'Shadow banking' expands as Hong Kong brokers lend to Chinese businessmen

Many Hong Kong brokerages have a new and profitable business, despite the economic downturn: lending money to mainland entrepreneurs at high interest rate, sometimes more than 30 per cent.

Such private financing activities are a new and fast-growing business for many mid-sized and large local brokerages in the city.

Mainland entrepreneurs have increasingly turned to Hong Kong for this kind of high-interest private financing in the past year as Beijing has tightened the availability of banking credit on the mainland.

In December, Wu Changjiang, founder and former chairman of NVC Lighting, the mainland's largest privately held light manufacturer, borrowed HK$100 million from Kingston Financial, a major brokerage, said two people familiar with the deal. At the time, Wu was in a battle with other shareholders for control of Hong Kong-listed NVC.

The interest rate for the short-term loan Wu agreed to surprised many industry watchers. The sources said Wu borrowed HK$100 million from Kingston for just two months and agreed to pay about HK$30 million, or 30 per cent of the money he borrowed, as interest. When the debt matured in January, Wu and Kingston renewed the loan at a higher rate that had been agreed upon earlier, the people said.

"It is our policy not to comment on market rumours or speculation," a spokesman for NVC said. Kingston Financial also declined to comment.