The woes of Huarong pose dilemmas for Beijing

THE EXECUTIVES of Huarong Asset Management have not been able to hide from China’s authorities. A corruption probe into the state-owned financier in April 2018 sent senior staff and business partners scattering abroad, only to be rounded up in an international dragnet. One casino tycoon with close links to Huarong was captured in Cambodia. Its former chairman, Lai Xiaomin, was put to death in January for what a Chinese court called egregious financial crimes and bigamy. Until recently the company proved much better at hiding its debt and disguising losses. Huarong, which as of June had 1.7trn yuan ($262bn) in assets, is thought to have lent with abandon to some of China’s riskiest borrowers. Three years after regulators began mucking out the mess left by its previous management, the risks are spilling into global markets.

The first sign of trouble came when the company failed to issue its financial statements for 2020 by the deadline of March 31st. It attributed the delay to a “relevant transaction” that auditors needed more time to assess. Then, Caixin, a financial publication, reported that a significant restructuring was being discussed, sending its bond prices to record lows. By mid-April its debt securities were trading at junk prices (though its state backing meant that it kept its investment-grade rating). Regulators kept mum for weeks, allowing panic to spread to other state-owned securities, before declaring on April 16th that Huarong had ample liquidity. This eased some concerns over the $22bn in offshore bonds held by global investors. On April 20th Huarong’s offshore financing unit sought to allay worries further, saying it returned to profit in the first quarter.