Long story short, BOC simply did not include the full extent of its possible losses from subprime investments in its financial reports.
To increase the length of the story, WSJ says that analysts have suggested that BOC's accountants have taken advantage of "legal" accounting methods in China to write off their loss to the government:
"Some of the losses could have been booked to shareholder equity rather than recorded as a profit-and-loss number. If so, the government--which owns about 70% of the bank--would have taken the lion's share of the hit, rather than foreign and domestic investors. Such an accounting method is legal, analysts say."Though we can't know for sure that this is what happened, the history of Chinese banks and non-performing loans suggests that the government isn't afraid to take a few hits for the benefit of the creditworthiness and financial health of their banks. Is it just me or is it sort of strange when Washington is overtly propping up domestic financial institutions and Beijing is covertly propping up domestic financial institutions?