Recently, a number of National People’s Congress deputies suggested at the two sessions the establishment of special legislation on the bankruptcy of financial institutions. Some of them took the bankruptcy of Baoshang Bank as an example, highlighting the many shortcomings of Chinese regulations. It was only after the news broke that the outside world was alerted to the fact that Baoshang Bank had been declared bankrupt in a low profile after being officially taken over for 2 years.
According to Chinese business newspaper 21st Century Business Herald, a number of deputies from the People’s Bank of China (the central bank) recently proposed at the “two sessions” that China should set up special regulations for the bankruptcy of financial institutions.
According to the report, Bai Hexiang, president of the Guangzhou branch of the People’s Bank of China, who is also a deputy to the National People’s Congress, cited the bankruptcy of Baoshang Bank as an example, pointing out that the current Chinese “enterprise bankruptcy law” has only principle provisions for the bankruptcy of financial institutions, and there are still many shortcomings, and the authorities should consider enacting a special “bankruptcy law for financial institutions The authorities should consider enacting a special “financial institution bankruptcy law” to improve the market-based exit mechanism of financial institutions. Guo Xinming, president of the Nanjing branch of the People’s Bank of China, and Yin Xingshan, a member of the National Committee of the Chinese People’s Political Consultative Conference and president of the Hangzhou central branch of the People’s Bank of China, suggested that a special chapter on “bankruptcy of financial institutions” be established in the “Enterprise Bankruptcy Law”.
The report reveals that on February 7 this year, the Beijing First Intermediate Court has ruled that Baoshang Bank is bankrupt. The ruling pointed out that Baoshang had no production and no employees before the application, and was obviously “insolvent” and had no actual solvency. At this point, Baoshang Bank, which has been regulated by the China Banking and Insurance Regulatory Commission and the central bank for nearly 2 years, is officially bankrupt.
According to public information, Baoshang Bank was formerly known as Baotou City Commercial Bank, which was established in 1998 and changed its current name in 2007, and has since expanded its business significantly, with branches in Beijing, Shenzhen, Chengdu and Ningbo.
On May 24, 2019, Baoshang Bank was jointly taken over by the Communist Party’s central bank and the Banking and Insurance Regulatory Commission due to serious credit risks. In June of the same year, the receivership team of Baoshang Bank announced that it would carry out asset and liability inventory, account cleaning, value revaluation and capital verification of Baoshang Bank.
At the end of April 2020, Monshang Bank was formally established and announced its opening. The authorities also announced that the relevant business assets and liabilities of Baoshang Bank would be transferred to Monshang Bank and Huishang Bank, respectively.
In August 2020, Zhou Xuedong, head of the receivership team of Baoshang Bank, revealed in an article in China Finance that since 2005, Baoshang Bank’s major shareholder “Tomorrow Group” had been transferring interests through a large number of improper connected transactions, capital guarantees and capital appropriation, and Baoshang Bank was gradually The bank was gradually “hollowed out”.
The results of the liquidation show that in the 15 years from 2005 to 2019, the “tomorrow system” through the registration of 209 shell companies, in the form of 347 loans to take credit funds, the formation of the occupation of up to 156 billion yuan, and all into non-performing loans, the annual interest even up to 10 billion yuan.
In mainland China, bank main body bankruptcy collapse is very rare. But since 2020, not only has Baoshang Bank entered bankruptcy proceedings, but Yuyang Agricultural and Commercial Bank and Hengshan Agricultural and Commercial Bank in Yulin, Shaanxi Province have also been restructured successively.
Commentator Wen Xiaogang said in a media interview that the crisis in China’s banking sector has a lot to do with the overall sustained downturn in mainland China’s economy in recent years, especially the outbreak of the Communist Party’s pneumonia Epidemic, which has had a huge impact on small and medium-sized enterprises. A large number of private enterprises have collapsed and are unable to repay their loans, transmitting the risk of default to banks. In addition, local banks are under the control of local authorities, and some local officials of the Communist Party have ordered banks to lend to some poorly qualified enterprises by virtue of their connections, which have increased the risk of the banks themselves and eventually made it difficult for the banks to protect even themselves.
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