Nine Chinese financial institutions were nationalized in one day by the Chinese Communist Party (CCP). The sum of the company’s’ total assets exceeds 140 billion dollars.
According to a report published by the news blog Zero Hedge, the CCP on Friday, July 17, took over nine financial companies in an unprecedented day, worth more than a trillion yuan (US$140 billion). The Chinese financial market had been embroiled in a string of currency runs in previous days, forcing local regulators to account for their lenders.
The CCP’s acquisition of these four insurers, two trust firms and three securities companies was the first major regulatory move so far this year. But it continues a trend that began last year when several regional lenders were bailed out.
Among the companies taken over by the China Banking and Insurance Regulatory Commission are Huaxia Life Insurance Co., Tianan Life Insurance Co., Tian An Property Insurance Co., and Yian Property Insurance Co., New Times Securities, Guosheng Securities, and Guosheng Futures, and two trust firms, New China Trust Co. and New Times Trust Co. The news was confirmed by China’s Bank Regulator.
The acquisitions of failed banks and other financial institutions, which began last year and are continuing, were motivated by an attempt to avoid systemic risks as the country’s growth slows.
According to a note published by the Wall Street Journal (WSJ), many of the recently nationalized bankrupt companies were linked to discredited financier Xiao Jianhua, who went missing for a year and a half, until finally the CCP admitted he was in prison for bribery, fraud, among other charges.
Analysts have been warning about the growing financial risks after the Chinese economy contracted during the first part of the year as a result of the CCP Virus. As the WSJ pointed out, in response to the outbreak, CCP authorities ordered banks to step up lending to distressed companies that have long been seen as risky borrowers. The result, as expected, was that the amount of bad debt in the banking market increased in the first half of the year and is expected to continue, putting the country’s financial stability at risk.
For the time being, a vicious economic circle can be observed. Bank runs are followed by expropriations and nationalizations, which undoubtedly leads to more runs and more nationalizations. To what extent will they be able to sustain the situation? Perhaps if the CCP was more transparent with its figures and statistics, we could have a more accurate answer to the question.