Banking & Finance

Tomorrow’s gone

China nationalises Xiao Jianhua’s bank

Xiao-Jianhua-w

Xiao: went to university at age 14

Yet another dramatic chapter in the rollercoaster life story of tycoon Xiao Jianhua was penned at the weekend as Chinese journalists focused on the fate of his Baoshang Bank. The financier’s in Inner Mongolian lender was taken over by Chinese regulators on what were announced to be liquidity concerns.

The move against Baoshang was significant on three separate levels.

First, it was the first “bankruptcy liquidation” of a bank in China since 1998 when Hainan Development Bank was taken over by the central bank, according to a Sina Finance op-ed.

Second, the bank in question was relatively unusual in its shareholder structure. Baoshang was originally founded two decades ago as the Baotou City Commercial Bank with backing from the city government in Inner Mongolia’s Baotou (a centre of the global rare earth industry). In 2007 the bank changed its name and status, and through a series of complex manoeuvres became controlled by Xiao’s investment conglomerate Tomorrow Group. Unusually, it thus became a ‘private’ bank in a banking system dominated by state ownership.

Third, while the China Banking and Insurance Regulatory Commission (CBIRC) announced at the weekend that its reason for taking control of Baoshang was to address “the serious credit risks it poses” analysts say it wasn’t big enough to really amount to a systemic risk. Instead some observers interpret the move as the next step in the dismemberment of Xiao’s sprawling empire.

New Fortune magazine calculated that in his heyday the Shandong tycoon controlled nine-listed firms and 30 finance-related entities (including five brokerages) with his net worth reaching Rmb50 billion ($7.23 billion) in 2016.

In spite of this Xiao had been a shadowy figure internationally, until he hit headlines over his apparent abduction from the Four Seasons in Hong Kong in February 2017. According to the New York Times, Xiao was taken out of the luxury hotel “in a wheelchair, his head covered by a sheet or a blanket” by about half a dozen unidentified men.

“He is believed to have been transported by boat from Hong Kong, eluding border controls,” the paper added. Xiao has not been seen in public since.

According to the South China Morning Post, Xiao has been helping the anti-graft body with its investigations (the tycoon is thought to have been close to so-called ‘tigers’ in previously powerful but now sidelined factions of the Party).

Meanwhile the absorption of Baoshang is the latest phase in a long running attempt to break up his Tomorrow empire and deleverage it. Thus far progress has been halting. “A plan by Chinese authorities to divest about Rmb150 billion ($23.9 billion) worth of assets in 2018 to repay loans ran into difficulties after the group and potential buyers disagreed on the prices of key assets, according to public corporate filings and sources close to those deals” comments the SCMP.

The prodigious rise and fall of Xiao continues to offer something of a cautionary tale. In a signal he was destined to be anything but ordinary he went to the prestigious Peking University at age 14. According to an investigative profile written by Hong Kong’s Next magazine he became so convinced of his blessed genes that he had 30 children with various girlfriends.

As for Baoshang it will become a ward of the state for at least a year in a process that looks to have been executed in an orderly manner. The CBIRC scotched any bank run fears by guaranteeing all deposits below Rmb50 million and deputised China Construction Bank to take over Baoshang’s day-to-day running.

The troubled bank had not published annual reports for 2017 and 2018 but still carried outstanding loans of around Rmb145 billion. Its 291 branches were mostly located within Inner Mongolia, although in Xiao’s more ambitious phase Baoshang had opened too in Beijing, Shenzhen, Ningbo and Chengdu.

The central bank told media earlier this week that it was offering liquidity support to ensure a smooth transition: “Depositors can take out money freely and smoothly.” And central bank governor Yi Gang added on Wednesday his institution was ‘fully capable” of managing risks at other small banks.


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