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China's takeover of local lender hints at wider trouble ahead

First government-led seizure in 18 years seen as beginning of industry reshuffle

Chinese authorities last took over a bank in 2001, with the seizure of Shantou Commercial Bank.   © Reuters

BAOTOU, China -- China's first government takeover of a bank in 18 years sent shudders through the financial sector, suggesting growing concern among the authorities that ailing smaller lenders serving struggling local economies could at some point spark a broader financial crisis.

Baoshang Bank, a private lender based in this Inner Mongolian city 600 km west of Beijing, found itself under state control overnight May 24, indicating that the institution is essentially bankrupt. A taxi driver named Zhang recalled the chaos from that evening.

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