Baoshang Bank, the centrepiece of Chinese oligarch Xiao Jianhua's Tomorrow Group, will be forced into bankruptcy as regulators step up the pace of cleaning up a sprawling financial empire with 3 trillion yuan (US$431 billion) in financial assets, according to the People's Bank of China.
For more than a decade until last year, Baoshang Bank in the largest population centre of northern China's Inner Mongolia region was the financial war chest for Xiao's Tomorrow Group. Through its 89 per cent controlling stake, the group ran Baoshang Bank in Baotou city like a corporate slush fund.
The bank extended as much as 156 billion yuan in loans to Tomorrow Group's affiliates between 2005 and 2019, money that was never repaid. The group exploited the bank's lax management and flawed governance and ran it into the ground, according to a publication by the Chinese central bank.
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By the end of last year - with Xiao in jail in an unknown location facing trial - Baoshang Bank was 140 billion yuan in the red, with 290 billion yuan of bad loans on its books, according to Caixin magazine. Baoshang Bank was put under the Chinese government's ward in May 2019, part of an onerous process by the financial and banking regulators to clean it up, recapitalise and resuscitate it to avoid a whole scale collapse in China's financial system.
Financial regulators created a bank called Mengshang to take over all the assets from Baoshang Bank. Businesses at four of Baoshang's branches outside Inner Mongolia were handed over to Huishang Bank. The central bank injected 23.5 billion yuan of capital into Baoshang Bank through a lending facility to ensure liquidity for its depositors.
To avoid a bank run, the regulators used the deposit insurance fund and money provided by the central bank to protect the interest of most creditors of Baoshang Bank, according to the quarterly monetary policy report by the People's Bank of China. On the day of the government's takeover, the lender had 4.7 million individual customers and over 60,000 corporate clients.
The break-up of Xiao's empire - with an estimated 3 trillion yuan in assets held through 44 institutions - was part of a crackdown on some of China's most profligate asset buyers, who had funded their global asset acquisitions through debt, and some times through insurance premium collected from unsuspecting policyholders. Tomorrow Group duped Baoshang Bank out of US$22 billion in loans, t he central bank said this week.
The Anbang Group, the CEFC, property magnate Wang Jianlin's Dalian Wanda Group, and the HNA Group in Hainan were all caught by this systemic scrutiny that began in the summer of 2017. The heightened scrutiny also brought down China's insurance regulator, landing Xiang Junbo in jail on corruption charges.
Xiao himself has not been seen in public since the eve of the Lunar New Year holiday, when he was persuaded to leave his hideout at the Four Seasons Residence in Hong Kong to return to mainland China for investigations. He is believed to be awaiting trial to face a litany of charges including bribery and manipulating stock prices.
Still, the initial plan of selling Baoshang Bank to strategic investors fell apart, as potential buyers were wary of the lender's huge losses, the central bank said.
The next step of its clean-up involves forcing Baoshang Bank into bankruptcy, and the stake held by the shareholders before the government's seizure will be liquidated, the People's Bank of China said. The government is also pursuing the legal responsibility of related people, without elaborating.
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More from South China Morning Post:
- China's bank regulators take over Baoshang Bank, moving a step closer to breaking up financier Xiao Jianhua's business empire
- China's regulators break down Xiao Jianhua's financial empire, seizing Tomorrow Group's insurers, trust firms and brokers
- Chinese billionaire Xiao Jianhua's all-female bodyguards 'quite unusual', say security experts
- Chinese tycoon Xiao Jianhua, missing for 15 months since vanishing in Hong Kong, 'could face trial by June'