Doubts raised over China's new warehouse rules

Legal experts doubt a new set of warehouse industry standards on collateral management on the mainland, expected to be implemented by the end of this year, will be able to mitigate the problem of multiple pledging of warehouse receipts for loans - the alleged cause of the Qingdao metals financing fraud.

The China Association of Warehouses and Storage gave a training session on pledging and mortgaging to China Banking Regulatory Commission staff last month at which the Qingdao case was analysed, a statement on the association's website said.

Association president Shen Shaoji explained to the banking regulators the new standards on collateral management that are expected to be published soon by the central government's Standardisation Administration.

An association official said the new standards were expected to be implemented by the end of this year.

A draft of the new collateral management standards said the lack of regulation in the warehouse industry had led to "outstanding problems", and very often the responsibilities of different parties, including the borrower, the lender and the warehouses, were not clearly defined.

"Problems arose: collusion between the borrower and the [warehouse acting as] collateral manager, fake warehouse receipts, multiple pledging of receipts, the borrower forcibly selling the collateral, and different parties scrambling for the collateral," it said, implying that the Qingdao fraud is not an isolated case.

Jiang Zhaokang, a customs and trade lawyer at Sorini, Samet and Kingery, said he doubted the problem of multiple pledging of receipts could be easily solved.