China’s regulators take the scalpel to further downsize the financial empires of oligarchs Xiao Jianhua and Ye Jianming

Two investment firms owned by the Heilongjiang provincial government increased their stakes in the midsize commercial bank to 48.18 per cent in total from 19.69 per cent

It came after Chinese authorities extended lifelines to at least three lenders, including the central bank’s takeover of Baoshang Bank in May

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A branch of Harbin Bank in Dalian, northeast China’s Liaoning province. Photo: Imaginechina

Published: 6:45am, 19 Nov 2019Updated: 2:52pm, 19 Nov 2019

China’s financial regulators have tightened their grip on a bank and a brokerage with links to two of the country’s biggest oligarchs, breaking up their sprawling conglomerates in an ongoing crackdown of malfeasance and excessive leverage.

Two investment funds of the Heilongjiang provincial government raised their combined stake in Harbin Bank – a city-level lender based in north-eastern China and listed on the Hong Kong stock market – to 48.18 per cent, from 19.69 per cent, according to a stock exchange filing on Friday. Six private investors, three of whom are linked to financier Xiao Jianhua, transferred 15 billion yuan (US$2.1 billion) of their shares to the two investment funds, according to Chinese media.

On the same day, the Chinese stocks regulator revoked the license of CEFC Shanghai Securities, a unit of the CEFC conglomerate controlled by Ye Jianming, who ran China’s largest private oil-producing business before he was detained by Chinese authorities in March 2018 on unspecified charges.

The moves amount to an intervention by China’s regulators to clean up financial malfeasance, such as when a bank’s controlling shareholder us accused of corruption, or when there is an organic deterioration of its balance sheet, said Thomas Gatley, a senior analyst at Gavekal Research.

There “will definitely be more” proactive state intervention by China’s regulators including the central bank into small lenders, which could involve Beijing taking more action as provincial governments face increasingly difficult liquidity conditions, Gatley said. “I wouldn’t be surprised if the [People’s Bank of China] steps in directly again.”

China’s government has been cracking down since 2017 to limit an estimated US$40 trillion of debt, more than 300 per cent of the nation’s gross domestic product. Authorities are trying to fend off financial risks, concerned about the record 117 billion yuan worth of bonds that went into default last year amid the slowest economic growth pace in nearly three decades and the year-long US-China trade war.