Letters of credit (L/Cs) and copper imports are being used to obtain hard to come by credit from Chinese banks.

The phenomenon is apparently caused by domestic banks tightening lending conditions and has led to a surge in copper imports.

Import surge

In the first four months of 2008, China's copper imports increased by a massive 40 per cent according to a report in a Beijing newspaper.

It says that copper buyers are entering into import agreements with foreign sellers. The buyer is then using the import agreement to obtain a L/C from the bank.

Profits

Initially the buyer only needs to pay a deposit. The Chinese buyer then sells the imported copper on delivery, but settles the outstanding balance payable according to the terms of the contract, perhaps 90 or 180 days after delivery.

Some copper importers have also reaped extra profits via the renminbi's appreciation against the US dollar in the period between an agreement being signed and a hard currency price fixed and the full payment being made.

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