Anbang Insurance, HNA, Dalian Wanda and Fosun were once known in China as the top four for their aggressive acquisitions overseas.
But following the government’s clampdown on such activities, the four companies have met rather different fates.
Anbang Insurance Group is in the worst situation now, while Fosun appears to have escaped unscathed. How shall we interpret such divergence?
Basically, all four had engaged in shopping sprees abroad that ran against the deleveraging theme under President Xi’s leadership.
These conglomerates have borrowed aggressively from domestic banks to snap up trophy assets overseas.
Especially in 2015-2016 when the renminbi was under considerable depreciation pressure, such big-ticket acquisitions drained the country’s foreign reserves and posed a threat to the stability of the financial system.
Chinese authorities then unveiled a string of measures to curb capital flight. And yet these big private companies didn’t think they should be concerned and continued to buy more overseas assets.
Wang Jianlin, chairman of Dalian Wanda and once China’s richest man, said in a speech at Harvard University in November 2015: “Overseas investment will certainly result in moving assets offshore. But there is nothing right or wrong in this. We can invest anywhere we want with our money.”
But as it turned out, Chinese business must put the country’s interest first and listen to what the top leaders are saying.
Fosun “got away with it” by convincing the authorities that its overseas purchases were aimed at bringing home technology and high-end brands to support China’s supply-side reform. That is perhaps why state media even gave the thumbs up to its latest acquisition, the French fashion brand Lanvin.
Dalian Wanda, on the other hand, has been offloading assets. Somehow, it seems to have survived the crisis.
HNA is still struggling. Meanwhile, Anbang has been officially charged with “fraudulent fundraising and improperly taking others’ assets”.
So perhaps we could draw some lessons from all this. When investing overseas, Chinese companies should not only think of profitability but also look at things from the point of view of the authorities and see whether the deals could also win political approval.
For example, Chinese carmaker Geely has acquired a 9.69 percent stake in Daimler for US$9 billion. The deal has been praised by the state-run People’s Daily. This gives us an idea of what the authorities see as a sensible overseas investment.
This article appeared in the Hong Kong Economic Journal on Feb 26
Translation by Julie Zhu
[Chinese version 中文版]
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