The China Banking and Insurance Regulatory Commission confirmed the scandal involving Nasdaq-listed Kingold Jewelry for the first time, as it stressed the need to clamp down on financial irregularities and fraud over the weekend.
In a statement issued on Saturday, the watchdog also summarised the major challenges and risks the country’s financial sector had faced this year.
“A number of banking, insurance and trust institutions were involved in the Wuhan Kingold Jewelry fake gold incident, which was gradually disclosed starting in January 2020,” the commission said. “Other than the problems associated with the company itself, the incident also revealed that the internal controls and risk management of some financial institutions were empty shells.”
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The commission’s statement comes as Beijing clamps down on illegal activity in China’s financial industry. The Financial Stability and Development Committee, a super regulator led by Vice-Premier Liu He that oversees China’s banking, securities and insurance watchdogs, on Sunday called for zero tolerance and a stronger crackdown on fraud. China is cracking the whip as the United States and Wall Street have stepped up their scrutiny of US-listed Chinese companies, and some face being expelled from American markets following accounting scandals at Luckin Coffee and TAL Education Group.
Kingold, one of China’s largest jewellers, used fake gold bars as collateral to secure 20 billion yuan (US$2.86 billion) in loans from at least 14 Chinese financial institutions. Some of the 83 tonnes of gold bars used as collateral were actually gilded copper.
Companies including Hengfeng Bank provided loans to Kingold, which is based in Wuhan, the capital of China’s central Hubei province. At least three trust companies, Chang’an Trust, Minsheng Trust and Dongguan Trust, paid the principal and returns to investors using their own funds.
Kingold had also borrowed from state-owned People’s Insurance Company of China Property and Casualty (PICC P&C), as well as other smaller insurers, who covered the loans with property insurance policies worth 30 billion yuan. And the state-owned insurer has refused to cover any losses from the loan, according to media reports. It said Kingold did not request for any insurance coverage, which is not standard procedure.
Kingold was founded in 2002 by Jia Zhihong, who has served in the military in Wuhan and Guangzhou. The company designs and makes 24 carat gold jewellery and ornaments, and sells directly to retailers as well as through major distributors across China.
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- Kingold Jewelry secures US$2.8 billion in loans with gilded copper bars, in latest fraud that embarrasses China, irks US