dead pigs and minsky in china
As Reuters describes this fascinating story, the deception began in 2007, after the IFC lent the money to Hong Kong-listed Zhejiang Glass Co Ltd, then owned by Chinese tycoon Feng Guangcheng. Two years later, the IFC made an unpleasant discovery: In discussions with other banks it found that the collateral for the IFC loan had also been pledged to other lenders, according to a person with direct knowledge of the case. Anxious IFC officials hurriedly dispatched lawyers to the land and company registration authorities in Zhejiang Province, where they made another startling discovery: The stamps on the mortgage certificates for the land, properties and industrial machinery used to secure the loan were fake, people familiar with the case said.
Concluding they’d been swindled, IFC officials traveled to the eastern city of Hangzhou in late 2009 to confront Zhejiang Glass’s chairman. Feng, who sat at the head of the table with a junior by his side, didn’t want to dwell on the loan, recalled one person who attended the meeting. He admitted right away that the documents were fake and quickly tried to move the discussion along.
“His attitude was, ‘Dead pigs aren’t afraid of boiling water’,” the person said, using a Chinese proverb to describe Feng’s attitude: Any attempt to punish him was futile because the loan was already lost.
In 2010, a court ruled that Zhejiang Glass should repay the loan to the IFC. That never happened. In 2012, local media reported that Feng was convicted in a separate fraud case and was sentenced to eight-and-a-half years in prison. The company was declared bankrupt the next year and delisted in Hong Kong. Ultimately, the IFC recovered only 2 percent of its loan, according to a person familiar with the case. In response to questions from Reuters, the IFC called the case an isolated incident related to the larger fraud perpetrated by Zhejiang Glass.
One thing is 100% certain: there are hundreds if not thousands Feng Guangcheng in China, pledging the same collateral multiple times, ultimately putting banks on the hook for billions in losses.
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