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Reality bites for China’s rickety local banks

Does the state of a smallish provincial lender signal the onset of a full-scale banking crisis in China?


Is this the start, the moment where reality bites, and fear replaces ambivalence?

No, this is not about another made-in-China pandemic – though at the time of writing, a rather nasty pathogen, brewed in Wuhan, was threatening to go global.

Broadly, it is about the state of China’s banking system, for so long the driver and bedrock of Asia’s largest economy. Specifically, it bears a loaded question: does the state of a smallish provincial lender signal the onset of a full-scale banking crisis?

The institution in question is Baoshang Bank. Its problems began in 2017, when the billionaire Xiao Jianhua, a key investor, was abducted in his room at the Four Seasons Hotel in Hong Kong by Chinese agents and put on trial.

Regulators later took over the bank, citing a “serious credit risk”; a series of ratings downgrades followed.

Last week, the governments of Inner Mongolia and Baotou, the province and city in which the bank is based, announced plans to buy more than 50% of Baoshang.

China Construction Bank offered to open its chequebook, while Hong Kong-listed Huishang Bank wants to buy a 15% stake for Rmb3.6

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