Financial Action in China against Speculative Wave if Glass-Steagall Goes

July 20, 2020 (EIRNS)—The July 17 issue of Week in China independent publication covered the now-widespread report, originally run in Caixin Global Intelligence, that China Construction Bank and China Industrial and Commercial Bank will be given permission to buy investment banks, starting to break down China’s “Glass-Steagall-type” regulations on commercial banks. Week in China reported that brokerages and investment banks in China are extremely small in comparison to the big commercial banks and insurance companies. It conjectures that the anticipation of a wave of mergers and acquisitions among these firms, with commercial banks buying them and becoming “universal banks,” is behind the current boom on the Shanghai stock exchange. When this sort of speculative boom last happened in 2015, it led to problems of financial bankruptcies and also to capital flight, which required that capital controls be re-imposed, followed by fairly strict rules favoring infrastructure (Belt and Road Initiative and similar) investments abroad and cracking down on real estate and entertainment business speculations in other countries, etc.

Now, Chinese regulators are moving to take over and nationalize some financial companies that are overleveraged and/or threatened with insolvency, presumably to remove them as dangerous targets for bank or insurance company takeovers. Banking and securities regulators in China took over nine financial firms of various types in one day July 17, the Wall Street Journal reported. Four insurance companies, two trust firms, and three securities companies, with an approximate total of $145 billion in assets, were nationalized. The Journal suggests that the firms, in addition to being in danger of insolvency, were mostly, or all, connected in some way to the “Tomorrow Group” of Canadian-Chinese billionaire Xiao Jianhua, which included the $100 billion-asset Baoshang Bank, nationalized last November.