Xiao Jianhua’s Tomorrow Group duped Baoshang Bank out of US$22 billion in loans, triggering Chinese lender’s collapse, PBOC says
- Tomorrow Group, founded by vanished oligarch Xiao Jianhua, illegally borrowed US$22.3 billion from Baoshang Bank over the course of 14 years
- Group interfered with Baoshang Bank’s daily business operations, chipping away at its risk controls, says article in Chinese central bank magazine
The group illegally borrowed 156 billion yuan (US$22.3 billion) from Baoshang Bank, which was taken over by the government last year, in the form of 347 loans through 209 shell companies from 2005 to 2019 and these subsequently became delinquent, Zhou Xuedong, head of the takeover team at the central bank, wrote in the latest issue of China Finance, a publication by the nation’s central bank.
In its heyday, Xiao’s Tomorrow Group had stakes in 44 financial institutions ranging from banks and brokerages to fund-management and trust firms, whose total values were estimated at 3 trillion yuan. Through the sprawling networks of these controlled companies, Xiao created multiple layers of asset-management products, profiting from arbitrages, transferring interests to his other affiliates and financing other industries.
Such runaway expansion came to an end when the regulators ramped up their drive to reduce financial leverage to reduce systemic risk to the banking industry.
Baoshang Bank was just one example of how Xiao and his Tomorrow Group used loans to get easy and quick money, creating potential risks. The bank heavily relied on more expensive funds borrowed from the interbank market to finance its business operations.
