When the investment bank China Renaissance Holdings said it had lost touch with Bao Fan, its prominent founder, it sent shudders through the investment community. Many feared it’s a sign another clampdown on the country’s financial industry may be in the works, with new banking and securities watchdogs coming this year. It’s not uncommon for executives to go “missing” in China, a country with a murky legal system. Sometimes they return to work, sometimes they go to prison. In Bao’s case, the company said about 10 days later only that he’s helping Chinese authorities with an investigation. Here’s what’s known about Bao:
1. Who is Bao Fan and what do we know about his absence?
Bao, 52, is one of China’s most prolific dealmakers. He’s known for being able to broker difficult mergers & acquisition cases, such as ones that led to the formation of Didi Global Inc. and Meituan. A former Morgan Stanley and Credit Suisse banker, Bao is well-known in China’s business circles for his sprawling connections across industries. Although Beijing-based China Renaissance, which is listed in Hong Kong, said on Feb. 16 that its operations were unaffected by Bao’s absence, the news has battered its stock. Bao’s family has been told he was assisting with an investigation — likely related to former China Renaissance President Cong Lin, a person familiar with the matter told Bloomberg News on Feb 17. On Feb. 26, the firm confirmed in a stock market filing that Bao was cooperating in an investigation by Chinese authorities. It provided no further details and suggested it hadn’t been in touch with Bao and didn’t know where he was.
2. What does a missing boss mean in China?
Increasingly in China, a suddenly absent boss has come to signal a crackdown or investigation by authorities. In many cases, the person is said to be “assisting” graft probes, or becomes the subject of an investigation into corruption or financial crimes in China. Often times, the companies themselves report they have lost contact with the boss and need to make their own inquiries into what happened within China, a country that has opaque disciplinary procedures.
3. What happened in the past?
It’s not uncommon for executives in China to become unreachable when they’re involved in a government probe. Some were later found to have been detained by authorities, while others eventually returned to their jobs.
- In 2015, Fosun Chairman Guo Guangchang briefly disappeared, to help with a government investigation. He later re-emerged, vowing to ensure the business was not reliant on any one individual.
- Financier Xiao Jianhua, who ran China’s Tomorrow Holding Co. empire, was taken away from Hong Kong by Chinese authorities in January 2017, the South China Morning Post reported at the time. In August 2022, Xiao was sentenced to 13 years in prison after the Chinese authorities found him guilty of illegally obtaining public deposits, breach of trust, bribery and the illegal use of funds.
- In August 2018, casino operator Landing International Development Ltd. reported its then-chairman Yang Zhihui had disappeared. But he then returned to the job three months later with the explanation that he was assisting authorities with an investigation. In November 2022, however, Landing said it had suspended Yang after the Securities and Futures Commission of Hong Kong started legal proceedings against him alleging he had breached fiduciary duties related to other business dealings.
4. What does this mean for investors?
Bosses that go missing underscore a big challenge for China investors: key man risk. When Chinese executives synonymous with their companies come under fire, it typically sparks a tumble in the stock market valuation and investors pay the price. While key man risk is an issue around the world, it can be particularly acute in China because the nation’s corporate founders play outsized roles. Take the prolonged absence of of Alibaba Group Holding’s founder Jack Ma. Although Ma was never reported “missing,” Alibaba shares took a beating after he disappeared from the spotlight in November 2020, after authorities torpedoed an initial public offering for affiliate Ant Group Co. It also heralded the coming crackdown on China’s entire tech sector. Ant said this year that Ma, who has kept a relatively low profile ever since, was ceding control of the company.
5. Is another financial industry crackdown coming?
It’s not clear, but Bao’s disappearance has certainly fueled investor jitters. In late 2021, Chinese President Xi Jinping launched a broad anti-corruption probe targeting the nation’s $60 trillion financial sector, which has brought down dozens of officials. The probe also implicated the investment banking community, ensnaring bankers from brokerages including Everbright Securities Co. and Guotai Junan Securities Co. This year, China is poised to name regulatory veterans known for their strict campaigns against financial wrongdoing as new chiefs of the country’s banking and securities watchdogs, Bloomberg News reported Feb. 17.
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