Potentially big credit story unfolding in China

China's Banking Regulator Reviews Trust Loans to Developers

"Given that the nature of trust loans is short term, the key question would be whether or not developers have sufficient cash to repay the outstanding loan amounts," Samsung Securities Asia Ltd. analysts led by Wee Liat Lee, said in a report today. "We believe that developers should be financially secure should the trust loans not to be rolled over." Trust loans are usually debt that's repackaged into investment products and sold to retail investors, and the loans are typically funded by banks or the investors themselves, according to Samsung Securities. For most developers, these make up less than 10 percent of their loans and the debt maturity is a few months to a year, the brokerage said, adding that the interest rate ranges from 10 percent to 30 percent.

Here's an article in Chinese.
绿城被查行业恐慌 内房股“熊”冠全球
"Gold September Silver October", normally big months for real estate, may not meet expectations this year. It's too early to jump to a conclusion about the investigation into trust loans. However, if real estate slows down and there are repayment problems, the pieces seem to be falling into place for regulatory action. This action would most likely come after any type of crisis (as socionomics forecasts), so it won't have any direct impact, but the news of investigations can help fuel stock declines, as we saw last week.