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At an internal meeting in April, the new head of China’s banking regulator said he would resign “if the banking industry becomes a complete mess”. On Friday Guo Shuqing and colleagues at the China Banking Regulatory Commission were working to ensure that they had not just created exactly that.
News that the CBRC was assessing banks’ exposure to five companies, including four of the country’s most aggressive overseas investors, triggered a sell-off in their stocks and bonds on Thursday.
The situation appeared to have stabilised on Friday. Shares in one of the affected companies, Wanda Group’s Shenzhen-listed film studio unit, rose 3.6 per cent after three large shareholders said they would boost their holdings.
China’s central bank has been trying this year to discourage risky borrowing by tightening conditions in short-term money markets while leaving benchmark interest rates untouched. The result has been a rare “inversion” in Chinese sovereign bond yields, with one-year and five-year bond yields now higher than those for 10-year debt.
“The CBRC action will cause turmoil in an already difficult market environment,” said Thilo Hanemann at the Rhodium Group, which has closely tracked the surge in outbound Chinese M&A activity over the past two years.
“The regulators have been moving very fast to identify risks,” said a person close to Chinese policymakers. “But they sometimes move without being fully aware of the consequences of their action.”
The CBRC’s move is the latest gust in what domestic media have labelled a “regulatory windstorm” in which eight policy documents have been issued since February, aimed primarily at discouraging leveraged investment in the bond market.
The People’s Bank of China kicked off a clampdown on outbound investment in February by tightening approvals of overseas acquisitions and other capital outflows. The securities regulator then promised to crack down on “barbarians” who were borrowing heavily to amass stakes in listed companies. The insurance regulator banned a prominent executive from the industry after his business allegedly provided false data and misused funds.
Mr Guo, 61, is a highly regarded technocrat who has spent his career alternating between senior financial and regional positions, the most recent of which was governor of Shandong, one of China’s largest industrial provinces. He is also regarded as a possible successor to Zhou Xiaochuan, the long-serving head of China’s central bank.
Bankers believe he is keen to make his mark and has a powerful bureaucracy at his disposal. “CBRC officials can be extremely hands-on,” said a former executive at a mid-sized Chinese lender. “They attended all of our quarterly meetings. They didn’t have a vote, but they were there and from time to time they were talking.”
One Chinese official who works on financial policy issues said the CBRC directive to the banks financing Anbang, Fosun, HNA Group and Wanda — which together accounted for more than $55bn of China’s outbound acquisitions over recent years — “came directly from the top”.
The official added that “it’s connected to all the other crackdowns we have seen recently, like the ones at the insurance regulator and in the securities sector”. The CBRC is also asking banks about their dealings with an investment vehicle used to purchase AC Milan, the Italian football club.
Xiang Junbo, former head of the China Insurance Regulatory Commission, was detained in April for alleged corruption. Mr Xiang has been temporarily replaced by the head of the regulator’s internal “discipline inspection” commission, which reports to the ruling Communist party’s corruption watchdog.
Yang Guoying, a researcher at the China Finance Think Tank, argues that the CBRC’s review of heavily leveraged companies’ overseas acquisitions is “a very normal risk control measure”.
“If the sources of their funds are domestic but the assets are overseas, this creates risk that can’t be totally controlled,” Mr Yang said.
Richard Xu, equity analyst at Morgan Stanley, said the longer-term impact of what is essentially a fact-finding mission will depend on what action it takes, if any, after its review of the banks’ dealings with Anbang, Fosun, HNA Group and Wanda.
“Following the rapid growth of overseas M&A by Chinese firms, policymakers are trying to conduct risk assessment of the credit that supported such M&A,” Mr Xu said. “Different banks report such credit under different categories, so it is hard to get a full picture based on existing data.”
Bankers said on Friday that they shared the CBRC’s concerns about Anbang, whose chairman was detained by corruption investigators last week. Anbang has raised hundreds of billions of renminbi over recent years, mainly from sales of short-term investment products offering retail customers guaranteed high returns.
While many are also wary about highly geared HNA, like Fosun and Wanda it has operations — including China’s fourth-largest airline — with which they feel more comfortable doing business.
“For us there is a huge difference between Anbang and the others,” one banker said. “They shouldn’t be put in the same box.”
Chinese publication leads charge on murky financial dealings
This week’s bombshell that China’s banking regulator was assessing lenders’ exposure to four of the country’s most aggressive dealmakers was first reported by Caixin, a local financial magazine, writes Charles Clover in Beijing.
It was the latest in a series of Caixin scoops over recent months that have shed light on murky Chinese financial dealings and established the magazine, founded by journalist Hu Shuli, as a powerful player in some of the country’s biggest political dramas this year.
Caixin has led coverage of financial troubles at Anbang Insurance, whose chairman, Wu Xiaohui, was detained by anti-corruption investigators this month.
As the Chinese government cracks down on press freedoms under President Xi Jinping, Caixin’s journalism is refreshing — but also unnerving to some.
“I don’t know how they get away with publishing so much sensitive internal information,” one senior government policymaker said, in what would be taken as high praise by many a news publication. But in China, such attention is not something local media outlets routinely seek.
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