China takes over companies linked to disappeared financier

Chinese regulators will assume control of nine financial firms that are linked to a financier who was taken from a hotel in Hong Kong by Chinese authorities in 2017 and hasn’t been seen in public since.

Among the companies being taken over are Huaxia Life Insurance Co., Tianan Life Insurance Co., Tianan Property Insurance Co., New Times Trust Co., Yi’An Property Insurance Co., and New China Trust Co., the China Banking and Insurance Regulatory Commission said in a statement on its website Friday.

The takeover won’t change the firms’ debt obligations or creditor rights, and business operations will continue as normal. Also going into state custody will be Guosheng Securities Co., New Times Securities Co. and Guosheng Futures Co., the securities regulator said in a separate statement.

All nine are linked to Tomorrow Group, the investment conglomerate owned by Xiao Jianhua. The firms are among more than 40 financial institutions identified by New Fortune Magazine in a 2017 article as being part of Xiao’s network.

Chinese authorities are stepping up their bid to maintain financial stability as Covid-19 proves ruinous for economic growth and soured loans pile up. Beijing seized control of Baoshang Bank Co. -- another company linked to Xiao -- in May last year citing its “serious” credit risks.

Last month, regulators were said to be mulling increased oversight of Huaxia Life, including sending a group of executives from state-owned China Life Insurance Group Co. to assist. Insurers’ earnings have been under pressure, and the coronavirus pandemic has only exacerbated that.

“This is certainly a move in the right direction” in terms of containing financial risk and warning peers of wrongdoing, said Steven Lam, an analyst with Bloomberg Intelligence. “The authorities are also being more transparent by telling the market, ‘We know there are bad apples, and we’re taking care of them’.”

Tomorrow Group questioned regulators’ decision in a statement Saturday on its official social media account. The company said its subsidiaries haven’t seen any defaults and don’t have much liquidity risk. It added that requests from units to use around 2 billion yuan ($286 million) on Tomorrow’s balance sheet to repay wealth management products were denied.

Tomorrow’s online statement was later deleted after several hundred thousand views.

The CBIRC said in its statement on Friday that authorities will seek market-oriented restructurings for the six insurance and trust firms and the bottom line is to avoid any systematic financial risks.

The three broking and futures entities were seized for hiding the identity of their ultimate owner or their real holdings, as well as poor corporate governance, the securities regulator said.

The moves echo the treatment of Anbang Insurance Group Co. Authorities are in the process of finding strategic investors for Dajia Insurance Group Co., the company that took over the operations of once-acquisitive Anbang after a two-year period of state custody.

Anbang’s former Chairman Wu Xiaohui was convicted of fraud and the CBIRC was tasked with selling many of the assets Anbang had accumulated during an overseas buying binge.

Xiao has been missing since early 2017 when he was taken from his room at the Four Seasons in Hong Kong. Xiao had been staying there for several years after fleeing China, where he is still pending trial. It’s as yet unclear what charges may be laid against him.

Tomorrow Group invested primarily in financial services and used shell companies to control many of its assets. Before his disappearance, the Hurun Report of China’s richest people said Xiao, a student leader at the time of 1989 pro-democracy protests, is part of a fortune estimated at almost $6 billion.

In 2018, China’s central bank identified Tomorrow as one of several “financial holding companies” that need to be scrutinized in their ownership structure, related transactions and source of funding.

“Some financial holding companies, mainly those formed by investments of non-financial enterprises, have been expanding blindly into the financial industry,” the People’s Bank of China said at the time. “There has been a regulatory vacuum, and risks are accumulating and being exposed continuously.”