Shanghai has 72 registered underwriting companies, but only 30 are still running, according to a report by Shanghai-based First Financial Daily.
Loan underwriting companies take a premium from a business, excluding commission, and in return promise to pay the bank that has offered a loan to the business in the event of a loss.
A business with a poor credit history would require the assistance of a loan underwriting company to secure a loan from a bank.
As of the end of June, the loan underwriting industry has incurred defaults of 2.8 billion yuan (US$458 million), with a default rating topping 11 percent.
Twenty-four loan underwriting companies, which had targeted the steel industry in their business, have all gone bankrupt.
Shanghai is not the only place where the underwriting industry has taken a hard hit.
In Ürümqi City, Xinjiang Province, the local security bureau shut down nearly 90 investment underwriting companies.
In Sichuan Province of southwestern China, 12 underwriting companies had their licenses revoked, with 23 requiring reform.
In Henan Province in central China, 10 local underwriting companies closed down their business in October.
In Shandong Province in northeastern China, 26 equity underwriting companies closed their doors in the first six months of 2014.
In Guangdong Province of southeastern China, 30 underwriting companies decided to quit the market altogether, Chinese finance website STCN.com reported on June 19.
Non-performing loans in Guangdong escalated from 6 billion yuan ($981 million) at the end of last year to nearly 200 billion yuan ($32.7 billion) at the end of July. Nearly half of the non-performing loans had ties to the steel industry.
Executives Take Money and Run
Several high-level executives went missing at Ht-Sinyong Underwriting Company in Sichuan, Sina reported on July 10.
Also in Sichuan, Xia Xiaolong, president of PengRun Underwriting Company, absconded with nearly 200 million yuan (US$32 million), Sina Finance said on July 12.
“After reshuffling in the industry, there could only be a few large companies left in the underwriting industry,” said Chang Hong, chairman of China Create Financial Holding Group.