BEI­JING REINS IN ‘GREY RHI­NOS’

China grow­ing con­cerned by in­flu­ence of pri­vate sec­tor’s ‘crown jew­els’ on econ­omy

New Straits Times - - Business / World -

GREY rhi­nos have be­come a hunted species in China, where govern­ment reg­u­la­tors are clamp­ing down on pow­er­ful pri­vate con­glom­er­ates amid fears they are rack­ing up dan­ger­ous debt lev­els.

Coined by an Amer­i­can pol­icy an­a­lyst, the “rhino” ref­er­ence points to long-vis­i­ble threats that can charge sud­denly and wreak havoc, as op­posed to un­fore­seen “black swans”.

In China, it refers in par­tic­u­lar to four huge com­pa­nies with di­verse global em­pires: HNA (avi­a­tion, tourism, fi­nance), Fo­sun (tourism, en­ter­tain­ment), Wanda (real es­tate, cin­ema, amuse­ment parks) and An­bang (in­sur­ance, lux­ury ho­tels).

These are the crown jew­els of China’s pri­vate sec­tor but are now viewed as a threat to fi­nan­cial sta­bil­ity.

Their vo­ra­cious ac­qui­si­tions in­clude Fo­sun’s takeover of Club Med, HNA’s stakes in Deutsche Bank and Hil­ton ho­tels, An­bang’s pur­chase of New York’s his­toric

Wal­dorf As­to­ria, and Wanda’s con­trol of Hol­ly­wood stu­dio Le­gendary En­ter­tain­ment and 20 per cent of the Atletico Madrid foot­ball club.

Ac­cord­ing to data from an­a­lytic firm Dealogic, they spent a com­bined US$83.3 bil­lion (RM358 bil­lion) on over­seas merg­ers and ac­qui­si­tions since 2013.

China had long en­cour­aged the buy­ing fren­zies but has re­versed course, and it emerged in June that reg­u­la­tors were in­ves­ti­gat­ing po­ten­tially risky loans to these com­pa­nies.

“It was ab­so­lutely pre­dictable. The debt level was grow­ing way too rapidly,” said Christo­pher Bald­ing, an eco­nom­ics pro­fes­sor at Pek­ing Uni­ver­sity.

“We ex­pected these prob­lems to pop up even if we didn’t know the spe­cific com­pa­nies they were

go­ing to pop up with.”

He added that the in­vest­ments were “putting a lot of pres­sure on the cur­rency”, even if the debts re­main dif­fi­cult to eval­u­ate.

Other an­a­lysts con­curred that the change of tack could be at­trib­uted to cur­rency trends.

“When they were en­cour­ag­ing out­ward in­vest­ment, the ren­minbi (yuan) was ap­pre­ci­at­ing at that time,” said Anne Steven­sonYang, the head of J Cap­i­tal Re­search. “Now there is de­pre­ci­a­tion pres­sure, and that changes things.”

As the pi­o­neers of Chi­nese soft power over­seas, HNA, Fo­sun, Wanda and An­bang were con­sid­ered un­touch­able be­cause of their political con­nec­tions.

For ex­am­ple, Wanda chief ex­ec­u­tive of­fi­cer Wang Jian­lin, one of the coun­try’s wealth­i­est men,

is a past del­e­gate to the Com­mu­nist Party congress, China’s most im­por­tant political event, while An­bang pres­i­dent Wu Xiao­hui mar­ried a grand­daugh­ter of for­mer leader Deng Xiaop­ing.

But the winds have shifted. Au­thor­i­ties now ap­pear to be con­cerned about the in­flu­ence of these con­glom­er­ates, their mazes of sub­sidiaries and debt, and their ca­pac­ity to trip up the Chi­nese econ­omy.

“Grey rhi­nos” were “crea­tures of the 2009 ex­pan­sion” fed by govern­ment stim­u­lus mea­sures in re­sponse to the 2008 fi­nan­cial cri­sis, said Steven­son-Yang.

“They didn’t re­ally have core com­pe­ten­cies. They fed off the stim­u­lus and con­nec­tions with all-im­por­tant political fig­ures to make that hap­pen,” she said.

“In other words, these com­pa­nies

are seen as di­vert­ing the na­tion’s hard cur­rency money sup­ply and threat­en­ing to im­pair the na­tion’s global pres­tige, the cur­rency’s value sus­tain­abil­ity and mone­tary pol­icy flex­i­bil­ity.”

There have been indi­ca­tions since July of mount­ing govern­ment pres­sure.

Wanda has an­nounced the sale of 77 of its ho­tels and 13 tourism projects to Chi­nese real es­tate de­vel­op­ers Sunac and R&F prop­er­ties for US$9.3 bil­lion.

Bei­jing has also or­dered An­bang to sell all of its over­seas as­sets, ac­cord­ing to Bloomberg.

The en­tire pri­vate sec­tor has suf­fered the con­se­quences. The only com­pa­nies still per­mit­ted to make over­seas in­vest­ments are firms “sup­port­ing the real econ­omy” or work­ing with new tech­nolo­gies. AFP

AFP PIX

(From left) Fo­sun’s takeover of Club Med, HNA’s stakes in Deutsche Bank and Hil­ton ho­tels, An­bang’s pur­chase of New York’s his­toric Wal­dorf As­to­ria, and Wanda’s con­trol of Hol­ly­wood stu­dio Le­gendary En­ter­tain­ment and stake in Atletico Madrid foot­ball club are now viewed by Bei­jing as a threat to China’s fi­nan­cial sta­bil­ity.

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