Not long ago he counted some of China’s most powerful families as clients. That alone makes his trial extremely sensitive
Save time by listening to our audio articles as you multitaskFor leaders in Beijing, the secrecy is necessary because the case presents an uncomfortable picture of the Chinese political and financial system. Not long ago Mr Xiao counted some of China’s most powerful families as clients.
Many of the details of Mr Xiao’s case may never be revealed to the public. But his tribulations have already laid bare some of the hidden risks lurking within China’s financial system. His conglomerate, Tomorrow Group, once controlled a vast array of assets from mining and property to banking and insurance. Over the years his network built up huge debts, which quickly turned into financial losses after he was abducted.
Once-hidden risks such as these are now popping up in other corners. Poor oversight of smaller lenders has led to an accumulation of bad debt. In many cases tycoons such as Mr Xiao have been allowed to control banks and use them to lend to their own ventures, or to friends. Central auditors recently discovered that a handful of small banks had understated their bad debts by a total of more than 170bn yuan . The central bank has said there are more than 300 high-risk institutions in the country. All this is starting to test public trust in the thousands of small lenders. Bank runs are occurring more frequently.
Covid-19 is making the problems worse. Lockdowns are expected to create a new wave of troubled loans worth 1.1trn yuan this year alone. Adam Liu of the National University of Singapore recently noted that a “systematic central bail-out is increasingly foreseeable”. Political intrigue can be contained in a closed court. But the financial spillovers are harder to keep secret.
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