Chinese regulators are fond of animal metaphors. From “iron roosters (铁公鸡)” for listed companies that do not reward investors with cash dividends, to “crocodiles at large (漏网大鳄)”, for tycoons with a murky web of assets, Chinese officials have used animal-inspired figures in their remarks on financial risks. In recent months, a new term, “grey rhinos 灰犀牛”, has charged into the Chinese financial vocabulary.
The term “grey rhinos” was first introduced by the People’s Daily, mouthpiece of the Chinese Communist Party, to refer to financial risks faced by the economy. In a front-page editorial dated on 17 July 2017, the paper warns the danger of systemic financials risks and highlights the role of central government in financial work. While the editorial does not name any specific companies, it is widely interpreted to refer to Wanda, Anbang, Fosun and HNA, four large private Chinese companies that have been in the spotlight for their excessive borrowing from the state banks and overseas acquisition spree. The term “grey rhinos” therefore encapsulates both the sheer size and the impending danger that these companies pose to the Chinese financial system.
Grey rhinos as such are also known for their opaque shareholding structure. Anbang Insurance, for one, has been notoriously secretive about who its shareholders are and whether these individuals are holding their stakes on behalf of others. The reluctance to disclose its ownership structure has been costly too. In April 2017, the deal between Anbang and Fidelity & Guaranty Life, a US life insurance company, fell through despite almost a year-and-a-half of hassles with New York regulators, as the latter was concerned about Anbang’s ownership structure.
The same can be said for HNA, a giant conglomerate that started off as a small regional airline from China’s Hainan Province. In July this year, HNA made an unusual move to reveal its ownership structure amid mounting pressures from governments and regulators abroad. Nevertheless, the disclosure was not complete. While HNA listed 15 individuals and entities that account for its total ownership, the corporate government structure of its largest shareholder, Hainan Cihang Charity Foundation, remains unclear.
In addition to their opaque corporate structure, these companies have founders who are extremely well-connected. Although privately held, Anbang is known to be one of the most politically connected companies in China. In particular, it is known to maintain deep-rooted connections with descendants of influential Chinese leaders, commonly referred to as the “Princelings”. For instance, Wu Xiaohui (吴小晖), Anbang chairman and chief executive, was married to Zhuo Ran (卓然), granddaughter of China’s former paramount leader Deng Xiaoping (邓小平). It is widely speculated that Wu’s political connections may have helped Anbang amass huge sums of capital from its shareholders to support its investment and acquisitions. However, the company’s believed political connections and hidden shareholders have in some cases — as with Anbang’s failure to obtain regulatory approval for its attempt to acquire Fidelity & Guaranty Life — created reported difficulties for overseas investment projects.
Other prominent “princelings”, including Chen Xiaolu (陈小鲁) and Levin Zhu (朱云来), have served as directors Anbang. Chen is the youngest son of Chen Yi (陈毅), a legendary Communist military commander and politician. In January 2015, local newspaper Southern Weekly reported that Chen controlled 51.36% of Anbang’s shares through three bridge companies, which would make him Anbang’s largest ‘hidden’ shareholder. Chen subsequently denied the allegations through his social media account. Two days after publication of the report, Southern Weekly issued an apology for “errors in reporting” and deleted the report from its website, without specifying the reasons. It is widely speculated that the newspaper may have apologised under political pressure.
A map showing Wu Xiaohui’s political connections (Source: Datarama Platform)
In contrast, Guo Guangchang (郭广昌), Fosun’s founder, followed a rather different life trajectory. Guo was born into a poor family in the small town in Zhejiang province. His early days were tough as the family lived on rice and sun-dried pickles while his mother had to plant sweet potatoes to feed the household.
Today, Guo shares close connections with both political and business elites. He is currently serving as a representative on the 12th Chinese People’s Political Consultative Conference, China’s political advisory body. His political connections are also evident in his success in bringing in John W Snow, the former US Treasury Secretary and current chairman of private-equity firm Cerberus Capital Management LP, as an advisor to Fosun International’s board of directors in 2010.
Guo is personally connected to many prominent Chinese businessmen such as e-commerce giant Jack Ma (马云) and real estate magnate Wang Jianlin (王健林). Guo, Ma and Wang are all members of the Taishan Club, an exclusive private social club for wealthy Chinese. Both Guo and Ma are known Tai Chi enthusiasts, and Guo has pledged his public support for Ma on many occasions.
A map showing Guo Guangchang’s personal connections (Source: Datarama Platform)
Since July this year, Chinese regulators have increasingly scrutinized HNA, Anbang, Fosun and Wanda, and made attempts to bring their aggressive expansions to a halt. With these grey rhinos being deeply enmeshed in the Chinese economy and their founders being well-connected, any investigations are very likely to unleash great destabilizing forces into the Chinese economy. As the central government strengthens its grip on the grey rhinos, it will be interesting to see how these companies respond to closer state scrutiny and how the founders mobilize resources in their networks to address regulatory intervention.
The Datarama platform tracks the corporate ownership structure of companies and private networks of businessmen, and presents their extended corporate and personal ecosystems on an interactive map. Visitwww.datarama.com to find out how our platform can help with your business ventures in emerging markets in Asia.
Written by Datarama analyst Li Ling.
