Talking Point

A premium catch

The chairman of China’s most acquisitive insurer is said to be detained

Wang-Jianlin-w

Did he misread the tea leaves? Anbang’s Wu Xiaohui is currently incommunicado

The spring of 2012 proved to be a pivotal period for Bo Xilai’s political career. It was also a time when the fortunes of two of Dalian’s biggest businessmen headed in radically different directions.

Bo, a political heavyweight who earlier in his career had served as mayor of the northeastern city of Dalian, had been outmaneouvred in the run-up to the 18th Party Congress – China’s once-in-five-years leadership reshuffle – and in an unexpected outcome was arrested in March 2012.

His sensational fall sealed the fate of Dalian Shide’s chairman Xu Ming, a close ally of Bo, who was detained in the same month.

Xu would later die in prison after the property tycoon was found guilty of economic crimes related to Bo’s family members – such as buying them overseas properties in return for political favours.

Meanwhile two months after Xu’s arrest became public, another local tycoon made headlines by unveiling an unexpected $2.6 billion bid for AMC Theatres, one of America’s largest cinema chains.

Wang Jianlin’s property flagship was still called Dalian Wanda at the time. Tellingly it was later rebranded as the Wanda Group, not only to reflect its growing nationwide and international presence but likewise to make a clean break from the Dalian association and the scandal surrounding Bo’s arrest.

Wang has since become one of China’s richest men, investing a growing share of his fortune abroad. The AMC deal was an important moment in announcing his entrée into the global M&A big leagues and kickstarting a wider shopping spree by Chinese firms overseas.

China’s politicians are preparing for another Party Congress this autumn. And again, a businessman’s detention is making headlines, after Anbang Insurance confirmed that its chairman Wu Xiaohui is ‘currently unable to exercise his duties’.

Wu was said to be supremely well-connected to key members of the ruling elite. So his disappearance has observers second-guessing whether his detention will detonate an even bigger political bombshell.

What has happened to Anbang?

China’s insurers have been getting much closer attention from the country’s graft-busters since the arrest of Xiang Junbo. Until relatively recently he was the powerful chairman of the China Insurance Regulatory Commission (CIRC), but was arrested on allegations of corruption in April.

Talk of Wu being the next target has persisted for some time and Anbang had bunkered down in preparation for a period of upheaval (WiC was told in April that the insurer’s Hong Kong staff had been barred from using social messaging apps such as WeChat and told not to travel to mainland China).

The speculation increased when the CIRC told Anbang to stop selling some of its wealth management products, a vital source of funding for its expensive (and disparate) M&A activity.

Caijing, a business magazine, reported last week that the CIRC then met with Anbang’s executives and informed them that Wu had been “taken away for investigation”. The story was deleted hours after publication (for local media outlets such deletions are not quite as disastrous as they sound since such scoops end up garnering even more attention via WeChat, where they are rapidly disseminated in the first hour after they go online and still earn the publisher kudos).

A few days after the Caijing revelation Anbang published a statement on its website confirming that Wu wasn’t performing his duties due to “personal reasons”, although it claimed it operations “remain normal”.

The pressure mounted further this week as reports emerged that the authorities have ordered banks to suspend business dealings with the insurer. Six major lenders have stopped selling Anbang’s policies and the news also triggered concerns that the crackdown might burn a financial hole in their books.

One of the rumours was that Minsheng Bank, in which Anbang owns a 15% stake, had lent the insurer as much as Rmb100 billion ($14.6 billion). Minsheng’s president Hong Qi moved quickly to curb the speculation, however, telling reporters that loans to Anbang amounted to just $100 million.

Why does Anbang matter?

Anbang has woven itself deeply into China’s financial system. Starting out as a car insurer in 2004 with registered capital of Rmb500 million, it has grown into the third biggest insurer by assets (behind China Life and Ping An) and it reported more than Rmb500 billion in policy premiums last year.

WiC first remarked on Anbang’s rise in early 2014 (see WiC226), eight months before it grabbed international headlines with its landmark bid for the Waldorf Astoria, one of New York’s best known hotels.

Since the Waldorf deal, Anbang has taken on domestic and overseas M&A transactions worth nearly $20 billion and its shareholdings in listed firms in China such as Minsheng and Vanke are worth $155 billion.

“The apparent fall of Mr Wu has shone the spotlight on a particular brand of Chinese capitalism that has taken root in parts of the financial industry, one which involves freewheeling risk-taking, obscure ownership and political connections,” the Financial Times commented, noting in the latter regard Wu’s marriage to the granddaughter of Deng Xiaoping.

“Sterling political connections on both sides of the Pacific Ocean might have worked to Mr Wu’s advantage in his business dealings,” the New York Times also notes, adding that Wu had sought ties with Jared Kushner, son-in-law of President Donald Trump via a bid to buy a Manhattan office building partly owned by the Kushner family.

If Wu’s detention leads to charges it is likely to “reverberate through business circles” in China and the US, the US paper predicts.

Unsurprisingly, the reaction in the Chinese media has been more muted and the newspapers have been cautious in mentioning it.

The Global Times did refer to the case but primarily in calling for “more patience… to tease sensitive issues out”. Indeed it dismissed what it viewed as unprofessional reporting in the international press. “The Western media can make speculative reports, citing informal and unreliable sources,” it proclaimed. “But Chinese society has no tradition of indulging in groundless speculation.”

(This sweeping assessment presumably does not include the Chinese stock market where “groundless speculation” is rampant.)

Who is going after Wu?

Caixin Weekly was one of the first domestic publications to investigate Wu’s family background. Just days before the CIRC penalised Anbang, Caixin published a cover story on the insurer, attacking its risky business model and opaque shareholding structure.

Anbang fought back, accusing Caixin of being commercially motivated in its criticism because it had repeatedly declined Caixin’s demands for sponsorship and advertising. It also threatened legal action against the magazine and its chief editor Hu Shuli, alleging it had fabricated stories.

Hu, sometimes described as China’s most dangerous woman after two decades of damaging articles on corrupt officials and their business cronies, has enjoyed much better relations with China’s financial reformers, including Wang Boming (Hu’s former boss and founder of Caijing magazine) and Wang Qishan, now the anti-corruption tsar and second in the power structure (many think) to President Xi Jinping.

These kinds of relationships have prompted some to conclude that Caixin has been going after Anbang with Wang Qishan’s backing.

But instead of rebuffing Caixin’s attack on its financial condition, Anbang seemed more annoyed by the reports on its chairman’s political connections – which in this case had focused on Wu’s marital status.

According to a number of Caixin articles, the 51 year-old has tied the knot three times but his latest marriage to Deng Xiaoping’s granddaughter “has ceased”.

One of the implications in respect to Anbang’s claim that Caixin’s reporting is libellous is that Wu wants it known that he is still closely connected to one of the family members of China’s former paramount leader.

So it’s politics as usual…?

One of the criticisms of Xi’s anti-graft campaign is that it has brought down relatively few hongerdai, or children of revolution-era figures.

Xi is a hongerdai himself. So is Wang Qishan, as the son-in-law of Yao Yilin, another of the Party’s so-called Eight Immortals (others include Deng Xiaoping and Bo Yibo, the father of Bo Xilai).

Wu would count as a high-profile casualty of the anti-graft campaign, if a case is made against him, and Nikkei Asian Review agrees that he would be a senior scalp, noting that China’s “ever-widening anti-corruption campaign” is beginning to target “even those close to the children of its founding fathers”.

The Japanese publication also claims that power struggles tend to intensify in periods in which the Party’s leadership is under review, with Bo Xilai being among the most high-profile casualties in the 2012 cycle.

Bloomberg says something similar, seeing Wu as the latest addition to the long list of tycoons and politicians rounded up for questioning over corruption or financial crimes.

All of this activity is likely to “reinforce Xi’s strength before a key Communist Party leadership reshuffle this year,” it suggests, in reference to the Party Congress, which is likely to be held in October or November.

Or more a case of financial market cleanup?

As regulators ratchet up their scrutiny of the financial markets, one area getting much greater focus is the more buccaneering of the insurance companies, which have been selling high-return ‘universal insurance’ products and leveraging up the proceeds to bid aggressively for assets in China and overseas.

The four largest sellers of these kinds of life policies are Foresea, Evergrande, Tian’an Life Insurance and Anbang – and like Wu at Anbang, the senior figures at Tian’an Life and Foresea have run into trouble with the authorities.

Xiao Jianhua, a key player at Tian’an Life, was taken away from Hong Kong’s Four Seasons Hotel in February (see WiC354) and is said to be part of the investigation into Xiang Junbo, the former insurance regulator.

Yao Zhenhua, the founder of Baoneng, which owns Foresea, has been vilified in the media for making a hostile takeover bid for Vanke, one of China’s most respected property developers. The bid failed but Yao has been banned from the insurance industry for 10 years and Foresea has been ordered to stop selling universal life insurance policies altogether.

How about HNA Group?

HNA Group, which has been as acquisitive as Anbang, has also been caught in the crossfire of the power struggle. Although it isn’t as directly involved in the insurance sector, the Hainan-based aviation conglomerate finds itself mired in political conspiracies as well.

In recent months, exiled tycoon Guo Wengui has been making all sorts of allegations against other members of the political elite (see WiC363), including people that he has described as secret owners of HNA.

Last week the Financial Times looked at the claims in an article titled “Who owns HNA, China’s most aggressive dealmaker?” Citing Twitter posts, it noted that Guo is insinuating that Wang Qishan’s relatives have a significant shareholding in the aviation conglomerate (Wang and his wife have no children).

Guo has offered no hard evidence for this (circumstantially, Wang worked for one year as Party boss of Hainan province in 2002) but the FT added that HNA’s shareholding is mysterious (something we also pointed out in WiC362).

It also claims that an unheralded individual, Guan Jun, owns a 29% stake in HNA, and that corporate registries list one of Guan’s business addresses as a hairdressing salon in Beijing.

In a statement published last week, HNA insisted that no government officials or any of their relatives hold shares in the company. It has also filed a lawsuit against Guo for “a raft of corruption allegations that are baseless and meritless”.

The Global Times was the only state-owned newspaper prepared to discuss such a sensitive topic. And again, it turned its attention to reporting of the case outside China. By linking the news about Anbang and HNA to the upcoming 19th Party Congress, foreign media were seeing things through the wrong lens, it claimed. “Western media paints a picture that political struggle is rife in China. It is actually what’s happening in the US, but not in China,” it argued. It went on: “China is a socialist country where capital doesn’t dominate social affairs and big corporations cannot decide the political trajectory of the nation. Big companies in the West can wield major influence on their nations’ rulemaking and decision-making processes, but it’s different in China.”

And the other ramifications?

Income from the sale of ‘universal life’ policies had surpassed Rmb1 trillion by the end of 2016. But revenues fell 61% in the first quarter in year-on-year terms as the authorities turned their fire on sales practices in the insurance sector.

With its major sources of funding heavily reduced, Anbang could come under financial pressure. That could see the insurer selling some of its coveted assets, including its larger and more liquid stakes in listed Chinese firms. Share prices of some Anbang-invested companies, such as Minsheng Bank and the Hong Kong-listed developer Sino-Ocean Land, have been under pressure in recent weeks.

Indeed, the Financial Times has suggested that some of the lessons from Wu’s (alleged) fall from grace will need to be learned in markets around the world, and not just in China.“Whatever happens to Mr Wu and Anbang, his detention should persuade regulators and companies in the West to apply more scrutiny to the acquisitive ambitions of opaque Chinese companies,” it warned in an editorial this week.

The warning appears to be spot on as Chinese investors were rattled on Thursday by a “flash crash” in the bonds and stocks of four of the more acquisitive (and leveraged) Chinese conglomerates.

A five-year, Rmb8 billion Wanda Group bond fell the most, closing down nearly 4% on the Shanghai bourse. Wanda Film, its Shenzhen-listed cinema unit, saw its stock plunge nearly 10% as well.

Likewise the shares of Fosun International and its pharmaceutical flagship both fell nearly 6% in Hong Kong. So did the share price for a number of HNA Group’s Hong Kong-listed units.

What has triggered the sell-offs? According to Caixin Weekly, Chinese regulators have ordered banks to investigate their credit risk with “some large enterprises” (including Anbang, of course) which have been the most active in overseas M&A activities. And according to the FT, this could signal the end of the buying binge led by Wanda, Fosun, HNA and Anbang. It reckons the government wants to contain financial risks and choke off new loans to its most riskily leveraged conglomerates and send a signal that Beijing is fighting the “wild east” reputation that their mega-M&A deals fostered in recent years.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.