China’s central bank declares Baoshang Bank bankrupt as it picks apart Xiao Jianhua’s financial empire

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Insolvent Baoshang Bank was unable to find new investors for recapitalisation before the government stepped in to set up a new lender to take over its assets, the central bank says

Baoshang Bank will proceed to the bankruptcy procedure and the stakes held by Xiao’s Tomorrow Group will be liquidated, PBOC says

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Exterior of a Baoshang Bank's office building at the city centre of Baotou city in Inner Mongolia on 29 July 2019. Photo: Orange Wang

Zhang Shidong

Published: 3:00pm, 7 Aug 2020Updated: 3:16pm, 7 Aug 2020

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.

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.