It is always politically sensitive and secretive when there is a close bribery connection between financial institutions and private corporations in China. Yet it is an open secret that Chinese top political officials have a magic key to create loopholes for different parties to commit deceptive frauds without legal responsibilities. It should be no surprise to anyone that the rampant corruption activities do exist between top Chinese financial institutions’ officials and their close business associates.
A recent gold loan fraud probe was committed by Wuhan Kingold Jewelry Inc. Kingold, a Nasdaq-listed jeweler manufacturer for more than a decade in China, was alleged to use fake gold bars as collateral to fraudulently obtain 20 billion yuan (US$2.8 billion) in loans. Kingold’s downfall had sent shock waves through Wall Street because it prompted worries about deeper flaws in Chinese financial institutions and their infrastructures’ credibility.
The complexity of bribery connections between top financial institutions’ officials and private businesses in China would be clearly explained by watching Mr. Miles Guo video broadcasting in September in 2019. He illustrated that Chinese financial institutions played core roles in committing the Ponzi scheme in recent history. With the private business executives showering the powerful financial institution’s officials with lavish gifts, the top financial officials took millions of dollars in bribes in return for approving massive bank loans. Business executives simply presented “an envelope of line of credit” issued by high-profile financial officials that was used as collateral for the loan application. Then they were able to pass oversight of loan application for thousands of millions of dollars and received legitimate bank loans. Since the business executives had the most valuable “envelope of letter of line of credit” that were signed off by top financial officials as collateral, state-owned or local banks would turn a blind eye to the alert of loan fraud. After taking bribes and taking kickbacks between banks and business executives, those “shadow” banks allegedly provided business executives with large-scale bank loans and helped default on the repayments. Some business executives could pump thousands of millions of dollars into their offshore personal bank accounts. The bank loan funds would finally become personal assets in capital market offshore.
By rotating bank loans through a maze of transactions to conceal the source, the financial officials would extensively transfer those bad bank loans to debts for the particular financial institutions. Under such vicious money laundering operations: starting from issuing an “envelope of letter of line of credit” by top financial officials, allowing fraudulent bank loans, creating bank loan default, writing-off bank loans to bad debts, swapping bad debt for equity, and cycling countless number of new loan lending frauds. It is a game of debt-to-equity swapping which has developed a perfect breeding ground for disastrous financial consequences in China.
China’s financial fragility develops a serious bad loan problem for the banks and for the prominent concern for overall national economy. When the financial institutions fail to maintain benchmarks as financial safety nets for people, therefore, people in China may have a lot more impact than imagined. First, people are now facing price and cost inflation that have direct impact on local economy. In order to balance price and cost inflation due to the loss of financial stability, the CCP misrepresents fiscal health of financial system regardless its disruptive economic downturn and domestic financial crisis in China. The tyranny Chinese government wants to ensure the CCP fiscal engine runs well by sustaining the secrecy of rising lending fraud, losing credibility and misleading accountability in its financial system.
Secondly, people’s purchasing power is reduced while the value of their life savings is significantly decreased. The occurrences of bank loan frauds attribute to the artificial economy; people in China still undoubtedly believe that financial institutions will do whatever necessary to achieve long-run price stability. People would idealistically believe that the CCP’s law and order would regulate the integrity of financial industry and protect personal assets in China. Without a more trusting and transparent financial market, people simply have no idea about malicious money laundering cycles that are operated by financial institutions themselves under the CCP’s deliberate falsehoods.
By revealing corruption magnitudes, such as taking bribes for approving bank loans, taking kickbacks, and pocketing off-the-book profits, on economic impact, it is important to note that China will go a long way toward bribery free zone of doing business, which is essentially impossible under CCP’s ruling. The complexities of corruption issues and financial vulnerability will not disappear magically if the faulty system of communism is not changed. The credibility of Chinese financial industry is failing just as CCP regime is; meanwhile the practices of manipulated accounting and opaque financial reporting continue to cover loan fraud schemes.Unless there is sweeping change of its accountability for misconduct and increase its transparency of credibility in financial industry, it is devastating that people in China continuously live under the corrupt mechanism of the CCP’s lies that inflict the breach of trust.