China shuts debt-ridden finance firm

Beijing's watchdogs are trying to sharpen their teeth

China's central bank is to shut down a consumer finance firm accused of disobeying regulations.

The closure of China Huafeng Finance Corp in Beijing is just the latest in a string of attempts by the Chinese authorities to clamp down on a finance sector widely seen as cavalier.

China Huafeng's fate was sealed after the firm proved incapable of keeping up with its maturing debts, the central bank said in a statement published in the official press.

Its licence and those of its subsidiaries in the eastern province of Jiangsu and the southern island provinces of Hainan have been revoked, the bank said, and it is to cease trading as of Monday.

Burden

China's crackdown was triggered in 1998 by the failure, under a mountain of bad debt, of Guangdong International Trust and Investment Corp (Gitic).

Many more firms have been shut or merged in the four years since.

But the bad debt burdens on many investment firms remain severe after years of uncontrolled and politically-led lending to unprofitable state companies.

Some estimates believe as much as 40% of the debt is non-performing.

A handful of senior executives have found themselves being made scapegoats, with some being prosecuted and a handful fleeing overseas.