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Slumping Stocks Stoke Fears of Pledged-Share Meltdown

A perfect storm of a regulatory overhaul, a shadow-banking crackdown, and a slumping stock market has overwhelmed shareholders who pledged stock to obtain loans. Photo: VCG
A perfect storm of a regulatory overhaul, a shadow-banking crackdown, and a slumping stock market has overwhelmed shareholders who pledged stock to obtain loans. Photo: VCG

* Regulatory overhaul, a shadow-banking crackdown and a slumping stock market have overwhelmed shareholders who pledged stock to obtain loans

* Recent stock market slump has piled even more stress on shareholders who pledged their holdings as collateral

(Beijing) — Shareholders and directors of Chinese listed companies have for years used their stakes as collateral for loans. So when a metal-products maker in southern China wanted to buy a European business 18 months ago, Chairman Cheng Gexin (not his real name) decided that rather than wait for a bank loan, he would raise the 200 million yuan ($30.0 million) he needed more quickly by pledging part of his stake in the Shenzhen-listed manufacturer to a brokerage firm.

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