It is reported that the situation with Chinese steel company debt continues to deteriorate.

Last year there were a total of 2500 lawsuits at the relevant court in Pudong, Shanghai; in the Q1 of 2013 there were 1051 lawsuits.

Last year the cases amounted to JPY 19 billion, this year they are already JPY 11.4 billion, in other words the average case in 2013 was about JPY 7.6 million but this year it is up to JPY 10.8 million, an increase of 40%.

The situation is expected to continue worsening into next year, with concern that this is still the tip of the iceberg.

According to an insider at the court, this year’s cases have some new characteristics. The first is the concentrated debt, such as the case of Xiao Jiashou, the Shanghai Steel Trading King, which involved seizing assets of JPY 460 million. Second are larger and larger cases in general with cases above JPY 10 million in debt more frequent. Third, the service rate is down (service of process) because the defendants have fled.

Last year the assets in these cases were better, and people were willing to mediate. This year asset quality has deteriorated and so defendants don’t care.

The case load is putting pressure on the court system in Pudong. The work load is heavy for each case: there’s an average of 15 defendants. There’s the lending contract, loan certificate, guarantee contract, mortgage contract, warehouse agreement, plus third parties involved in the steel trade.

And based on the evidence below, many of the guarantor firms themselves may be other steel trading firms also in default. This is the interconnected finance situation seen also in Xiaoshan and in fact all over China. One case has 20 boxes of files. More cases come as parties file claims with credit insurance companies, who then come to the court seeking compensation.