Minitrue: Bank Tied to Missing Billionaire Taken Over
The following censorship instructions have been leaked and distributed online.
China Construction Bank issued the following internal directive:
Important and urgent notice: we hope that all colleagues will pass on to those with primary responsibility for each branch the requirement that no branch personnel may post information regarding the Baoshang Bank takeover in WeChat Groups or Moments, on Weibo, or through any other online media. Anything already posted must be deleted!! (May 24, 2019) [Chinese]
Last week, financial regulators announced that China Construction Bank would take over the Inner Mongolia-based Baoshang Bank’s operations for one year. The Wall Street Journal’s Grace Zhu and Chao Deng reported suspicions that the move “likely owes more to a disgraced financier than danger to the financial system.” The tycoon in question is Xiao Jianhua, who was apparently abducted from Hong Kong in early 2017 in one of a series of high-profile disappearances.
The People’s Bank of China and the China Banking and Insurance Regulatory Commission, in announcing the takeover, described Baoshang as a “severe credit risk.” They promised to protect the bank’s depositors and other clients, though they didn’t provide details on the risks or the bank’s finances.
Banking analysts said the takeover appeared to coincide with efforts by authorities to unwind the assets of Mr. Xiao’s financial empire. Mr. Xiao, who for several years performed low-key financial dealings for China’s elite, held few assets in his name; his sprawling business interests are grouped under an umbrella company Tomorrow Holding Ltd.
[…] The seizing of Baoshang is another coda on an era in which a clutch of tycoons disappeared, some resurfacing later, as Chinese authorities pressed a crackdown on corruption and a cleanup of the financial sector following a stock-market meltdown. Some were formally detained and investigated while others saw their businesses come under pressure.
In one prominent case, regulators in 2018 seized control of once fast-growing Anbang Insurance Group, which had made eyebrow-raising investments in overseas property, including the Waldorf Astoria hotel in New York. Anbang’s chairman, Wu Xiaohui, was sentenced to 18 years in prison later that year after being convicted of fraud and abuse of power. Mr. Wu expressed remorse, according to the court that sentenced him, but he also said he doubted he violated any laws. He hasn’t made a public statement since. [Source]
A government directive in January on handling of risk related to Xiao’s Tomorrow Group ordered media to “let information released by the government serve as the standard. Don’t report or reprint related information without permission.” Following reports of his disappearance in 2017, another directive called for “all websites, including Wechat and Weibo accounts, media apps, and affiliated self-media, [to] please immediately find and delete information on the ‘Tomorrow Group’ and Xiao Jianhua.” Another directive in 2014 ordered suppression of a New York Times article on Xiao’s business dealings with Chinese political elites.
Xiao’s disappearance has received renewed attention amid mass protests in Hong Kong over a proposed new extradition law which, according to Democratic Party founder Martin Lee, “will legalize such kidnappings and threatens to destroy Hong Kong’s free society.”
[…] The Inner Mongolia-based lender, once seen as a model for funding regional economies, is one of many smaller Chinese lenders that used shadow-financing techniques to obscure their exposure to risky borrowers, according to analysts.
While China has been cracking down on such techniques, UBS Group AG analyst Jason Bedford said the country is rife with regional banks that used special-purpose vehicles to circumvent lending restrictions and hide the true state of their bad loans. Shares of big Chinese lenders may be vulnerable to the fallout on concern they’ll be asked to help resolve problems at smaller peers, according to Sanford C. Bernstein. Regulators face a difficult balancing act as they try to clean up risky lending practices without sinking the world’s second-largest economy amid a trade war with the U.S.
Baoshang’s troubles stemmed in part from its heavy exposure to a small number of borrowers, said Bedford, executive director of Asian financials research at UBS in Hong Kong. He added that there are other banks in similar situations.
[…] Some banks are now getting squeezed as Chinese companies default at a record pace and financing costs for shadow-lending activities increase.
As part of the government clampdown, banks have been forced to reclassify loans overdue for more than 90 days as non-performing, a move that led to a record surge in soured debt and wiped out capital at some small lenders. [Source]
Pete Sweeney at Reuters Breakingviews argued that the case shows how “Beijing remains wary of allowing even disgraced local lenders to fail,” noting that “rickety municipal lenders are common in China, even if Baoshang is more precarious than most,” and suggesting that allowing the bank’s demise might be better in the long term.
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