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Market Panics As "China's Warren Buffett" Detained In "Richter Scale 9 Event"
As several CSRC officials have learned over the past four months, being a “connected guy” vis-a-vis the Politburo does not necessarily mean you are immune when Xi and the Party decide it’s time to make an example of a few “chickens” in order to scare some “monkeys.”
China’s sweeping crackdown on sellers, “manipulators”, frontrunners, financial journalists and anyone else “suspected” of acting in such a way as to sow fear and uncertainty in the wake of the dramatic meltdown in Chinese equities that unfolded over the summer has ensnared money managers, high profile executives, and government officials alike. Earlier this week, it reached a crescendo with the disappearance of Guo Guangchang, known to some as “China’s Warren Buffett.”
As we reported on Thursday, the Fosun chief was “unreachable” according to the company which said only that it was “handling the situation.”
For anyone familiar with Beijing’s “kill the chicken to scare the monkey” campaign, it was easy to venture a guess as to what might have happened. While it seemed obvious that Guo had been “disappeared” by the Party, it wasn’t as yet clear what he was ultimately suspected of doing “wrong.” “Whether Beijing is questioning Guo about his habit of eschewing investments in China in favor of deploying capital overseas or whether Fosun did something 'wrong' in the markets during the selloff is hard to know,” we said.
We now have a bit more in the way of color regarding Guo’s detention and sure enough, he’s being “held in connection with an investigation.” In a statement, Fosun did not divulge Guo’s whereabouts, saying only that he’s helping with “certain investigations carried out by the mainland judicial authorities” and that he is still able to oversee “major matters” pertaining to his businesses.
As FT notes, “rumours of Mr Guo’s disappearance began to circulate in China on Thursday when influential financial publication Caixin cited unconfirmed reports that police had detained him when he arrived in Shanghai on a flight from Hong Kong.” Subsequently, business partners have only been able to establish “minimal contact” - his family has not been able to reach him.
As usual, there’s no word on whether Guo is in fact the subject of the investigation. If you’ve followed the witch hunt - which we recently learned is being run by Fu Zhenghua, a former Beijing police chief responsible for orchestrating an infamous prostitution bust, a campaign against "popular bloggers whose sometimes anti-establishment comments drew the ire of party leaders," and a decree prohibiting police officers from drinking alcohol outside of their homes - China likes to keep the explanations as vague as possible presumably for the chilling effect the ambiguity has on the rest of the market.
Guo, who earlier this year called himself an “apprentice” of everyone’s favorite octogenarian from Omaha, is worth nearly $8 billion, a fact which may have landed him in Xi’s crosshairs. “As China’s economy slows after three decades of furious expansion, conspicuous wealth has become suspect,” WSJ says, adding that “uncertainty about his situation has added to a chill in finance circles.”
As for the wider implications of Guo’s arrest, consider the following from FT:
His disappearance will fuel anxieties in the private sector that the anti-corruption crackdown launched by President Xi Jinping three years ago is being extended to high-profile entrepreneurs and the prime beneficiaries of China’s decades of rapid growth. It initially focused on ensnaring senior members of the government and military and financiers and is now broadening to prominent businesspeople in Shanghai.
Significantly, FT also suggests that “[Guo’s] case threatens to accelerate the pace of capital flight out of China as the country’s wealthy elite scramble to shift their assets offshore and out of reach of the Chinese authorities.”
“This is Richter scale 9 for the private sector in China,” one observer who tracks China's wealthiest people said.
Guo is also well connected in the Politburo. Here's The Journal:
In August, the tycoon was named during the sentencing for corruption of a former senior Communist Party member in Shanghai who had run a government-owned dairy company. Mr. Guo had granted the man favors for unspecified benefits, according to China’s official Xinhua News Agency, which said that Mr. Guo wasn’t accused of wrongdoing. Fosun issued a statement at the time, saying Mr. Guo supported China’s anticorruption push.
Like many other entrepreneurs in China, Mr. Guo has also remained close to Chinese leaders with positions on numerous official bodies, while some of Fosun’s businesses have overlapped with government priorities.
He has served as a deputy to China’s legislature, the National People’s Congress, as well as represented Shanghai on a high-level government advisory body called the Chinese People’s Political Consultative Conference.
"In March 2012, he met Mr Xi as he was poised to take over as the country’s top leader, and urged him to enact a series of economic reforms, including greater court protection for insurance companies, increased lending by non-bank financial institutions and greater scope for private equity businesses to operate," FT adds.
As we mentioned on Thursday, Fosun spent more than $6 billion buying stakes in 18 overseas companies between February and July. Here's a snapshot:
And here's an org chart:
Due to the fact that Guo has so much influence over the company, his absence (especially if he ends up being detained for a prolonged period) could well have a serious impact, something which WSJ notes was "illustrated in trading Friday when [a] trading halt for its primary business triggered selling in related stocks and bonds."
In other words, it's possible that this entire effort becomes self-defeating for Xi. If the widening probe ends up triggering trading halts and harrowing declines in the assets connected to the targets of the crackdown, then Beijing is simply fostering the type of instability it claims to be stamping out.
Furthermore, if the country's wealthiest people start to get the idea that they too will be targeted and brought up on trumped up charges, then you can bet they will move their money out of the country by any means necessary and no UnionPay POS mointoring scheme is going to stop them. Obvisouly, just about the last thing China needs to be doing right now is creating more excuses for rich Chinese to skirt capital controls just as the CFETS telegraphs a much larger devaluation for the yuan on the horizon.
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Bonus color from Deutsche Bank
Given that the company responded promptly in the past couple of episodes, we think any delay this time could be taken more negatively by the investors. Separately, it seems China has learnt its lessons from the Kaisa episode and hasn't lifted the corporate veil in such cases, clearly differentiating between the management vs. company operations. In almost every instance since Kaisa, Chairmen/founders have resigned, letting new management run the operations. We need to be mindful that Fosun is one of China's largest private sector enterprises and the repurcurssions of a Kaisa-like episode could be huge for China Inc.
Fosun 20s are marked around 15 points lower at ~90 (mid, 10% ytm) amidst thin liquidity, at the time of writing. This is a bit more than the roughly 10 point drop we have seen in recent times in the USD bond space in similar situations (Wuzhou being the latest). Our base case and gut feel at this stage is that the company should eventually be fine. Key risks include resignation of Mr. Guo as Chairman and possible breach of bank loan covenants (though we expect this to be waived, if at all), black box nature of company's operations, etc.
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Chinese water torture. No need for asset to remain, once information is obtained.
The Jello Effect, the tighter they squeeze the more slips it through their fingers
"It's an old Politburo message. It means he sleeps with the fishes."
Or like the old Larson message, when the PBJ mafia sends Billy to "sleep with the third graders"...
Pretty soon there won't be any big investors left in China. Just the PBoC and their algos.
Now that I think about it that's the Fed's wet dream.
It will be interesting to see the relative roles that PMs and bitcoin play in the capital flight that is surely coming. China will respond as Orwell predicted, by hitting thumbtacks with a sledgehammer.
The Chinese government prints their own money so they're not scared of these guys. They can only take 50k out of the country a year and the People's Bank of China can just pick up and resell anything they try and sabotage domestically. Bribing high level officials is just giving them their own money back to them since PBOC can give out loans infinitely to anything semi-legit that party disciplinary people don't think is too egregrious (e.g no golf or hooker parties).
50k a year? you haven't been to a casino in Macao. Adelson isn't netting a couple billion a year by organizing trade shows and dance numbers.
Janet Yellen
Goldman Sachs
Vote your choice in mysterious involvement.
Not the wording of a green-arrow hound. Learn your lesson!
Crony Capitalism Commie style.
Much simpler and more effective than criminal prosecution with courts and endless appeals.
He put 1.1 Billion into Club Med so he can kick the rabble out and move in where and when necessary. Only cute "G.O.s" need apply.
Wow. A Makarov round to the head.
it's a hybrid til it isn't - i guess.
You know, I don't care how many chickens they kill...
The monkeys ain't gonna lay no damn eggs for them.
If you're poor you get black lung, if you're rich you get black ops'd. Lovely place to live.
We "LOST" some folks.
Guo to his children: "finish all your dinner, there's little kids starving in America".
Hard to buy off commies who run the show anyway as they do in USSA
I bought the appartment next to Snowden. Trippled in value over the last 6 months.
Forget this idea that the communist party in china is communal. It's made up of dozens of factions, these group into alliances. The anti-corruption crackdown is nothing of the sort. It's just one faction taking one of the others out.
It's far more like the mafia than communism... Just like America.
These “investigations”, or “detentions” could complicate Judeo-Bolshevik plans.
I suspect that most alert observers recognize that America is on the verge of total collapse – and that Judeo-Bolsheviks are primary movers in this regard (this link is based entirely on articles published in the LA Times, and you’ll need your copy of the Old Testament beside you when you read it – else you won’t believe what is written).
Why would these ‘detentions” complicate their plans?
Based on evidence I’ve collected from publications of the Federal Reserve and federal government, it appears that JB’s are planning to transfer their booty taken from American sources to mainland China, and to emigrate there while America burns after its total collapse.
But, if these “detentions” should trigger a system-wide collapse in China, they could easily evaporate the booty already stashed there and make conditions so chaotic that no one would be safe there.
Where then, would Judeo-Bolsheviks flee as they try to escape from their victims…. Mars?
Judeo-Bolsheviks have been perpetrating mass genocides and general plunders continuously for at least 4,000 years. They’ve done such a complete job of reducing every nation on the earth to a condition of serfdom that there is simply nowhere on the planet for them to escape the usual, and ordinary, slave uprising.
Unfortunate it is, that the headline does not read banksters indefinitely detained and undergoing enhanced interrogation in the USSA.
China is a mirror image of the US. In US in last 15 years has been unleashed a accelerated process of corporate oligarchs taming the powers of political class via private taxing, monopoly and criminal immunity while in China Political class is taming the power of corporate oligarchs via brutality of security state. The result is exactly the same tighter fusion of corporate cronies into government functions a making of classical totalitarian regimes.
More on China and global economy crisis can be found here:
REVERSE CHINA SYNDROME: A VIEW FROM ABOVE.
https://contrarianopinion.wordpress.com/economy-update/
Looks like China is way ahead of the US, although the US did get Raj.
The UK? What a joke.
Must have been SELLING...maliciously, probably...
Free Jon Corzine
Hey, if the market keeps going down over here, they'll adress the "evil speculator shorters" also.
Remember what they did when the banks crashed in 2008?
I got mails about my short positions almost daily that it was illegal to own them.
I didn't give a fuck because they where to profitable and legal when I bought them.
But all that crap will also here.
i hope they beat him with sticks 3X per day
Until now, I've been thinking that the capital outflow was only about the slowing economy. It could "seem" to be a cost effective way of uncovering those who have something to hide? Just wondering.
"conspicuous wealth has become suspect"
I like that line, a lot. They say follow the money in investigations. Come the SHTF just google Forbes 500 and start tossing rope over trees, lamp posts or out a window of a high rise. In a sane world no man should be worth $8 bil. It is obscene.
A very obsolete article promoting the values of correct policies that foreign countries should adopt to attract western "investment". But Asia has seen enough of the western investment which basically is cheap borrowed money looking for quick returns.
The Chinese knows the money can never stay in China no matter what they do to "attract" foreign capital. So it is fuck you to western capitalism.
The Chinese will continue devaluing their currency, so that those who are earning in Yuan are less likely to convert tham back into US dollar.
And it is for this reason that the financial elite has decided to put Yuan within the FDR basket.
The Chinese Leader already said a few times clearly. Whatever turmoil happening in currency market has nothing to do with Chinese economy but western currency games.
SO, Don't hold you breath waiting for Chinese to play western financial games which is rigged for them to lose.
Games that are made possible by fiat ... not backed by anything at all ... except maybe, how fast it can be "printed"