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CEO Daily: Saturday, June 17, 2017

June 17, 2017, 7:13 PM UTC

I’ve been in India the past few days with intermittent Internet access but even from this side of the Himalayas it’s clear the week’s big China story is the abrupt disappearance of Anbang Insurance Group chairman Wu Xiaohui. A great deal has been written about the high-flying billionaire both before and after he vanished. But what strikes me is how little we really know about Wu despite his apparent wealth and prominence as a global dealmaker.

What we do know is plenty strange: that Wu rose from obscurity from Pingyan County on China’s eastern coast; that he somehow managed to marry the grand-daughter of Deng Xiaoping; that in little more than a decade he parlayed a small auto insurance business into a global financial conglomerate claiming assets of $300 billion. We know that Anbang vaulted onto the global stage in 2014 by plunking down nearly $2 billion for New York’s iconic Waldorf Astoria Hotel; that Wu became pals with Blackstone’s Stephen Schwarzman; that last year Anbang offered $13 billion to purchase Starwood Hotels and Resorts, only to abandon its bid following media scrutiny of its ownership structure. We also know that last November Wu met with Trump son-in-law and senior adviser Jared Kushner to discuss acquiring a stake in a Manhattan office building partly owned by a Kushner family company–and that in March that deal, too, was scuttled after the press started raising questions about conflicts of interest for Kushner, whose White House duties include oversight of China.

And, as of this week, we know that Wu is missing. Caijing, a prominent Chinese business magazine, reported that Wu had been hauled off by police last Friday. As of this writing, Beijing has issued no statement to confirm that Wu is under arrest or investigation. But on Tuesday, Anbang posted a notice its website stating that Wu is “for personal reasons no longer able to perform his duties.”

If Wu has been detained (and it certainly looks that way), we don’t know why. Was it for moving money out of China illegally? For falsifying financial records? For breaching domestic insurance regulations? All of the above? Or is he simply a pawn in a larger political game ahead of this year’s all-important Communist Party gathering to choose its next generation of leaders?

We also don’t know the extent of Anbang’s exposure to other Chinese lenders and whether troubles at Anbang could create broader risks for China’s financial system. Chinese regulators have told banks to reduce their dealings with Anbang and many have curtailed or ceased marketing Anbang products. A report in the Wall Street Journal warns that a government clampdown on Anbang could have “knock-on effects on the Chinese financial system” that might “deepen the drama.”

Nor do we know whether Anbang founder’s detention is a one-off or a sign that president Xi Jinping’s anti-corruption drive is shifting into higher gear. Over the past several years, a slew of rich and powerful Chinese have gone missing only to resurface as detainees, and later be convicted on corruption charges. (The LA Times lists some of them here.) For those remaining, the key question has to be: Wu’s next?

Clay Chandler

Technology and Innovation

Investors plow another $600 million into Mobike. The Chinese bike-sharing company says its latest round of fundraising, led by Internet group Tencent, attracted new capital from Sequoia Capital, TPG and Hillhouse Capital, which had previously invested in the Beijing-based group. Mobike also raised funding this round from the offshore units of state-controlled Bank of Communications and Industrial and Commercial Bank of China. Singapore-based asset manager Farallon Capital also piled in, joining previous investors such as Warburg Pincus and Singapore's Temasek. Mobike's growing warchest strengthens its position in its global battle with Didi Chuxing-backed rival Ofo. Mobike’s orange-wheeled bicycles are popping up everywhere, not only in China but Singapore and the company plans to launch operations in Manchester and Salford this month. Financial Times

Tencent hunts angry birds. The Information reports that the giant Chinese mobile entertainment provider is considering adding to its big game collection by acquired Rovio Entertainment, the Finnish creator of Angry Birds. Rovio says is open to a deal but is looking at a range of options including remaining independent and going public by the end of this year. The Information quotes a "person close to the situation" as putting the price tag for an acquisition Angry Birds at close to $3 billion. Bloomberg's Tim Culpan thinks Angry Birds isn't worth nearly that much money, and warns that if Tencent overpays for the Finnish company it will risk creating a different kind of challenge: angry investors. The Information

The Communist Party says China's Internet censor is too soft. Never mind that Google, Facebook, Twitter and just about every major Western media site is blocked in China, or that the already lengthy list of words and phrases that can't be searched from within China continues to expand.  China's Central Commission for Discipline Inspection, last week rebuked the nation's Internet watchdog as too permissive. In a statement posted on its website last week, the committee said that, after a month long inspection, it found that the Cyberspace Administration, the nation's Internet regulator had “for a period not carried out general secretary Xi Jinping’s important instructions and requirements resolutely and promptly enough." The criticism came just days after the Cyberspace Administration shut down nearly 100 social-media accounts run by celebrity news and gossip sites. South China Morning Post


Finance and Investment

Will China stocks finally crack the MSCI? Stocks listed on China's exchanges in Shanghai and Shenzhen already are included in many investment sub-indexes, but they have yet to hit the big time by winning inclusion in a popular international benchmark index. That may be about to change. Many investors are betting that the MSCI will move next week to include a cohort of Shanghai and Shenzhen-listed A-shares into its main emerging markets index. If they're right, funds all over the world will be obliged to to pour billions dollars into China stocks. The MSCI has reviewed and rejected including China stocks three times. The index is expected to announce after U.S. markets close Tuesday whether China's moment has arrived. Barron's

IMF raises China 2017 growth forecast to 6.7%, nudging up its previous forecast of 6.6%. But the Fund, in its annual review of the world's second-largest economy, warned that China must speed    economic reforms while it still has a buffer of stable growth. Financial Times


In Case You Missed It




China in the World

Is it too late to stop Chinese domination of the South China Seas? Time is running out, says Ely Ratner, a former national security adviser to Vice President Joe Biden. The Trump administration, he argues, "needs to take a firmer line" on the issue, and "supplement diplomacy with deterrence by warning China that if the aggression continues, the United States will abandon its neutrality and help countries in the region defend their claims."  Foreign Affairs

Panama switches sides. Panama, one of only 21 countries to grant diplomatic recognition to Taiwan, reversed policy this week, severing ties with Taipei to establish diplomatic relations with Beijing for the first time. The Panama government hoped that diplomatic links with China would boost trade investment and tourism opportunities. It also expressed keen interest in participating in China’s Belt and Road infrastructure initiative. Bloomberg

"Cooking up cold rice": That's the metaphor used by Chinese ambassador to Sydney Cheng Jingye this week to dismiss media reports suggesting that China has donated millions of dollars Australian lawmakers in an effort to win support for policies favored by Beijing. Chen labelled charges of Chinese meddling in Australia's political system "groundless" and "sensationalist" and said Australian news organizations reporting the donations have “wild and morbid” imaginations, which might one day be awarded a Nobel prize “if they were to apply their imagination to scientific research.” The Chinese ambassador decried the allegations as “politically motivated” and a danger to “friendly cooperation” between Australia and China. “Their main purpose, as I see it," Chen said, "is to instigate China panic.”The Guardian