The joys of Chinese grey market financing:
A Chinese baby-formula maker selling imported Australian milk to safety-conscious parents invested in the risky debt of lead, arsenic and cadmium refiners, seeking higher returns for its cash.
This was through the various investment trusts which have expanded in China in response to central government restrictions on bank lending. Also:
More loosely regulated than banks because they don’t hold deposits, trusts have attracted 3.7 trillion yuan ($582 billion) from investors with promises of high returns. At first, they bought debt from banks seeking to move it off balance sheet. They now invest in everything from metals refining to real estate, even bottles of fine wine. They’re also making loans, circumventing restrictions on lending between individuals and companies. Western banks including Edinburgh-based Royal Bank of Scotland Group Plc (RBS), London-based Barclays Plc and Morgan Stanley in New York, as well as large Chinese companies such as China National Petroleum Corp., have bought stakes in trusts.
So British banks are investing in financing vehicles which buy bad debts from Chinese banks. Also, fine wine. What could possibly go wrong?