When is default a good thing?
That’s the question being asked in China, where the murky rescue of a high-yield fund appears to have prevented a default that would have cost investors millions and undermined faith in the country’s financial system.
But the 11th hour bailout by a mysterious third party has raised questions about China’s readiness to let investors pay the price for failed investments and mounting risk in the country’s shadow banking system.
Three years ago, a group of wealthy Chinese investors put 3 billion yuan ($500 million) into an investment trust — the cheerfully named Credit Equals Gold #1 Collective Trust Product.
The product was marketed by Industrial and Commercial Bank of China, a state-owned enterprise that is one of the largest and most profitable banks in the world.
But the fund was designed and issued by China Credit Trust, one of the many shadow banks in China that offer loans to companies or individuals that may have trouble securing traditional bank financing.
