BEIJING—A Chinese probe into trade financing found nearly $10 billion in fake deals, a senior official said, in the latest warning over practices that raised concern over potential losses among foreign and Chinese banks this year.
The remarks on Thursday by Wu Ruilin, deputy director of the supervision and inspection department of China’s State Administration of Foreign Exchange, mark the most extensive official comments yet on problems in trade financing in China since a scandal involving metal supplies in the port cities of Qingdao and Penglai put the practice under international focus.
Foreign banks and commodities firms have exposure to potential losses there of close to $1 billion, while the estimated exposure for Chinese banks stretches into the billions of dollars, according to court filings, public statements by the banks and analysts’ estimates.
Mr. Wu said the regulator started a campaign to crack down on fraudulent trade financing in April of last year in 13 provinces and cities. He said that this year, it expanded the effort to 24 provinces and cities, including Qingdao.
So far this year, the regulator has discovered trade fraud of nearly $10 billion throughout the country and has handed more than 15 cases over to police, Mr. Wu said.
“Trade-financing fraud is very harmful not only to trade but also to the overall economy,” he said. “It increases the pressure of hot money inflows and has even become the channel through which funds of some criminal activities flow in and out of China.” Hot money is speculative funds that can quickly pour into an economy and depart as rapidly.
An expanded version of this report appears at WSJ.com.
