Shares in Chinese companies plunge as regulator warns of 'systemic risks' to biggest banks

Analysts have expressed concern about the rapid expansion of China’s credit, warning that the country could face serious risk if it does not toughen measures to control its debt-fuelled binge

In the Chinese city of Shenzhen, Dalian Wanda’s listed unit, Wanda Film Holdings, had to suspend trading after its stock fell 10 per cent (Reuters)

Some of China’s largest companies may pose a systemic risk to the country’s banks, a senior banking official said on Thursday, in the latest signal that Beijing is ratcheting up scrutiny of a financial system plagued with hidden debt that poses a hazard to the health of the economy.

The official, Liu Zhiqing of the China Banking Regulatory Commission, did not name any companies. But shares of some of China’s biggest global deal-makers plunged on Thursday.

They included the publicly traded arms of Fosun International, which in recent years bought the Club Med chain of resorts and other properties; Dalian Wanda, which owns the AMC Theaters chain in the US and has long sought deals in Hollywood; and the HNA Group, an acquisitive conglomerate with murky ownership.

At a briefing on Thursday in Beijing, Mr Liu, deputy head of the commission’s prudential regulation bureau, said that his agency was looking into “systemic risk of some large enterprises,” according to numerous media accounts, and that the risk could spread to other institutions.

Later on Thursday, Li Xinghao, a spokesman for the banking commission, said Mr Liu had been “misquoted” as saying that the commission was worried about the risk posed by those companies.

Still, his comments come as China clamps down on some of its most ambitious and acquisitive companies.

Last week, people familiar with the matter said that Wu Xiaohui, the chairman of the Anbang Insurance Group, had been detained for undisclosed reasons. Anbang, which rose to prominence in recent years for big deals including its purchase of New York’s Waldorf Astoria hotel, had been under official pressure over how it raises money.

China has been trying to get its unruly financial sector under control, worried that asset bubbles and its enormous unofficial — or “shadow” — banking system could threaten its economy, the world’s second largest after the US’s. In April, President Xi Jinping urged the country to ward off systemic risks to maintain financial security during a group study session for members of the Politburo, a top decision-making body of the ruling Communist Party.

A surge in acquisitions by large Chinese companies in recent years has heightened worries that several of them, which rely on borrowed money for their large purchases, could pose a risk to the banks that lend to them. A crucial cause for concern is that many of these companies overpaid for some of these purchases.

Analysts have expressed concern about the rapid expansion of China’s credit, warning that the country could face serious risk if it does not toughen measures to control its debt-fuelled binge. The authorities have also been increasingly nervous about the flow of money out of the country, which contributed to a sharp fall in the country’s foreign exchange reserves in recent years, before steadying in recent months.

The increased scrutiny comes at a time of emphasis on political and economic stability ahead of the Communist Party’s 19th Party Congress this autumn, when leadership decisions are likely to be made.

In Hong Kong, shares in Fosun fell 5.8 per cent and those in its health care unit 5.9 per cent, while shares in the HNA Holding Group Co. closed 6.1 per cent lower. In the Chinese city of Shenzhen, Dalian Wanda’s listed unit, Wanda Film Holdings, had to suspend trading after its stock fell 10 per cent.

In statements, both Dalian and Fosun said the companies were operating normally. Wanda said that rumours that some Chinese banks had ordered the sale of its bonds were “malicious speculation.” The HNA Group did not immediately respond to a request for comment.

© 2017 New York Times News Service