Earlier this week China’s corruption watchdog launched an investigation into 25 of the country’s biggest financial institutions and their regulators. On past experience that could have convulsive consequences.
On Monday, the Central Commission for Discipline Inspection began a two-month audit of a number of big state-owned banks, insurers, China’s bad-debt managers, the People’s Bank of China, the China Banking and Insurances Regulatory Commission, China’s sovereign wealth fund and securities regulators and exchanges.
While presented as an anti-corruption investigation and targeted at Communist Party members within the organisations’ leadership – the inspections will “thoroughly search for any political deviations” – it would seem that it is directed at looking at the relationships between the institutions and regulators and the private companies they deal with or regulate.
The backdrop, of course, is the cascading wave of defaults occurring within China’s key property sector; a sector that accounts for about 30 per cent of China’s GDP and represents by far the largest sectoral exposure of its banking system. Nearly 30 per cent of the banks’ loans and, on some estimates, more than 40 per cent of their overall exposures, are to the real estate sector.
While Evergrande, the world’s most indebted property company with more than $US300 billion ($409 billion) of liabilities, is by far the most prominent of the Chinese developers in trouble and that are unable to meet interest payments on their debts, the list of companies in similar straits is lengthening almost on a daily basis.
Huarong, one of the country’s four bad debts managers – established to manage the mountains of distressed debt in the banking system after the Asian financial crisis in the 1990s – has already been bailed out and restructured and its chief executive executed for corruption.
— Steven Van Metre 👑 (@MetreSteven) October 14, 2021