- Peter Hoskins
- BBC Business Correspondent in Singapore
image source,Getty Images
Billionaire Bao Fan is a well-known investor and capital intermediary in China, and is known for facilitating mergers and acquisitions of technology giants.
The disappearance of tech investor Fan Bao last month has reignited interest in a recent phenomenon in China — disappearing billionaires.
The founder of Huaxing Holdings – whose clients include Internet giants Tencent, Alibaba and Baidu – is considered a giant in China’s tech industry.
The trend of Bao Fan’s case can be seen as a lesson: a few days after his disappearance, his company announced that he is “currently cooperating with the investigation of relevant state agencies.”
Just like previous similar cases, there is no clear information about which government agency is conducting an investigation, the content of the investigation, and Bao Fan’s whereabouts.
Before Bao Fan, the disappearance of Chinese business leaders occurred from time to time, including Alibaba boss Jack Ma.
While disappearing billionaires have received a lot of attention, there have been lesser-known cases of Chinese citizens disappearing after taking part in, for example, anti-government or human rights protests.
Bao Fan’s disappearance has once again attracted people’s attention, and it is believed that this is one of the ways that Xi Jinping strengthened his control over China’s economy.
On the occasion of the annual National People’s Congress, China announced the most significant overhaul of its financial regulatory system in years.
China will set up a new financial regulatory watchdog to oversee most of the financial sector. Authorities said this would close a loophole currently created by multiple agencies overseeing different aspects of the financial services industry. In China, the financial industry is in the trillions of dollars.
Observation: What is the yardstick to measure the success of China’s financial reform?
A month ago, China’s financial sector ushered in a major reform – the full implementation of the stock issuance registration system, changing the approval system that has been implemented for more than 30 years. A rare institutional innovation has loosened the financial environment.
A month later, a more significant reform was ushered in at the “Two Sessions” – the establishment of the State Administration of Financial Supervision and Administration. The market environment is tight again.
Many observers see the reform as an attempt to more closely regulate the financial services industry. In fact, compared with vigorous reforms in property rights, foreign trade, and even state-owned enterprises, China’s actions in the financial field have always been cautious.
Although China launched reform and opening up in 1978, the line was vacillating. It was not until the Third Plenary Session of the 14th CPC Central Committee in 1993 that the socialist market economic system was established that the line issue was settled. That year, China ushered in an “economic tsar” Zhu Rongji who would lead reforms for the next ten years.
1993 was also the time when China’s financial chaos reached its peak: there was the “Su Sanshan” incident within the system; the “Shen Taifu” fund-raising case outside the system; the Shanghai Stock Exchange, which was established just over two years ago, once the transaction price limit was lifted, the overall stock price fell by 3. It soared 570% in one day, and some new shares even doubled by 30 times as soon as they were listed. These are just the tip of the iceberg.
When Zhu Rongji started to reform state-owned enterprises, he was inspired by the South Korean model and believed that South Korea’s large financial and industrial conglomerates helped the country become a leading industrial country in just a few decades. China should cultivate state-owned enterprises according to this model.
However, when the financial crisis hit in 1997, many “good students” in the eyes of the Chinese went bankrupt. South Korea’s Daewoo Group eventually collapsed at a huge loss. The bright light ahead of this reform road has been snuffed out abruptly.
Since then, China has always been cautious in opening up its financial market to the outside world. For example, the stock listing registration system has taken nine years from discussion to final implementation.
Even so, under China’s special economic system, finance has accumulated huge risks. For example, most of the investment and credit are given to state-owned enterprises and the government’s urban investment companies, rather than private enterprises. This has caused local government debt to reach dangerously high levels, while private enterprises have no choice but to use shadow banks with higher interest rates. The “crowding out effect” is obvious.
This misallocation of resources causes funds to flow to low-efficiency areas, further increasing systemic financial risks. Once the economy is in a downturn and corporate profits are difficult to repay interest, systemic financial risks will erupt.
Fundamentally speaking, the relaxation and tightening of financial regulation is just a process rather than a goal. The problem is to open up investment channels and allow capital to flow more rationally, thereby unleashing the potential and impetus of the private sector and the technology sector. Only when funds are injected into more efficient places can the risk of default be reduced and systemic financial risks resolved, so that the economy can enter a more virtuous circle.
A measure of the success of the new round of financial reform is whether this benign channel can be opened up.
In 2015 alone, at least five executives lost contact, including Guo Guangchang, the chairman of Fosun International Group, which was killed for owning Premier League football club Wolverhampton Wanderers, or Wolves. known to Westerners.
Guo Guangchang disappeared in December of that year. When he reappeared, his company announced that he had been assisting the investigation.
Two years later, Chinese-Canadian businessman Xiao Jianhua was taken away from a luxury hotel in Hong Kong. Once one of China’s richest men, he was jailed last year for corruption.
In March 2020, billionaire real estate tycoon Ren Zhiqiang disappeared after Xi Jinping called him a “clown” for his handling of the outbreak. Later that year, Ren Zhiqiang was sentenced to 18 years in prison on corruption charges after just one day of trial.
Most notable is the disappearance of Alibaba founder Jack Ma. The then richest man in China disappeared in late 2020 after criticizing the country’s financial regulator.
The listing of his fintech giant Ant Group has also been put on hold. He has not been seen in mainland China for more than two years and has not been charged with any crimes, despite donating nearly $10 billion to a “Shared Prosperity” fund.
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Jack Ma was the richest man in China when he disappeared from public view.
Ma’s whereabouts remain unclear, despite reports that he has been seen in Japan, Thailand and Australia in recent months.
The Chinese government insists that the actions against some of China’s tycoons are solely for legal reasons and has repeatedly said it wants to root out corruption. But the Chinese government’s actions run counter to the economic liberalization that has shaped the world’s second-largest economy over the past few decades.
This wave of openness has created a cohort of billionaires with enormous wealth and the potential to wield considerable influence.
Observers say the Chinese Communist Party, under Mr. Xi, wants to recapture that power, often shrouded in secrecy about how it does so.
The logic behind it is this: Big business, especially in the technology sector, has grown in power under the policies of Xi Jinping’s predecessors, Jiang Zemin and Hu Jintao.
Prior to this, the Chinese government focused on traditional power centers, including the military, heavy industry and local government.
While maintaining tight control over these areas, Mr. Xi has broadened his focus, bringing more areas of the economy under his control. Much of the economy has been hit hard under the “common prosperity” policy, with the technology sector receiving special attention.
Nick Marro, from the Economist Intelligence Unit (EIU), told the BBC: “Sometimes these events are orchestrated to send a signal, especially against specific industries or interest groups.”
“Ultimately, this does reflect an attempt to centralize control and power over one part of the economy, which has been the main feature of Xi Jinping’s governance style over the past decade,” he added.
“The Chinese government remains focused on making sure that big tech platform companies and players don’t develop their own Brand and influence, then they will be difficult to control and more likely to go against the ideas of the Chinese government.”
The key to shared prosperity is also the rule of law, which must apply to rich and poor alike.
Beijing insists the policy is aimed at narrowing the widening gap between rich and poor, which many see as a major problem that could undermine the Communist Party if left unaddressed. Inequality is growing in China – Xi is said to be under pressure from the far left to move closer to the party’s socialist roots.
The mystery behind the billionaire’s disappearance, and the broader focus on Beijing’s handling of business, could have serious and unintended consequences.
“The potential danger of the Chinese government’s targeting of tech billionaires is to put more pressure on tech entrepreneurs who want to be the next Jack Ma,” Choi Oro said.
Mr. Xi appeared aware of the risk of rattling business sentiment, stressing the importance of private enterprise to China in a speech to legislators this week.
But he also called on private companies and entrepreneurs to be “rich with responsibility, rich with righteousness, rich with love”.
As well as announcing a new financial watchdog, Chinese bankers were warned last month not to emulate the “hedonism” of Western plutocrats.
Critics see this as further evidence of the importance Xi attaches to the financial system.
“In recent months, we’ve been seeing ‘communal prosperity’ slowly seeping into financial services, particularly in terms of executive pay and bonuses, and the pay gap between management and junior staff,” Mazhiang said.
Whether Xi’s crackdown on billionaires will help him tighten his grip on power remains to be seen.
