China's National Audit Office has found that Bank of China, one of the country's four major state-owned commercial banks, evaded approximately 2.367 billion yuan (roughly US$325 million) in taxes between 2023 and 2025 by systematically disguising private investment funds as publicly offered products — using its own employees as nominal investors to game the eligibility rules.
The findings appeared in the audit office's annual report on central budget execution and fiscal revenues, released this month.
How the Scheme Worked: Employees as Instruments
Chinese financial regulations draw a clear line between privately placed funds, which are restricted to a limited investor pool, and publicly offered funds, which can solicit investment from the general public and qualify for preferential income tax treatment. The distinction matters enormously for a bank's bottom line.
According to the audit report, Bank of China directed two affiliated financial institutions to recruit large numbers of employees — each contributing token amounts of between one and 100 yuan — to artificially inflate the investor headcount across 11 separate fund products. By padding the rolls with staff, the bank made private placement products appear to meet the legal criteria for public funds on paper, then claimed the associated tax concessions.
The scheme ran for more than two years. Its duration and scope — spanning multiple fund products and requiring coordinated action across two institutions — suggest it operated with at least the tacit approval of internal risk management, rather than as a rogue act by a handful of employees.
The Enforcer Caught Breaking Its Own Rules
The timing of the revelation carries a particular sting. China has spent recent years positioning itself as a vigorous tax enforcer — pursuing celebrities and livestreaming influencers for back taxes, tightening corporate tax compliance, and ramping up scrutiny of overseas assets and cross-border capital flows. Beijing has consistently framed these campaigns around the principles of equal treatment under the law and "common prosperity."
That the institution now at the center of a major tax avoidance case is not a private entrepreneur or a foreign technology firm, but one of China's most systemically important state-owned banks, has amplified the public reaction considerably. Bank of China is not merely a market participant; it is part of the architecture of financial order.
On Chinese social media platforms and overseas Chinese-language forums, many users characterized the episode as institutional self-betrayal. Some commentators argued that if a state bank concludes that strict compliance puts it at a competitive disadvantage, it reflects a broader erosion of trust in the institutional framework — not simply one bank's moral failure.
Oversight Gaps That No One Closed for Years
Under China's banking regulatory framework, fund product design, sales processes, tax declarations, and internal audit functions are each subject to multiple layers of supervision. That this arrangement went undetected for over two years — surfacing only through the National Audit Office's annual review cycle — raises pointed questions about whether market regulators, financial supervisory authorities, and the bank's own internal controls were functioning as intended.
This pattern is not new. The tension between state-owned banks' dual mandates — serving as policy instruments of the state while competing as commercially driven enterprises — has previously generated compliance distortions in local government financing vehicles, shadow banking, and property sector funding structures. What the Bank of China case suggests is that the same dynamic has now migrated into fund structuring and tax engineering.
When performance targets are demanding and accountability mechanisms lack transparency, management teams may see regulatory grey areas less as risks than as tools.
The Reputational Cost May Outlast the Tax Bill
Following the audit office's disclosure, Bank of China issued a public statement pledging to "sincerely accept audit oversight," to treat the identified problems with "the utmost seriousness," and to pursue "immediate and comprehensive rectification."
The 2.367 billion yuan in avoided taxes is a large sum in absolute terms, but for an institution of Bank of China's scale, the remedial payment may prove less damaging than the credibility questions the case leaves open. When a major state-owned bank is formally found to have manipulated employee headcounts to reduce its tax burden, the natural follow-on question is how many analogous arrangements exist elsewhere in the financial system — and how many have yet to be found.
Bank of China's statement may be enough to close the immediate public relations episode. Whether it is sufficient to restore confidence in the oversight infrastructure that allowed this to continue undisturbed for years is a separate question — and one that China's financial regulators will need to answer well beyond this single case.
