How a China bank branch foxed regulators and may force a market rethink

Shanghai

FOR years, a branch of a mid-sized Chinese bank outshone rivals by reporting zero bad loans at a time others were struggling with rising soured debt.

Financial indicators at Shanghai Pudong Development Bank Co's branch in the western Chengdu city were healthy, officials raised no red flags, and Fitch Ratings upgraded the parent last July citing tighter support and supervision by local authorities. Unknown to most, however, regulators had been probing the lender for a fraud that may reverberate across China's financial industry.