Coal industry digs for solutions

A coal transportation station in Taiyuan,Shanxi province. The coal industry in Shanxi faces an uphill battle to get financing amid price cuts and the near default of a related investment product. Yan Yan / Xinhua

The coal industry in North China's Shanxi province faces mounting pressure to get financing amid slumping coal prices and increasing debts, as experts call for greater freedom for non-governmental financial institutions.

"The performance of China's manufacturing sector has not been very good in recent years," Li Xiaobo, chairman of Taiyuan Iron and Steel Corp, said during a panel discussion at the 12th National People's Congress. "While big companies can manage to get capital, financing difficulties for small-and medium-enterprises are huge.

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"Banks should make professional judgments on an enterprise's prospects when determining whether to provide it with loans," he continued.

"At present, the mutual guarantee programs in one form or another have added to the burdens of SMEs, and it is possible that the default risk of an individual enterprise can lead to systemic risks," Li said.

A 3 billion yuan ($490 million) investment product known as Credit Equals Gold No 1 avoided a default on Jan 31 when it was due to mature.

The product had been issued three years ago by China Credit Trust, a leading Chinese company. The money was raised for a coal-mining enterprise Shanxi Zhenfu Energy Group, with advertised annual returns of about 10 percent. The fund was sold to wealthy investors by Industrial and Commercial Bank of China Ltd, China's biggest bank.

The near-default caused ripples of fear throughout the financial sector. But an anonymous third party stepped forward and bailed out the product.

Earlier this month, Shenzhen-listed Shanghai Chaori Solar Energy Science & Technology Co announced it had failed to fully service an 89.8 million yuan interest payment, widely described as China's first ever corporate bond default.

In addition to difficulty getting access to funds, SMEs also are being confronted by high rates, according to Li.

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