Fosun chairman’s disappearance raises concerns on China reforms

Financial Times
Tom Mitchell in Beijing
December 13, 2015

Concerns graft purge is spreading to private sector

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The disappearance of one of China’s top tycoons has sparked fears of a dangerous new phase in companies’ relations with the Communist party, with one expert warning of a “Richter 9” earthquake across the private sector.

On Sunday, Shanghai-based Fosun Group reiterated that chairman Guo Guangchang was “assisting authorities” in an unspecified investigation — although the company insisted it was not the subject of the probe.

It is not clear if Mr Guo, who has not been accused of any wrongdoing, is assisting authorities in an anti-corruption investigation, stock market probe or separate matter. It is not unusual for senior government or company officials to assist in investigations in which they are not later implicated.

The detention comes three years into President Xi Jinping’s unprecedented anti-corruption campaign, which has netted a number of powerful government officials or “tigers” but relatively few in the private sphere.

A recent string of European financial and leisure industry acquisitions has thrust Mr Guo into the limelight, making him one of the global faces of corporate China — arguably outshone only by Jack Ma, founder of online retailer Alibaba.

The Fosun chairman was ranked 17th on Hurun’s latest China Rich List, with his estimated wealth jumping almost 80 per cent over the past year to $7.8bn.

It is still not clear whether Mr Guo is being held by police or the party’s Central Commission for Discipline Inspection, which is leading the anti-corruption campaign.

Yan Jiehe, a construction magnate and China’s sixth-richest man, said private entrepreneurs often felt a need to “lean on a mountain” — a Chinese term for finding a powerful political patron. “But sometimes mountains can turn into volcanoes,” he added.
Chinese authorities did not respond to repeated requests for comment at the weekend.

On Friday Fosun said Mr Guo might continue to weigh in on company decisions “via appropriate means”, and that he has shown awareness of the dangers of becoming too close to political patrons, reportedly telling colleagues they should “stay close to politics but stay away from politicians”.

Even if Mr Guo emerges unscathed, his detention has shocked both the country and the international business community. It could give China’s wealthy — already disillusioned by chronic pollution and frequent food safety scandals — further impetus to move their families, their money and themselves abroad, according to analysts.

Last year the Hurun Report released a survey of 141 wealthy Chinese that found two-thirds were either already emigrating or had plans to do so. Any fear that Mr Xi’s anti-corruption campaign — or a more recent investigation into this summer’s selldown on the Shanghai and Shenzhen stock exchanges — is spreading to the private sector could accelerate this trend, especially given Mr Guo’s fame and reputation.

While the recent fall-off in China’s foreign exchange reserves has sparked a heated debate about whether or not money is leaking out of the country through illicit channels, wealth management advisers note that every overseas IPO or acquisition by a Chinese company is a legitimate form of capital flight.

“Most of our clients want to list their companies on foreign stock exchanges,” said one financial adviser who works with rich Chinese families. “It’s the best way to move their money to a safe haven.”

Mr Guo, a philosophy graduate often described as an introvert, does not fit the brash stereotype of China’s newly minted billionaires.

“He is so respected,” said Hurun’s Rupert Hoogewerf, who likened the news to a “Richter 9” earthquake for China’s private sector. “He’s not a Donald Trump figure . . . He’s quite considered, eloquent and sophisticated. He’s leading the pack in a certain way.”

Mr Hoogewerf said a “surprising” number of entrepreneurs had been in touch with him about Mr Guo’s detention.

Mr Guo’s influence goes beyond the business sphere. The tycoon, who has served on the government advisory body the Chinese People’s Political Consultative Congress as well as the National People’s Congress, China’s parliament, also ranks in the top 10 of Hurun’s annual Power List.

In an article published in the Chinese press last year, Mr Guo suggested he had nothing to fear at home and was not interested in acquiring a foreign passport.

“If I have been good,” he wrote in China Entrepreneur magazine, “why would the government want to target me? That would not be in line with the reform policy. I believe in the future of China and I believe in the reform policy. The four founders [of Fosun] hold no foreign passports. We are Chinese citizens.”

Two years ago the party committed itself to a reform blueprint that pledged to give market forces a “decisive role” in the economy. That seemed to herald a bold new era for China’s burgeoning private sector and billionaires such as Mr Guo.

However, the party has retained its grip on the economy, ensuring that key sectors such as energy, finance, telecommunications and transport continue to be dominated by large state-owned enterprises. Rather than bold experiments with privatisation, Beijing has instead encouraged the formation of even larger SOEs despite widespread concerns about their poor return on equity.

One area where reforms have surged ahead is the liberalisation of China’s capital account, leading to the International Monetary Fund’s recent recognition of the renminbi as a legitimate reserve currency. Such liberalisation is also making it easier for rich Chinese families to move their money abroad.

Huang Guangyu, billionaire caught up in corruption campaign

Dozens if not hundreds of senior company executives have been caught up in Xi Jinping’s sweeping anti-corruption campaign, launched in 2012. However, most have been officials at state-owned enterprises.

The relatively few private sector businessmen to be implicated have typically been low-profile figures associated with Mr Xi’s vanquished political rivals, most notably Zhou Yongkang and Bo Xilai.

A more recent investigation into this summer’s stock market collapse has similarly focused on state-owned brokerages, such as Citic Securities, but is more likely to implicate private sector executives as well.

The last high-profile Chinese billionaire to be caught up in such an investigation was Huang Guangyu, the 46-year-old founder of electronics retailer Gome.

Huang, originally from southern Guangdong province, peddled radios and batteries in Inner Mongolia and Beijing before striking it rich. His career peaked in 2007 when he was estimated to be China’s richest man with a fortune of more than $6bn. Huang was detained a year later and eventually given a 14-year prison sentence for bribery and insider trading.

Incarceration has not proved much of an obstacle to Gome’s founder. From behind bars, he has waged and won a battle for control of his company with Bain Capital. In 2011, a Bain-backed chairman was replaced with a friend of Huang’s. Bain has since sold its minority stake in Gome while Huang recently completed a $1.5bn deal that will again give him majority control of the company. In October Hurun’s China Rich List estimated Huang’s fortune at $3.4bn, making him the country’s 87th-richest person.

Additional reporting by Patti Waldmeir, Jackie Cai and Wan Li

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