Perhaps it’s a coincidence that just two days after we reported that China has been rocked by an “unprecedented” surge in bank runs which forced local regulators to “publicly vouch for the soundness of its lenders as the police halted the run”, on Friday Chinese financial regulators took over a record nine financial institutions which they said broke rules and added risk to a financial system facing increasing headwinds from the coronavirus pandemic. Or perhaps the two are in fact connected, and as faith in China’s financial system sinks and more money is pulled out of the country’s insolvent banks, more banks will be bailed out or nationalized.
Whatever the case, the takeovers of four insurers, two trust firms and three securities companies that managed a combined 1 trillion yuan ($143 billion) in assets represent Beijing’s first major regulatory move this year and follows the extensively documented bailouts of several regional lenders last year. Among the companies taken over the China’s Banking and Insurance Regulatory Commission are Huaxia Life Insurance Co., Tianan Life Insurance Co., Tian An Property Insurance Co. and Yian Property Insurance Co, the regulator said on its website.
Meanwhile, China’s securities regulator said it would take over three other entities—New Times Securities, Guosheng Securities and Guosheng Futures—and two trust firms, New China Trust Co. and New Times Trust Co.
The regulators said the takeovers are aimed at ensuring “stable operations” of the firms, because well, what else can they say: most Chinese financial institutions are insolvent and this is just the beginning? Probably not.
The takeovers continue an effort launched by Chinese authorities in 2019 to prevent systemic risks by taking over failing banks – something Beijing had not done in decades over fears of sparking bank runs – while also curbing debt as the country’s growth slows.
There was another common threat among the insolvent companies. According to the WSJ, many of the newly-nationalized firms have been linked in Chinese media reports to disgraced financier Xiao Jianhua, the founder of Beijing-based Tomorrow Holding which also controlled Baoshang Bank Co., a troubled regional lender that was the subject of the highest profile seizure last year (see “Chinese Bank With $100 Billion In Assets Is Bailed Out“).