Regulators warn banks on steel trader speculation

Chinese regulators warned the country’s banks that steel trading companies were borrowing from banks to speculate in risky property and stocks, the Financial Times reported. China’s steel industry was given a boost by the 2008 stimulus package but lost around RMB1 billion (US$157 million) as the economy cooled in the first quarter of this year. A directive from the China Banking Regulatory Commission dated April 26 warned that in response, some steel traders had taken to borrowing from banks and other financial institutions in order to speculate in stocks and property. “This has led to a huge amount of financing in the steel market and, as risks emerge, it could cause a large amount of bad bank loans and major harm to financial safety,” the directive said. While the regulator called for stricter oversight and monitoring of loans made to steel companies, its efforts may be undermined by a possible second stimulus to revive the cooling economy.