China official says crackdown on murky conglomerates isn't over

Chairman of the China Banking Regulatory Commission Guo Shuqing at a news conference in Beijing on Mar 2, 2017.
Chairman of the China Banking Regulatory Commission Guo Shuqing at a news conference in Beijing on Mar 2, 2017.PHOTO: REUTERS

SHANGHAI (BLOOMBERG) - China's banking regulator vowed to take action against those who built large financial conglomerates through complex ownership structures and fraudulent capital injections, signaling last year's government crackdown on such entities is poised to continue.

Such operations have become major obstacles to the nation's efforts to deepen financial reform and safeguard banking stability, Guo Shuqing, chairman of the China Banking Regulatory Commission, said in an interview published by the official People's Daily on Wednesday (Jan 17). Some shareholders used banks as their "ATM machines" and "recklessly conducted unfair connected transactions to line their own pockets," he was quoted as saying.

Guo, almost one year into the job, has launched a campaign to root out malpractice and strengthen controls over the banking industry amid surging risks from poor corporate governance, violation of lending policies, and cross-holding of financial products. He didn't specify in the interview which entities might be targeted.

"The tone of Guo Shuqing's interview sounds stern," said Zhou Hao, an economist at Commerzbank in Singapore. "The biggest obstacle for such reforms is that they hurt the interests of conglomerates that profit from the existing environment. I do expect China to take measures that directly tackle these problems despite the pains."

Last year, the heads of two well-known Chinese conglomerates - Tomorrow Holding Co. and Anbang Insurance Group Co. - were detained by authorities.

An affiliate of state-owned Citic Group agreed to buy a US$1.4 billion stake in Hengtou Securities Co. earlier this month, a move people with knowledge of the matter said is part of the breakup of financier Xiao Jianhua's Tomorrow Holding. China's government has ordered Tomorrow Holding to divest many of its financial assets as part of a plan to break up Xiao's empire, the people said.

Xiao was taken from Hong Kong by Chinese authorities in early 2017, the South China Morning Post reported at the time. His whereabouts aren't known. The newspaper subsequently cited mainland sources as saying that Xiao was helping with investigations into matters that included bribery and stock market manipulation.

Meanwhile, Chinese authorities have asked Anbang to reduce its stakes in China Minsheng Banking Corp and China Merchants Bank to comply with new rules governing bank shareholdings, people familiar with the matter said in November. The regulator has yet to approve an application by Anbang to appoint a voting director to the board of Minsheng Bank, a CBRC vice chairman said in March last year.

Anbang's meteoric rise came to an abrupt halt after authorities detained Chairman Wu Xiaohui in June. The insurer had amassed stakes in listed Chinese companies as part of a global deal spree in recent years.