On July 17, Chinese regulators announced the takeover of nine financial institutions, with combined assets worth $140 billion. All of them are thought to have links to the Tomorrow Group, a Chinese conglomerate with interests spanning financial services, insurance and real estate.
The takeover is only the latest step in a three-year battle by the Chinese government, aimed at cutting down to size one of China’s most powerful conglomerates whose tentacles, often concealed in a dizzying network of shell companies, extended into every corner of China’s financial sector.
“A banker for the ruling class” was how one newspaper profile in 2014 described Xiao Jianhua, the bespectacled billionaire founder of the Tomorrow Group. After graduating from the elite Peking University, Mr. Xiao began his career selling computers in the technology district that abuts the campus.
His career took off just as China’s stock market boomed. Part of his success was due to his smart cultivating of political networks, coupled with an appetite for risk-taking as he helped manage the wealth amassed by China’s elite. By 2016, his net worth was estimated at $6 billion, placing him at the 32nd spot on the Hurun Chinese rich list, which was, that year, topped by Wang Jianlin, the billionaire founder of another conglomerate, the Wanda Group.
Mr. Xiao became a victim of his own success. In early 2017, the empire that he oversaw from his luxury service apartment at the Four Seasons in Hong Kong, reportedly in the company of a retinue of female bodyguards, came crashing down. Five men, thought to be state security agents, forced their way into his flat on the 28th floor and left with the billionaire, who was reportedly rolled out in a wheelchair and taken across the border into the mainland. He has not been seen in public since, and is reportedly awaiting trial.
‘In public interest’
The break-up of Mr. Xiao’s empire, Chinese regulators have said, was “to protect the rights” of customers “and serve the public’s interest.” Since 2017, regulators have grown alarmed at the debt-fuelled expansion of many of China’s biggest conglomerates. The following year, they seized Mr. Xiao’s Baoshang Bank, accusing it of a poor track record in lending.
With the latest move, the jewel in Mr. Xiao’s crown, Huaxia Life Insurance, which, according to the South China Morning Post, reported $26 billion of insurance premium last year, has now been seized, along with eight other insurance and securities firms.
Huaxia Life Insurance, Tian’an Property Insurance, Tian’an Life, Yi’an Property Insurance, New Times Trust and New China Trust were placed “under state ward” while New Times Securities, Guosheng Securities and Guosheng Futures would be under government management for a year, presumably until buyers are found. Gordon Tsui, chairman of the Hong Kong Securities Association, told the Post the seizures “signify a very big clean-up operation” and “taking them over with a restructuring plan is the only way forward to maintain the stability of the market”.
Other tycoons have also been facing the heat. In 2018, regulators took over another conglomerate, the Anbang Group, which had embarked on a massive global buying binge, including for the famous Waldorf Astoria hotel in New York. Its chairman, Wu Xiaohui, was sentenced to 18 years in prison in 2018 for fraud and embezzlement.
The HNA Group, saddled by debt burdens, has been forced to divest many of its assets, while Mr. Wang’s Wanda Group, this year, is faced with refinancing $5.7 billion of its bonds, according to Bloomberg.
‘Clean-up’ move
Chinese authorities have cited financial risks as being behind their moves to “clean up” the Tomorrow Group, which had, with its sprawling assets, become too big to fail. Left unsaid were the political drivers, with the moves coinciding with President Xi Jinping’s crackdown on corruption.
The step-by-step dismantling of the Tomorrow Group is, ultimately, not just about the “cleaning up” of one Chinese company. It could well mark the end of a three-decade era of billionaire-led Chinese capitalism, during which a generation of tycoons built their empires operating adeptly in the murky nexus between China’s political and business elites.