Industrial & Commercial Bank of China Ltd., the world’s most profitable bank, is rejecting requests to compensate holders of the financing, which was structured by China Credit Trust Co. to raise funds for a coal miner. New York-based Moody’s Investors Service says it is typical of financial products that have kept debt off banks’balance sheets. The borrower, Shanxi Zhenfu Energy Group, collapsed in 2012 after leading shareholder Wang Pingyan was arrested for illegal deposit-taking. Payment on the three-year, so-called Credit Equals Gold No. 1 product is due Jan. 31.
China is moving in the direction of the U.S. subprime crisis. But the system is at least a few years away from eruption. China can deal with this credit explosion cleverly if it wants to by raising interest rates steadily to defuse the bomb.”