Fraud probe highlights risks in China's warehousing sector

[SYDNEY] Shaken by a fraud investigation into metal financing in the world's seventh-busiest port, banks and trading houses were made painfully aware of the risks they face storing commodities in China's warehouse sector.

The probe at Qingdao port centres around a private metals trading firm suspected of duplicating warehouse certificates in order to use a metal cargo multiple times to raise financing.

Some banks have asked clients to shift metal, used as collateral for loans, to more regulated London Metal Exchange (LME) warehouses outside China or those owned and operated by a single warehouse firm to limit their exposure.