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Xi seeks to defang party elders with corporate probe

Billionaires use party connections for overseas acquisition spree

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Chinese political leaders maintain strong influence after their retirement.   © Reuters

BEIJING -- As China heads into the most politically sensitive period of the year, the time when incumbent and retired Communist Party leaders gather in the seaside resort of Beidaihe, it is becoming clearer that the recent crack down on five domestic companies is an effort to reduce the clout of party elders prior to the annual summer event.

This year's Beidaihe gathering is especially important as it seeks consensus on major decisions for the 19th National Congress of the Communist Party of China. The central topic is to decide who to promote to the top leadership.

The five companies have grown rapidly through overseas mergers and acquisitions. The founders of the five companies reportedly have ties with prominent families within the party leadership.

Wu Xiaohui, chairman of Anbang Insurance Group, was detained by Chinese authorities on June 9. The next day, the China Insurance Regulatory Commission seized documents in a raid at the Beijing headquarters of the country's top insurance and financial services holding company.

In addition to Anbang, Fosun Group, Dalian Wanda Group, HNA Group and an investment company called Zhejiang Luosen Neili are being targeted. Most of their founders are reportedly close to "second generation reds," or children of CPC leaders who helped found the People's Republic of China in 1949.

The five have all experienced "explosive" growth owing to huge overseas M&As. They are suspected of using their outsize influence to raise large amounts of money from financial institutions and other lenders for their acquisitions.

Wu of Anbang is close to the son of former Vice Premier Chen Yi. He also married the granddaughter of Deng Xiaoping, China's former paramount leader. Starting his career in the automobile leasing business, Wu founded Anbang in 2004. His assets now total some 2 trillion yuan ($269.2 billion).

Wu became an internationally known businessman after announcing Anbang's 2014 acquisition of Waldorf Astoria New York, the city's landmark hotel.

Anbang's overseas acquisitions and investments currently total $16 billion, 60% of which has been financed by loans from large Chinese and overseas financial institutions. Wu has kept piling on new loans, using assets of acquired companies as security.

Wu's fortunes drastically changed for the worse in April when Xiang Junbo was removed as chairman of the insurance regulatory commission. Xiang had "preferentially treated Anbang in authorizing acquisitions and other deals," a senior industry official said.

Meanwhile, Fosun which acquired a number of businesses including Hoshino Resort Tomamu in Hokkaido, Japan's large northern island, has assets totaling some 500 billion yuan. Its debt ratio, however, exceeds 70%.

Retired heavyweights

According to a senior local government official, the real reason behind the investigations is to sap the influence of retired CPC heavyweights before this summer's meeting at Beidaihe. The annual affair near Beijing is where elders convene with reigning party leaders to decide top appointments and other matters.

With CPC leadership likely to undergo seismic shifts at the party congress this fall, Chinese President Xi Jinping is maneuvering to further consolidate power, noted the official.

One of the businessmen targeted is Wang Jianlin, chairman of the country's largest property developer, Dalian Wanda. As China's richest person with a military background, Wang has used his influence to benefit senior military and government officials through lucrative property and business deals, said a person familiar with the transactions.

Also being investigated is Zhejiang Luosen Neili, which made news with its acquisition of the well-known Italian soccer club AC Milan.

Overseas investment by Chinese companies has plunged due in part to a tougher stance by authorities. In the first six months of the year, direct overseas investment contracted 45.8% from a year earlier to $48.1 billion.

The government is also eyeing HNA. Senior Chairman Chen Feng transformed HNA from an aviation management company into a conglomerate with assets of 1.2 trillion yuan, repeatedly acquiring companies to amass his fortune.

Chen is an old friend of Wang Qishan, secretary of the anti-corruption agency Central Commission for Discipline Inspection. He worked for Wang when the latter was chief executive of the Agricultural Investment Trust of China.

Investigations into the five businesses reveal the power struggle in the country. But if the businesses are forced into bankruptcies or liquidated, financial institutions in China and other countries will be hit hard, and could even impact China's credit risk.

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