Chinas central bank has announced the first bankruptcy of a commercial bank in nearly two decades, authorising the liquidation of regional lender Baoshang Bank, a year after it seized control of the institution. The decision to let the lender go bankrupt is a high-profile departure for Chinas government, which has long been reluctant to allow lenders to fail for fear of undermining confidence in the countrys banking system.

Bank of Baoshang will be filed for bankruptcy and the original shareholders equity and unprotected creditors rights liquidated in accordance with the law, the Peoples Bank of China said in its quarterly monetary policy statement on Thursday evening in Beijing. The decision was made after finding severe insolvency during the regulators review of Baoshangs business, the central bank said.

The government takeover of Baoshang in June last year was the first since the seizure of Hainan Development Bank in 1998 and raised concerns that Beijing had let bad debt grow unchecked for too long.

The takeover resulted in a liquidity squeeze for banks in China as large institutions became unwilling to lend to smaller ones. They need to lower the moral hazard, and theres no better case than Baoshang Bank, said Alicia Garcia Herrero, senior Asia economist at Natixis. This month China Finance, an official publication of the PBoC, reported that Tomorrow Group, the troubled financial conglomerate controlled by disappeared billionaire Xiao Jianhua, had used more than 200 shell companies to borrow Rmb156bn ($22.5bn) from Baoshang.

There have been at least six bank runs in five provinces over the past 12 months in China, as slowing economic growth and disruption from the coronavirus pandemic have strained the balance sheets of local lenders. Many local banks have also struggled with failures in corporate governance, and Beijing has bailed out four regional banks since beginning a crackdown on off-balance sheet financing in 2018. But while Baoshangs shuttering will mark Chinas first since the failure of Shantou Commercial Bank in 2001, there is little expectation that regulators will allow bankruptcy to become the norm for troubled lenders.

Michelle Lam, greater China economist at Socit Gnrale, said Baoshang was unlikely to serve as a model for dealing with future defaults and that Beijing had recently recommended local governments begin using special bond issuance to firm up local lenders shaky balance sheets. She added that while Baoshang was the first such failure in decades, its a very unique case. Baoshang was previously controlled by Mr Xiao, who Chinese authorities kidnapped in Hong Kong and smuggled back into China more than three years ago. He had used the lenders funds to bankroll the expansion of many of the companies that were part of his Tomorrow Group conglomerate.

Read the attached article, and answer the following questions:

(a): Why do you think the commercial bank, Baoshang Bank went into bankruptcy? (b): Will this create systemic risks to China and the world? (c): Should the Chinese government have bailed them out?