China has warned its banks of rampant illicit borrowing by steel companies, a development that underscores the financial dangers for the country as the government mulls a new stimulus effort to support the slowing economy.
Some Chinese steel trading companies have borrowed excessively from banks and then used the funds to speculate on property and stocks, the bank regulator said in a directive that was seen by the Financial Times. The regulator added that banks must be more vigilant in lending to the companies.
The directive, which was issued on April 26 and never published, is an important reminder of the risks that could flare up if Chinese officials loosen the reins on the financial sector and approve another wave of investment projects.
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