Key Takeaways:
China's top auditor publicly named Bank of China for evading $348 million in taxes, a rare rebuke of a major state-owned lender that signals Beijing's intensifying crackdown on financial sector misconduct.
China's National Audit Office accused Bank of China Ltd. of evading 2.37 billion yuan ($348 million) in taxes by disguising private equity funds as public mutual fund products, according to the agency's annual report released Tuesday. The bank used two subsidiary financial institutions as channels between April 2023 and August 2025, with a large number of employees contributing between 1 yuan and 100 yuan each to make up the numbers, the report said.
"The bank packaged 11 private equity funds into public mutual fund products, taking advantage of the income tax exemption policy for public funds to evade a total of 2.367 billion yuan in taxes," the National Audit Office said in its report on the execution of the central budget and other fiscal revenues and expenditures for 2025.
Bank of China said it sincerely accepts audit supervision and will implement immediate rectification measures, Chinese media reported, citing a response from the bank. The lender added that it will further implement the decisions and deployments of central authorities and continuously enhance its risk management standards and compliance capabilities.
The rebuke marks the first time in recent years that China's top auditor has explicitly called out a major state-owned lender for tax evasion, according to the report. The 2.37 billion yuan figure represents roughly 0.3 percent of Bank of China's 2025 net profit of 237.7 billion yuan, based on Bloomberg-compiled estimates. Shares of Bank of China fell 3.4 percent on the Hong Kong Stock Exchange on Wednesday, with short selling accounting for 23.8 percent of total turnover at $312 million, suggesting bearish positioning by institutional investors.
The audit extends beyond Bank of China. The National Audit Office also scrutinized several other large state-backed financial institutions for improper lending practices as Beijing seeks to rein in systemic financial risks. China's banking sector, with total assets exceeding 400 trillion yuan, has faced mounting pressure from a prolonged property downturn and slowing economic growth that have eroded asset quality and compressed net interest margins across the industry.
For Bank of China, the tax evasion finding poses reputational risks that could complicate its cross-border operations, given that the lender is one of China's most internationally active banks with branches in more than 60 countries. International regulators have increased scrutiny of anti-money laundering and tax compliance at Chinese financial institutions in recent years, and the audit finding may trigger additional due diligence requirements from foreign counterparts.
The auditor's report comes as Beijing intensifies its focus on financial sector oversight under the newly restructured National Financial Regulatory Administration. The agency has stepped up inspections of state-owned banks, which control about 70 percent of China's banking assets, as part of a broader campaign to reduce moral hazard and ensure compliance with tax and lending regulations.
This article is for informational purposes only and does not constitute investment advice.
