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China is investigating an executive of one of its major distressed state-backed debt managers for grafting, six months after a former senior bank official was executed on corruption charges.
Hu Xiaogang, vice president of China’s Great Wall Asset Management, is being investigated by the country’s Central Discipline Inspection Commission, the country’s anti-corruption watchdog, for alleged “serious” violations, according to a statement issued by China Banking and Insurance Regulatory Commission.
The probe is the latest indication of possible financial misconduct in the top spots of China’s “bad debt” asset management companies, as concerns about high debt levels and falling profits rise.
The groups, which include Huarong Asset Management and China Cinda Asset Management, have been under intensify scrutiny by regulators and investors as Beijing faces elements of risk from the country’s financial system, which it believes threaten economic stability.
The CBIRC statement referred to Hu’s previous role as vice president of China Orient Asset Management, another major investor in distressed debt, implying that the charges are related to his nearly two-decade tenure in this group rather than his paper on the Great Wall.
China’s four major bad debt managers settled after the Asian financial crisis in the late 1990s. They were designed to reduce the risk of the country’s top state-owned lenders by eliminating bad debts from their books before stock quotes.
But the groups have become one serious problem for Beijing having raised more than $ 100 billion in debt, aggressively expanding into sectors beyond its competencies and becoming financial conglomerates.
While Huarong and Cinda appear in Hong Kong, the Great Wall and the Orient have been private. According to S&P data, all four expanded their overseas assets significantly from 2015-17.
Huarong, China’s largest debt investor, has about $ 22 billion in dollars and faces intense market pressure on delays in publishing their annual results. The company’s Hong Kong-listed shares were suspended in April, while the prices of its bonds have been volatile.
Lai Xiaomin, the former head of Huarong, 58 years old was executed in January after being found guilty of taking bribes worth $ 280 million and other crimes.
Repression is a sign of Chinese President Xi Jinping’s anti-corruption resistance. The campaign has been seen by experts outside China as a means to address both the deep-rooted government and the business graft, while threatening possible challenges to Xi’s power from the Communist Party.
Debt problems for troubled state-backed loan managers have also arisen in a context of concern from international investors record number of defaults and a sharp increase of downgrades hitting China’s financial sector. This year, more than $ 100 billion in debt is owed in dollars lent by Chinese companies.
In response, that of China the Ministry of Finance is considering the transfer of state shares in the first four groups of bad debts to a new holding company as a means to further risk the financial system, Bloomberg News reported last month, citing unnamed sources.
Perpetual bonds on the Great Wall fell slightly on Wednesday to trade at 97.8 cents.
Additional reports of Sherry Fei Ju in Beijing
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