SinoInsight 1
On May 24, the People’s Bank of China and the China Banking and Insurance Regulatory Commission announced that they are taking over control of Baoshang Bank for a year due to the severe credit risks it poses. Baoshang Bank is the first commercial bank to be taken over by the authorities since the founding of the People’s Republic of China in 1949.
Based in Inner Mongolia’s Baotou City, Baoshang Bank had a total of 156.5 billion yuan in outstanding loans at the end of 2016, or a 65 percent increase from the end of 2014, according to the bank’s website. As of December 2016, Baoshang’s non-performing loan ratio was at 1.68 percent. Baosheng Bank’s 2016 annual report showed that it had total assets of over 430 billion yuan and a balance of deposits of about 190 billion yuan. The bank has yet to publish its annual reports for 2017 and 2018.
Baoshang Bank was managed in a “chaotic” manner, had numerous case disputes, and received 7,627 risk warnings from the courts, according to mainland media. Large amounts of the bank’s shares were pledged as collateral and were being held by seven institutions. Also, two properties owned by the bank had been mortgaged.
OUR TAKE
1. The state-run Global Times claims that “Baoshang Bank’s credit crisis is not the first of its kind” and cites the shutting down of Haifa Bank of China in 1998 due to a credit crunch. The Global Times’s comparison of Baoshang Bank with Haifa Bank and the fact that the PBoC and the CBIRC decided to take control of the former suggest that Baoshang Bank is in desperate straits and likely would have to file for bankruptcy. The Chinese regime, however, won’t let Baoshang go bankrupt least it disrupts financial stability and triggers a chain reaction that would in turn affect regime stability.
We wrote in our China 2019 outlook that “some financial institutions may go bankrupt.” The Chinese government’s take over of Baoshang Bank affirms our prediction.
2. According to public data, Baoshang Bank is the first joint-stock commercial bank established in the Inner Mongolia Autonomous Region. From 1998 to 2001, the first wave of rural credit cooperatives in China were converted into rural commercial banks, and Baoshang Bank representative of this conversion. At the time of conversion, a subsidiary of Xiao Jianhua’s Tomorrow Group (Tomorrow Science and Technology Investment Group) acquired over 36 percent of Baoshang’s shares.
Xiao Jianhua is a mysterious Chinese billionaire who made headlines in January 2017 after he was “vanished” from his luxury apartment in Hong Kong. Reports at the time say that Xiao was being investigated in Beijing after his high-profile disappearance. Many Chinese analysts believe that Xiao Jianhua is a “white glove,” or a money launderer, for Zeng Qinghong and other associates of the Jiang faction and the Party elite.
3. We believe that China’s financial system is facing immense problems and the Chinese regime has been trying to cover up the problems and their severity. China’s financial woes, however, will only grow more serious with the escalation of the Sino-U.S. trade war and the worsening of the Chinese economy. We would not be surprised to see more commercial banks collapse.
SinoInsight 2
On May 22, the Shanghai Discipline Inspection Commission announced that She Baoqing, former vice chairman of the Shanghai Yidian Holding Group Co. Ltd., was being investigated for discipline violations.
She retired from Shanghai Yidian, an electronics company supervised by the Shanghai government, in November 2007.
OUR TAKE
1. The investigation of She Baoqing 12 years after his retirement is rather unusual.
Virtually all Chinese officials are involved in some form of corruption, and investigations in the name of anti-corruption are almost certainly carried out for political reasons such as the CCP factional struggle. And before Xi Jinping launched his anti-corruption campaign in 2013, retired officials who have exited the power arena are rarely targeted in the factional struggle. Thus, there is more than meets the eye with the abrupt investigation of She Baoqing.
There is a pattern during Xi’s anti-corruption campaign where lower-ranking officials are arrested first to make inroads into high-ranking cadres. We believe that She was likely investigated to pave the way for the purge of elite officials.
2. According to She Baoqing’s resume:
- Early in his career, She worked at Shanghai Jinling Radio Factory for 19 years and eventually made factory director;
- As part of state-owned enterprise reform in the 1990s, Shanghai Jinling Radio Factory was restructured and renamed Shanghai Yidian Holding Group. At Shanghai Yidian, She held the positions of vice chairman and vice president;
- When She Baoqing was at Shanghai Yidian, the company had a joint venture with Morgan Stanley, and She had experience with working with the American investment bank.
3. She Baoqing’s time in Shanghai coincided with the rise of former Party boss Jiang Zemin and the beginning of Jiang’s era of dominance. As leader of the Shanghai Gang, Jiang and his clan had a lot of clout in the Shanghai municipality. For instance, Jiang’s elder son Jiang Mianheng controlled Shanghai Alliance Investment Ltd., the municipal government’s investment arm, and used his position to gain a stake in many companies and profit off the investments.
Given the above context, there is a good chance that She Baoqing was investigated as part of the Xi camp’s effort to find a breakthrough in the factional struggle by gathering dirt on the Jiang clan and building a case for the future takedown of prominent Jiang faction members.
