Shares in the Chinese insurer Anbang and associated companies have dropped sharply, after the reported detention of the group’s chairman, Wu Xiaohui, by police. The scandal has left investors in China concerned about how the country’s politics could impact on corporate governance and the stock markets, ahead of the 19th Communist Party Congress in the autumn.
The Chinese authorities are keen to crack down on corporate corruption and capital flight, which means reining in companies that have been throwing money around overseas.
Established in 2004 by Wu as an automotive and property insurer, Anbang has grown into a behemoth, with more than $240 billion in assets under management. Its overseas acquisitions include the Dutch insurer Vivat, as well as hotels and resorts in the US, including the Waldorf Astoria in New York.
The company has moved into wealth management products, and taken stakes in a number of other listed businesses. Its aggressive sales tactics and rapid expansion worried the Chinese regulators, who temporarily banned Anbang's life insurance unit from selling new products in May. They may now look to clip its wings further, and investors are worried that any unwinding of its investments could have serious market implications.
‘Anbang right now holds more than 5% of the stake in a lot of A-share companies, mainly market leaders in the real estate or banking sector,’ Colin Liang, portfolio manager at NN Investment Partners, told Citywire Asia.
‘Anbang is one of the fastest growing insurance companies over the past two or three years and their assets increased dramatically, if unwinding of those assets happens, it will create a lot of market volatility.’
Long term concerns
It is still not clear whether Wu has been taken to jail at all. A company statement said that he was no longer able to fulfil his duties for "personal reasons", but there are reports in the local and international press that he was taken away in a police car.
There is a political dimension to the case. The Communist Party holds its 19th congress in the autumn, making this a season for power struggles behind the scenes. President Xi Jingping is understood to be trying to consolidate his power in the party, meaning that he needs to stamp out opposition.
Wu is well connected in China. He was married to Zhuo Ran, the granddaughter of Deng Xiaoping. Chen Xiaolu, the son of a famous army marshal who helped to establish communist rule, was one of Anbang’s early directors. Chen is married to the daughter of another prominent Communist military leader, Su Yu, who served under Mao Zedong.
Some analysts believe that Wu’s detention is related to his connection with Guo Wengui, a billionaire and political activist who is standing trial on fraud charges.
Although Anbang’s overseas investments have touched on a sensitive issue – how China’s wealthy families move their money abroad – analysts said that the insurer must have had political backing to get around the crackdowns on capital flight.
‘Where does the firm to get such a huge amount of money? How can they [move money overseas]? This shows they have backing behind the scene.’ one investor told Citywire Asia, on condition of anonymity.
Risks for investors
A combination of febrile politics and a near-total lack of transparency makes this a difficult time for investors.
Corporates can do little to avoid the political risk, one asset manager told Citywire Asia. ‘This is the way how to do business in China,’ they said. State-owned enterprises control half of the Chinese economy, and they are all connected to the Party to different degrees. Private enterprises have to emphasise that they are unconnected to the politics, at least until the manoeuvring around the Congress dies down, the manager said.
For the time being, investors may want to keep their powder dry.
‘Anbang’s case is a governance issue. Most of the people do not have a clue what is going on there, as it is highly difficult, politically sensitive and almost zero visibility,’ one portfolio manager said. ‘So the ideal way is just to stay out of it.’