By Clay Chandler
July 22, 2017

Wang Jianlin, the billionaire chairman of property and entertainment giant Dalian Wanda, vowed famously last year to drive Disney out of China with homegrown amusement parks favoring patriotic performances and high-speed roller coasters. Wang’s love of country would appear to have gone unrequited. Attendance at his theme parks has been underwhelming. Meanwhile Wang himself has had something of a wild ride as government regulators have instructed banks to restrict credit to Dalian Wanda, forcing Wang to sell off assets.

On July 10, Wang stunned investors with an announcement that, to reduce debt, Dalian Wanda would sell off a controlling stake in most of its tourist attractions together with nearly all of its hotels in China, to Sunac China, a leading property developer, for $9.3 billion. Terms of the deal provoked howls of protest from major credit rating agencies. Sunac itself is so heavily indebted that Dalian proposed to lend the company $4.4 billion to facilitate the sale.

Days later, Wang relented, announcing that he would sell only the amusement parks to Sunac and had brought in a new buyer, Guangzhou R&F, to take on the hotels. The revised deal was worth $9.45 billion. Sanac was left to foot a smaller bill of $6.5 billion, eliminating the need for Dailin Wanda to float it a loan. At a press conference, Wang insisted the renegotiated deal was friendly. “No glasses were smashed,” he said.

Perhaps not. But many global investors see ample reason to worry about the risk of broken china in China — not just at Dalian Wanda, but throughout the nation’s financial system. China’s bank regulators have advised state-owned lenders to review their risk exposure to Dalian Wanda and three other companies that have been among the nation’s most aggressive overseas investors: Anbang Insurance, Group Fosun International and HNA Group.

Of the four, Dalian Wanda has moved the most decisively to restructure and may have the best prospects for revival. The group delisted its commercial unit from the Hong Kong stock exchange last year in hopes of re-listing on mainland exchanges in Shanghai or Shenzen where stocks trade a much higher multiples. But there is a huge backlog of companies hoping to do likewise and its not clear how long Wanda will have to wait its turn.

A document purporting to be an internal memo from the Agricultural Bank of China suggests China’s bank regulators have given state-owned lenders strict instructions not to lend to Dalian Wanda’s overseas operations. According to a report in Caixin, a leading Chinese financial news service, Wang has vowed to “actively respond to the state’s call” and intends to switch the focus of his investments to China’s domestic market.

Meanwhile, the New York Times reports that Bank of America has decided to stop doing business with HNA. As for Anbang, chairman Wu Xiaohui is still missing and presumed in the custody of Chinese graft inspectors.

This essay was originally published in our CEO Daily Newsletter. Subscribe.

The larger question is how the recent crackdown on high-profile overseas investors fits into Xi Jinping’s goals for restructuring the nation’s financial system. Xi convened a meeting of top officials in Beijing last week for a once-in-five years National Financial Work Conference. The meeting’s main achievement: creation of a cabinet-level committee to coordinate financial oversight, a task currently divided among four regulators including the People’s Bank of China.

Standard Chartered economist Ding Shuang hailed that move as a “positive” for China. But I’m inclined to concur with Cornell University economist Eswar Prasad, who faulted the conference for failing to grapple with the Chinese economy’s real problem: an over-reliance on debt-laden, unproductive state-owned enterprises.

“The lack of any substantive outcomes is troubling,” Prasad argued in the Financial Times. “With financial risks increasing even as the sector becomes more important to the economy, fundamental reforms rather than tinkering are needed. China’s leadership seems unwilling to tackle this head on, raising the odds of dire consequences.”

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