned out to be gilded copper,
A little more background: Kingold – whose name was probably stolen from Kinross Gold, one of the world’s largest gold miners – is the largest private gold processor in Hubei province in central China. Its shares are listed on the Nasdaq New York Stock Exchange (although its current market capitalization of only $ 10 million is far from its record highs achieved during the company’s IPO on the Nasdaq in 2010). The company is headed by Chairman Jia Zhihong, a frightening former military who is a controlling shareholder.
What could go wrong?
Well, apparently all at least some of 83 tons of gold bullion used as collateral turned out to be nothing more than gilded copperThis resulted in lenders holding a bag for the remaining 16 billion yuan of loans issued against counterfeit bullion. And, as Kaysin adds, loans covered 30 billion yuan of insurance policies issued by state insurer PICC Property and Casualty and other smaller insurers.
Counterfeit gold was discovered in February when the Dongguan Trust (one of those notorious Chinese shadow banks) set out to eliminate Kingold’s pledge to cover past due debts. According to the report, at the end of 2019, Kingold was not able to repay investors on several trust products. To my shock Dongguan Trust said it found that the shiny gold bars were made of gilded copper alloy.
The news shocked Kingold’s creditors. The China Minsheng Trust, another shadow banking company and one of Kingold’s largest lenders, has received a court order to review collateral before Kingold owes debt. On May 22, the test result returned, saying that the rods sealed in the Minsheng Trust chests are also made of copper alloy.
And when authorities investigate how this happened, the head of Kingold Jia categorically denies that something is wrong with the security that his company supplied. Well, what else could he say …
According to Caxin, the Kingold counterfeiting case echoes the largest gold fraud case in China, which has been unfolding since 2016 in the northwestern province of Shaanxi and neighboring Hunan, where regulators have discovered counterfeit gold bars in chests of 19 lenders worth 19 billion yuan of loans or about US dollars. 2.5 billion dollars. In this case, a lender seeking to melt a pledge of gold found a black tungsten plate in the middle of the gratings.
In the case of Kingold, the company said it had taken gold loans to replenish its cash reserves, support business operations and increase gold reserves, according to public reports. Then, it seems, he decided to put a gold layer on tons of copper and pretend that it was a profitable gold security. And what is even more shocking, for many years no one has verified the authenticity of the pledged pledge!
In 2018, the company bypassed a number of competitors in a tender for the purchase of a controlling stake in the state-owned auto parts producer Tri-Ring Group. Kingold offered 7 billion yuan in cash for a 99.97% stake in Tri-Ring. The Hubei government referred to the deal as a model of the so-called mixed property reform, which aims to attract private shareholders to state-owned enterprises. But Kingold was confronted with Tri-Ring asset seizure amid a series of corruption investigations and Tri-Ring disputes.
After receiving the test results, the head of the Minsheng Trust said that the company asked Jia whether the company produced gold bars: “He categorically denied this and said that it was because part of the gold purchased by the company in the early days was of low purity,” the head said . In a telephone interview with Kaisin in early June, Jia denied that the gold promised by his company was tampered with.
“How can this be fake if insurance companies agree to cover it?” he said and declined to comment further. Well, the answer is simple: insurance companies participated in fraud, but this is a story for another day.
In early June, the Minsheng Trust, the Dongguan Trust, and a small lender Chang’An Trust sued Kingold and demanded that PICC P&C cover their losses. PICC P&C declined to comment on Caixin on this issue, but said the case is in court. A source from PICC P&C told Caixin that the claim procedure should be initiated by Kingold as an insured party, and not by financial institutions as beneficiaries. Kingold made no complaints, Caixin said.
In total, Kingold promises tens of thousands of kilograms of gold to at least 14 lenders worth a little less than 20 billion yuan.
Caixin learned that the Hubei provincial government has set up a special task force to oversee this issue, and that the public security department has launched an investigation. Last week, the Shanghai Gold Exchange, a self-regulatory gold organization, disqualified Kingold as a member.
Following the Dongguan Trust and the Minsheng Trust, two other Kingold lenders also checked the declared gold bars and found that they were fake, Kaisin recognized. A Dongguan Trust employee said his company reported the incident to the police on February 27, the day after the test result was received, and claimed 1.3 billion yuan in compensation from the PICC P&C branch in Hubei.
Meanwhile, Kingold defaulted on loans from the Dongguan Trust in the amount of 1.8 billion yuan, and in July another 1.6 billion yuan.
83 tons of supposedly pure gold held in the treasury of Kingold lenders as of June, providing 16 billion yuan of loans, will be equivalent to 22% of annual gold production in China and 4.2% of state gold reserves for 2019.
Short, over 4% of China’s official gold reserves may be fakeAnd this suggests that no other Chinese gold producers and jewelry manufacturers are engaged in such fraud (spoiler warning: they are.)
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Founded in 2002 by Jia, Kingold was previously a gold factory in Hubei affiliated with the People’s Bank of China, which was separated from the central bank during the restructuring. According to the company’s website, Kingold is one of the largest gold jewelry manufacturers in China.
The company debuted at the Nasdaq in 2010. The stock is currently trading at around $ 1 apiece, giving Kingold a market value of $ 12 million, down 70% from a year ago. The company’s financial report showed that at the end of September 2019, Kingold had a total assets of 3.3 billion US dollars, and liabilities – 2.4 billion US dollars.
Jia, 59, served in the army in Wuhan and Guangzhou and lived in Hong Kong for six years. He once ran gold mines belonging to the People’s Liberation Army, which means that he probably has connections all the way to the top.
“Jia tall and strong“Caixin said one source in the financial industry familiar with Jia. “He is an impressive figure and speaks loudly. He is bold, reckless and eloquent, always makes you feel that he knows better than you.
Some sources from the trust company say that Jia is well connected with Hubei – the epicenter of the coronavirus pandemic – which may explain Kingold’s unexpected victory in the Tri-Ring deal. But a source in the financial industry in Hubei said that Jia’s business is not as solid as it might seem.
“For many years we knew that he had little gold – he only had copper.” said a source who declined to name.
Local financial institutions in Hubei avoid doing business with Kingold, but they do not want to offend him publicly, a source said. What for? Due to his external relations with the Chinese army.
“Nearly none of Hubei’s local trust companies and banks participated in financing (Kingold)” he said.
This explains why most of Kingold’s lenders are located outside of Hubei. Caixin learned from regulatory sources that the Minsheng Trust is Kingold’s largest lender with nearly 4.1 billion yuan of outstanding loans, followed by 3.9 billion yuan of Hengfeng Bank, 3.4 billion yuan of Dongguan Trust, 1.9 billion yuan of Anxin Trust & Investment Co. and Sichuan Trust Company 1.8 billion yuan.
But wait, the fake gold is just the tip of the iceberg of company fraud: several industry sources told Caixin that institutions were ready to offer loans to Kingold, because Jia promised to help them get rid of bad loans.
Hengfeng Bank is the only commercial bank involved in Kingold’s business. In 2017, the Bank provided a loan of 8 billion yuan to Kingold, which in turn agreed to help the bank write off 500 million yuan of bad loans, sources in the bank said. Kingold paid off half of its debts in 2018. But the issuance of the loan is fraught with many violations, since access to the declared gold and control procedures was controlled by Kingold, said one of the employees of Hengfeng.
The loan was extended by Song Hao, the former head of the Yantai Hanfeng branch. In March 2018, Song was investigated for bribery in connection with the infamous former chairman of the board, Cai Guohua, whose collapse led to a major renewal of bank management. In 2019, new Hengfeng executives sued Kingold for outstanding loans and decided to dispose of collateral. But checking the gold bars showed that they were “all copper,” a source at the bank said.
It is still unclear whether the collateral was falsified in the first place or subsequently replaced. Sources from the Minsheng Trust and Dongguan Trust confirmed that the security was checked by third-party testing organizations and was strictly controlled by Kingold representatives, lenders and insurers during the delivery process.
“I still can’t understand which part went wrong” said the source of the Minsheng Trust. Bank records showed that the vault where the collateral was stored never opened, a Caixin source said.
Public records showed that King’s first loans secured by gold can be traced back to 2013, when he reached an agreement to provide 200 million yuan of loans from Chang’An Trust, with a promise of 1,000 kilograms of gold. The two-year loan was intended to finance a real estate project in Wuhan and was repaid on time. Prior to this, Kingold was financed primarily through bank loans secured by property and equipment.
It seems that, one way or another, the company realized that it could fabricate gold ownership and receive money in exchange for what was basically useless gold-colored copper bricks; and thanks to Jia’s military ties, no one asked any other questions.
As a result, starting in 2015, Kingold quickly increased its dependence on gold-backed loans and began working with PICC P & C to cover loans. In 2016, Kingold lent 11 billion yuan, which is almost 16 times higher than the previous year. According to the company’s financial report, the ratio of debt to assets increased to 87.5% from 43.4%. In the same year, Kingold provided loans of 54.7 tons, which is 7.5 times higher than the previous year.
Now we can safely assume that most of this gold never existed.
A person close to Jia said that the increase in borrowing was partly due to Kingold’s desire for the Tri-Ring. In 2016, the Hubei provincial government announced a plan to sell Tri-Ring shares to private investors as a major upgrade to the state-controlled auto parts manufacturer in Hubei.
In 2018, Kingold was selected as an investor in a deal worth 7 billion yuan. According to the investment plan, the purchase of Kingold Tri-Ring was part of a strategy to expand the hydrogen fuel cell business, which is obviously the “logical” approach for a gold jewelry company. Sources close to the deal reported that Tri-Ring had attracted Kingold for its wealth of ownership of industrial land that could be turned into commercial development.
Yes, at the very end of the fraud, we finally got to the only true and endless bubble of Chinese assets: real estate.
The Dongguan Trust fund investment document revealed that Tri-Ring owns nearly 40 billion yuan of land in Wuhan and Shenzhen.
This deal caused an immediate dispute, as some competitors called into question the transparency of the bidding process and the qualifications of Kingold.
And here everything becomes even crazier: according to Kingold’s financial statements, the company had only 100 million yuan of net assets in 2016 and 2 billion yuan in 2017, which cast doubt on its ability to pay for the deal. Despite the fuss, Kingold paid 2.8 billion yuan in down payment shortly after the announcement of the deal. A second installment of 2.4 billion yuan was paid a few months later with funds raised from the Dongguan Trust.
In December, Tri-Ring completed the change in business registration, marking the completion of Kingold’s takeover. However, the new owner has since encountered problems mobilizing Tri-Ring’s assets due to a series of corruption investigations around the auto parts manufacturer since early 2019 that overthrew the former Tri-Ring chairman. According to Kaisin, most Tri-Ring assets were frozen during the investigation and subsequent debt disputes, which limited Jia’s access to assets.
Fraud finally revealed
Bound in a deal with Tri-Ring, which cost billions of yuan but still hasn’t made any profit, Jia’s capital chain was eventually broken when Hengfeng bank pushed for a payout, triggering a series of events that revealed fake gold, the person said . The participation of insurers was key to the success of Kingold’s gold deals. Insurance policies provided by leading government insurers such as PICC P&C have been a major factor in reducing lenders’ concerns about risks, sources at trust companies said.
“Without insurance coverage from PICC, P & C (we) will not issue loans to Kingold, since collateral can only be checked on random samples,” said one person at Caixin.
According to Kaisin, the PICC P&C branch in Hubei provided coverage for most of Kingold’s loans. All policies expire by October. As of June 11, 60 policies were still active or involved in litigation.
PICC P&C faces numerous claims filed by Kingold lenders for compensation. But a PICC P&C spokesman said the policy only covers collateral damages caused by accidents, catastrophes, robberies and thefts. Not fraud and, of course, not losses when the guarantee did not even exist!
Wang Guangming, a Dacheng Law Offices lawyer, said the key question was what happened to the announced gold and which side knew about the fraud. If Kingold faked gold bars, and insurers and lenders were unaware of this, insurers should pay compensation to creditors and sue Kingold for insurance fraud, Wang said. Страховщики также несут ответственность за компенсацию, если они знали о мошенничестве Kingold, но кредиторы не знали, Ван сказал.
Если бы Kingold и кредиторы оба знали о фальшивом залоге, страховщики могли прекратить действие политики и предъявить иск сторонам за мошенничество. Но если страховщики были также вовлечены в мошенничество, то все контракты недействительны, и каждая сторона должна взять на себя свои юридические обязанности, сказал Ван.
Чиновник финансового надзора сообщил Caixin, что в ходе предыдущих расследований случаев мошенничества с кредитами, связанных с поддельными залогами золота, выяснилось, что между заемщиками и финансовыми учреждениями часто происходил сговор.
Ранее в этом году PICC P & C сняла с поста руководителя филиала в Хубэй и генерального директора Лю Фанмин. Источники сообщили, что сотрудники, занимающиеся бизнесом с Kingold, также были уволены. PICC P & C заявил, что удаление Лю произошло из-за проблем внутреннего управления. Он не ответил на вопрос Кайсина о том, был ли Лю замешан в скандале с Кинголдом.
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Вышеприведенная история шокирует разоблачением того, насколько многогранное мошенничество в Китае: извлекая выгоду из уже существовавшего кумовства и связей с мощной китайской армией, основателю Kingold было разрешено в основном делать все, что он хотел, без вопросов, включая подделку 83 тонны золотых слитков, чтобы получить миллиарды средств для участия в жилищном пузыре в Китае, только для серии неожиданных событий, чтобы раскрутить мошенничества один за другим и разоблачить тип грязного скандала, который лежит в основе большинства китайских “предприятий” и Бизнес предприятия.
Что касается золота, то да – нескольких миллиардов золотых слитков никогда не существовало, и все же это привело к каскаду последующих событий с денежными потоками, позволившим высвободить десятки миллиардов денежных средств, что принесло «пользу» не только основателю Цзя, но и более широкой экономике Китая. Что, разумеется, страшно: потому что сразу после финансового кризиса Китай занимался строительством городов-призраков, все знали, что это символ спроса, который никогда не материализуется, даже если сами города существуют. Однако теперь представляется, что большая часть последующего экономического бума Китая была основана на десятках миллиардов твердых активов, таких как золото, которых просто не существует.
Что касается того, что это означает для цены на золото … ну, Kingold, безусловно, не единственная китайская компания, занимающаяся таким вопиющим мошенничеством, и последствия очевидны: как только китайские кредиторы или страховые компании начнут проверять «залог», который они получили в обмен на десятки миллиардов кредитов и, к их «изумлению», обнаруживают, что вместо золота они являются гордыми владельцами вольфрама или меди, у них есть два варианта: выявить мошенничество, рискуя получить огромные неблагоприятные последствия и / или тюремное время, или тихо скупить все золото, необходимое для того, чтобы буквально заполнить пустоту от многих лет подделки золота.
Что-то подсказывает нам, что второй вариант будет гораздо более приемлемым для китайской клептокультуры, где одно холодное домино вызовет крах всей финансовой системы. Что будет дальше: паническая схватка за физическое золото, которое даже наши друзья в BIS будет не в силах остановить отправку цены драгоценного металла на все время максимумов.