Is Evergrande Playing Poker with Hong Kong’s Future?

While China has tightened its grip on Hong Kong over freedom of speech, the financial services industry retains its great liberties. The city has its own set of securities regulators; and its banks are still happily arranging financing for mainland companies thirsty for cheap money. But for how much longer?

Over the last few years, Hong Kong has been the center of corporate spider webs that have snarled China’s financial stability. The laissez-faire city was home base for Xiao Jianhua, whose Baoshang Bank Co. in Inner Mongolia went bankrupt in 2020, the first commercial lender in China to do so in nearly two decades. It was the direct result of Xiao’s conglomerate Tomorrow Group using it like a slush fund. Hong Kong was also the playground for Lai Xiaomin, boss of state-owned China Huarong Asset Management Co., which is now the focus of much anxiety over a potential major restructuring. Lai used Huarong’s quasi-sovereign credit rating to issue cheap dollar debt in the city’s markets, using the funds to buy up everything from high-yield real estate developer bonds to private equity. Apart from the financial disruption, both scandals deeply embarrassed Beijing.