CDB Denies It Asked Regulators to Shut Down Financing to Liaoning Province

China Development Bank has called on the CSRC, NDRC and CBRC to temporarily halt financing to Liaoning province and Liaoning SOEs. It has contacted these three regulatory agencies because they have the combined power to shut off Liaoning's access to credit markets. CDB is trying to bring Dongbei Steel to heel, but is being thwarted by the Liaoning government, which owns Dongbei.

Liaoning companies are also defaulting with increasing frequency and even cities are getting into the act. One city in Liaoning was added to the nation's "blacklist" of bad debtors. (Changdian in Kuandian Manchu Autonomous County)

iFeng: 国开行提请三部委暂停辽宁政府及企业融资

Bloomberg explains why CDB and other creditors are looking for help: China Provinces Meddle in Bank Loan Choices to Keep Firms Alive

China’s regional governments are meddling in decisions of state-owned lenders to prop up local steel makers and miners, in a setback to efforts to let the market decide who gets financing.

...Investors are losing confidence in debt-laden companies owned by regional governments. Dongbei Special Steel Group Co., mainly controlled by the Liaoning government, missed multiple debt payments this year.

Cut off financing to the province and it will very quickly fall in line.

Moments ago CDB denied the story: 国开行澄清：自身不具备提起议案的职能和权利 支持辽宁及东北经济发展

Dongbei Special Steel after more than just bond defaults, CDB is one of the lead underwriter, an underwriter with the other, in strict accordance with the requirements of the relevant regulatory authorities, compliance by the bondholders' meeting and other channels to collect and collate bondholders the proposal, the issuer timely feedback and reported to authorities. CDB as the agency itself does not have filed the motion functions and powers.

Over the years, CDB has been actively implement the national strategy of revitalizing the northeast, through a variety of ways to provide financing services to enterprises in Liaoning Province, Liaoning effectively support economic development. Future, the country is about to open, as always, play a role in development finance, and support economic development in Liaoning Province in Northeast China. Meanwhile, the CDB is one of Dongbei Special Steel bond underwriters, will continue to carry out due diligence responsibilities, and urged relevant departments and Dongbei Special Steel debt-service obligations as soon as possible, the maximum extent possible to protect the legitimate rights and interests of bond investors, maintain regional financial ecological security.

The article reporting this statement goes on to say:

Problem not only in Liaoning

For the financial operation of Liaoning Province, "21st Century Economic Report" last week in another article mentioned in the report, the Liaoning government debt ratio is too high for its investment and financing constraints have appeared in the role of the financial markets: government bonds, lending platform, new scale city to vote bonds has been compressed, some financial products are also the risk premium.

The report said that over the past two years, Liaoning Economic and Financial somehow has a "rising debt risk - new money contraction - the decline in investment in infrastructure - economic slowdown - rising debt risk," the chain reaction.

Budget report shows that the end of 2015 the provincial government debt amounted to 871.85 billion, the debt rate of 157.72 percent, compared to the end of 2012 increased by 88 percentage points, more than 100% of the cordon.

The report said the industry generally believe the finances of resource-based provinces such as Shanxi, Inner Mongolia, Yunnan, Qinghai, have weakened and may face the same problems as Liaoning in future.

Is there any truth to the rumor? It's impossible to know what was said and in what context, but one takeaway is the frustration of creditors and reformers alike. They are tired of being thwarted by local roadblocks, of governments bailing out zombie firms. Not only is financial stress rising, but psychological stress as well.

With credit risk spreading and the current recovery resting almost entirely on a rebound in real estate and commodity prices, the next downturn is not far away. Tension is rising and will boil over in the next wave down. The current state of affairs cannot continue because participants are reaching the breaking point.

Related: Liaoning Sounds Warning on Chinese Economy
Three Dongbei Monty