People pedal past a building shaped as a Chinese ancient coin on April 21, 2007 in Shenyang of Liaoning Province, Kina. (China Photos/Getty Images)People pedal past a building shaped as a Chinese ancient coin on April 21, 2007 in Shenyang of Liaoning Province, Kina. (China Photos/Getty Images)

After a record amount of capital outflows from China in 2016, Beijing is looking to reverse course this year.

Chinese authorities’ efforts to restrict capital outflows appear to be working. Foreign exchange reserves rose for four consecutive months through May, as inflows finally exceeded outflows. Outbound direct investment dropped almost 46 percent during the first six months of 2017 compared to the same period last year, according to official data.

Beijing is using a multipronged approach to stem the money flow. Regulators have restricted fundraising activities of insurance companies, a main source of recent foreign acquisitions. The China Banking Regulatory Commission (CBRC) in late June asked banks to check their exposure to several conglomerates with activities abroad, including the Dalian Wanda Group. And most recently, regulators are applying stricter standards before approving foreign investments and using state-controlled media to root out offenders.

China is especially targeting so-called “asset transfers,” or purchases of foreign assets with little to no potential economic returns. Such purchases, regulators believe, are purely used to shift or launder funds abroad.

“China will continue to encourage only genuine and rule-abiding outbound investments by financially competent companies,” said Wang Chunying, a spokesperson at the State Administration of Foreign Exchange (SIKKER), according to Caixin, a mainland business magazine. SAFE is China’s foreign-exchange regulator.

Reading between the lines, it’s clear that regulators believe some recent high-profile foreign acquisitions were backed by dubious financing, and the quality of such assets raises questions.

Leveraging Media

Beijing has also utilized the state-controlled media to step up criticism of the recent string of high-profile overseas acquisitions by Chinese companies, where academic and business experts publicly question the motivation behind such deals.

During a July 18 segment shown on state-owned China Central Television (CCTV), the host asked why a little-known Chinese appliance retailer would buy the Italian soccer club Internazionale, also known as Inter Milan, given that the company had been losing money for the last five years.

“Some companies are already highly indebted at home, yet they spend lavishly with bank loans abroad. … I think many overseas acquisition deals have a low chance of generating cash flow, and I cannot exclude the possibility of money laundering,” said Yin Zhongli, a researcher with the Chinese Academy of Social Sciences, during the CCTV segment, i følge the South China Morning Post. The Chinese Academy of Social Sciences is a think tank affiliated with the State Council, China’s cabinet.

Publicly traded shares of Suning, the appliance retailer that bought Inter Milan, immediately fell intraday following the CCTV segment. Yin Zhongli, the academic researcher, later clarified that he did not intend to call out Suning in particular, but was commenting in general about Chinese firms buying assets abroad.

I cannot exclude the possibility of money laundering.

— Yin Zhongli, researcher, Chinese Academy of Social Sciences

Curbing Dealmakers

SAFE spokeswoman Wang said the regulator would focus its attention on cross-border deals in real estate, hotels, entertainment, cinemas, and sports clubs.

The industries cited by SAFE are not coincidental—such companies were main targets of China’s dealmakers during the recent acquisition frenzy.

China’s banking regulator recently asked banks to look into their exposures to several Chinese conglomerates, including Anbang Insurance Group Co., Dalian Wanda Group Co., HNA Group Co., Fosun International Ltd., and Rossoneri Sport Investment Lux, which acquired Italy’s AC Milan soccer team in April.

Foreign real estate and hotels are frequent targets of insurer Anbang and conglomerate HNA, while Hollywood movie studios and cinemas have received heavy investment from commercial developer Wanda.

Ownership of foreign sports clubs has also drawn Chinese regulatory scrutiny. Rossoneri’s original proposal to buy AC Milan almost fell apart after it was postponed several times, due to Beijing’s refusal to sign off on certain funds leaving China. The deal finally concluded in April after billionaire investor Paul Singer’s hedge fund Elliott Management stepped in to provide partial financing. Besides the two Italian clubs, Chinese companies also have ownership stakes in English club Aston Villa, Spanish club Atletico Madrid, and French club OGC Nice.

HNA may be finding itself shunned by leading Wall Street banks and advisers.

Anbang chairman Wu Xiaohui was detained by Chinese authorities in June. Anbang had been one of the most active foreign dealmakers over the last three years. It owns the Waldorf Astoria hotel in Midtown Manhattan—currently closed for renovation—and Chicago-based Strategic Hotels & Resorts. I 2016, Anbang famously launched a failed bid to acquire Starwood Hotels & Resorts Worldwide.

Wu is believed to be a close ally of an influential political faction, led by former Party leader Jiang Zemin, that is in opposition to the Xi leadership. Jiang was head of the CCP for more than a dozen years (1989–2002) and continued holding sway over the Chinese regime through a network of cronies for another 10 år (2002–2012). Since entering office in 2012, Xi has waged a battle to uproot the influence of Jiang and his faction.

Sources close to Zhongnanhai, the central headquarters of the CCP, told The Epoch Times in June that Wu is one of the key “white gloves,” or money launderers, for the Jiang political faction and the family of Zeng Qinghong, the former Chinese vice premier and longtime Jiang confidant.

HNA and U.S. Banks

Another active foreign acquirer, HNA may be finding itself shunned by leading Wall Street banks and advisers.

Forrige uke, Bank of America Corp. told its bankers to stop working with HNA Group and its affiliated entities on future transactions, due to concerns about the group’s debt levels and opaque ownership structure, i henhold til en Bloomberg report. The report also stated that other banks, including Morgan Stanley and Citigroup Inc., gave similar directives to their staff.

A source at a major Wall Street bank confirmed the Bloomberg report.

For øyeblikket, HNA is closing on the purchase of a majority stake into hedge fund SkyBridge Capital LLC. SkyBridge’s founder and co-managing partner is Anthony Scaramucci, President Donald Trump’s new communications director.

Approvals are required from banks’ compliance departments before bankers can conduct business with potential clients, a process known as KYC (know your client), which scrutinizes a potential client’s credit-worthiness, track record, and ownership. Citigroup and Morgan Stanley struggled to obtain sufficient clarity on HNA’s sources of funding and its ownership structure, according to the report.

Similar to other Chinese conglomerates, HNA has a Hong Kong publicly listed arm, HNA Holding Group Co. Ltd., which is owned by a parent company with obscure ownership identities.

HNA’s ultimate structure is a complex web of investment trusts, provincial and local government agencies, and small-business ventures.

Thirteen individuals ultimately control 76 percent of the company through intermediary companies. Chen Feng, the public face of the company, controls 15 percent of HNA and has connections with former presidential candidate Jeb Bush and American investor George Soros. HNA’s biggest owner, Guan Jun (med en 29 percent stake), doesn’t work for the company and is a relative unknown. Listed addresses for Guan through various public filings and records include a side street beauty salon in western Beijing, a shabby Beijing office building, and a nondescript apartment building in southwest Beijing, i følge the Financial Times.

HNA is also highly indebted. Ved slutten av 2014, HNA had a combined debt of 196.9 milliarder yuan ($29.5 milliarder) on its balance sheet, compared to only 73.2 milliarder yuan ($10.9 milliarder) of equity, according to prospectuses filed with the Irish securities regulators in connection with a 2015 $1 billion bond offering of one of its subsidiaries.

While actions of individual U.S. banks may have little to do with Chinese politics or regulatory desires, the path forward for Chinese companies looking to acquire foreign assets is becoming more and more difficult.

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People walk past an entrance to the Anbang Group's offices in Beijing, juni 14. (AP Photo/Mark Schiefelbein)People walk past an entrance to the Anbang Group's offices in Beijing, juni 14. (AP Photo/Mark Schiefelbein)

In a move that stunned New York dealmakers at the time, the famed Waldorf-Astoria Hotel on Park Avenue was sold in 2014 to a little-known Chinese company.

That Chinese company is Beijing-based Anbang Group, an insurance conglomerate known for its aggressive overseas asset purchases, including a failed 2016 bid to acquire Starwood Hotels and Resorts. På tidspunktet, Chinese companies were engaged in a global takeover spree, and Anbang appeared to be leader of the pack.

Merely a year later, the once high-flying Anbang is suddenly grounded.

Anbang billionaire chairman Wu Xiaohui has been detained by Beijing authorities. And several Chinese state-owned banks were told to stop their dealings with the company, sources told Bloomberg on June 15. Its more than 30,000 employees and nearly $300 billion of assets are left hanging in the balance.

I juni 9, Beijing anti-corruption investigators detained Wu, ifølge Financial Times. While it is yet unclear if the Central Commission for Discipline Inspection will announce a formal investigation of Wu, he is certainly the highest-profile business executive reeled in so far by Chinese leader Xi Jinping’s sweeping anti-corruption efforts.

Anbang’s Meteoric Rise

In a short time, Anbang has risen from relative obscurity to become one of China’s largest holders of foreign assets. Before its activities were curtailed recently, Anbang had become well known among Western private equity firms and real estate moguls as a competitive bidder for assets.

Wu and Anbang have cultivated extensive business and political connections abroad. Wu is known to be close to Jonathan Gray, head of real estate at U.S. private equity giant Blackstone Group. A few of Anbang’s recent asset acquisitions have been bought from Blackstone. Wu was also in discussion to acquire a stake in the Manhattan office tower owned by Jared Kushner, son-in-law and senior advisor of President Donald Trump, but the deal was called off in March.

I dag, Anbang’s portfolio of well-known foreign assets includes the Waldorf-Astoria Hotel, de 717 Fifth Avenue building in New York, the Chicago-based Strategic Hotels & Resorts Inc., Belgian insurer Fidea, Belgian bank Delta Lloyd, and a controlling stake in South Korean insurer Tongyang Life Insurance.

Anbang_holdings

List of major foreign asset holdings of Anbang Group, as of June 1, 2017 (The Epoch Times)

‘White Gloves’

Anbang’s sudden fall seems as startling as its rapid ascent. What caused the disgrace of Wu Xiaohui, who led a conglomerate described by the Financial Times in 2016 as “one of China’s most politically connected companies?"

I Kina, business is always driven by politics. And Wu’s political network could very well landed him in trouble.

Wu was in discussion to acquire a stake in the Manhattan office tower owned by Jared Kushner.

Wu’s background, like many other Chinese tycoons, is relatively obscure. Born in Wenzhou, Zhejiang Province, Wu founded Anbang as a small insurance company in 2004. His fortunes elevated after marrying Zhuo Ran, a granddaughter of former Chinese Communist Party (CCP) leader Deng Xiaoping.

Overseas Chinese language media and sources of this newspaper note that Wu and Zhou are now divorced, although Wu and Anbang have publicly denied such reports.

Wu, 50, is believed to be a close ally of an influential political faction that is in opposition to the Xi leadership. Jiang Zemin was head of the CCP for over a dozen years (1989–2002) and continued holding sway over the Chinese regime through a network of cronies for another ten years (2002–2012). Since coming to office in 2012, Xi Jinping has waged a battle to uproot the influence of Jiang and his faction.

Sources close to Zhongnanhai, the central headquarters of the CCP, told The Epoch Times that Anbang and Wu have close ties to the family of Zeng Qinghong, the former Chinese vice premier, member of the powerful Politburo Standing Committee, and longtime confidant of Jiang.

The source said that both Wu and Xiao Jianhua—the Chinese billionaire and Tomorrow Group owner who was abruptly brought back to Beijing from Hong Kong for investigation earlier this year—are key “white gloves,” or money launders, of the Zeng family and the Jiang faction.

The source added that Wu and Xiao used financial transactions to funnel and launder funds abroad on behalf of the Jiang faction, while at the same time parlaying their roles as business tycoons to spy on and influence foreign dignitaries.

There are questions surrounding the sources of Anbang’s capital. The company was founded in 2004 as a small insurer with a mere 500 million yuan ($73 million) of capital and eventually became a behemoth with assets of almost 1,971 milliarder yuan ($292 milliarder).

Anbang’s capital suddenly swelled in 2014, with a number of mysterious investors injecting a total of 50 billion yuan into the company. Research by Caixin, a respected mainland business magazine, found that some of Anbang’s 39 investors are obscure outfits such as auto dealerships, real estate firms, and mine operators that sometimes use shared mailing addresses, many of whom are connected to Wu. There’s also a trend of major state-level investors scaling back their ownership, with SAIC Motor Corp. and Sinopec decreasing their ownership levels from 20 percent each to 1.2 prosent og 0.5 henholdsvis prosent.

Waldorf_hotel_17

The Waldorf-Astoria hotel is shown January 17, 2005 in New York City. (Spencer Platt / Getty Images)

The insurer also relies on fundings from selling risky wealth management products called universal life policies. These products offer high interest rates and are a hybrid bond and a life insurance policy, have been extremely popular with consumers dissatisfied with bank deposit rates of around 1 prosent.

Crackdown on ‘Barbaric’ Insurance Sector

Xi Jinping has made reforming the financial industry a core focus this year. At a speech on March 21, Premier Li Keqiang urged authorities to take powerful measures to prevent corruption in the financial sector, which is vulnerable to the advent of shadow banking, bad assets, and illegal internet financing, according to state-controlled media Xinhua.

Xi has also shown he’s unafraid to challenge captains of industry with extensive political connections. Wu’s detention is the latest in a string of recent disciplinary actions taken against high ranking officials within the financial industry, and thus far, with the insurance sector as ground zero. I februar, chairman of financial conglomerate Baoneng Group Yao Zhenhua was banned from the insurance industry for ten years. I April, the former head of China Insurance Regulatory Commission (CIRCUS) Xiang Junbo was placed under investigation.

Sources close to Zhongnanhai have told The Epoch Times early this year that the Xi leadership is focusing on tackling corruption in the Chinese financial industry in 2017.

China’s insurance industry has garnered immense power—and controversy—during the last six years, a period of deregulation overseen by its former chief regulator, Xiang, currently under official investigation.

From 2012 til 2016, China’s insurance sector grew 14.3 percent overall, and non-life insurance grew 16.5 percent in premium volume, according to data from Munich Re. I fjor, China overtook Japan to become the world’s second biggest insurance market by premiums.

During this period, the insurance sector has turned into a den of corporate raiders.

Insurers are traditionally bastions of conservatism, holding stable assets such as government securities and corporate bonds. Insurers by nature must consider preservation of their clients’ capital as paramount. These assets are also liquid and can be easily sold to pay back policy-holders.

Flush with cash from universal life policies, Chinese insurers embarked on a spending spree, amassing portfolios of risky assets not typically associated with insurance, such as stocks, eiendom, and foreign companies. Such assets are risky and illiquid, and could impede an insurer’s ability to repay holders during times of distress.

The insurers most closely associated with such practices are Evergrande Life, Foresea Life—a unit of Baoneng—and Anbang. These companies’ business model closely resemble a private equity fund, where capital is expensive and investment returns are the main focus.

I fjor, Foresea and Evergrande amassed a large stake in residential real estate developer China Vanke. A public and protracted dispute to wrest control of Vanke from founder and CEO Wang Shi—one of China’s most famous entrepreneurs—ensued, creating a market firestorm that was finally dispelled after Beijing intervened in December.

In late 2016, China’s insurance regulator criticized the entire domestic insurance industry, calling its aggressive purchases of Chinese companies “barbaric.” Wang Shi also portrayed Foresea’s stock accumulation as “barbarian,”En referanse til 1989 book “Barbarians at the Gate” about the hostile takeover of RJR Nabisco by private equity giant Kohlberg Kravis Roberts & Co.

In just six months, Xi has replaced China’s top insurance regulator, banned the sale of universal life policies, and for now, seemingly brought a wild industry to its heels.

But years of free-wheeling cannot be corrected overnight.

Foresea, which depends on cash from sales of universal life products, issued a warning last month of financial difficulties leading to potential social unrest from its customers unless regulators lift the ban on such products. In a letter to regulators, Foresea called for a lifting of ban “to avoid mass riots by clients, causing systemic risks and much damage to the wider industry.”

Reference to “mass riots” is anathema to the CCP and a potential challenge to the Xi leadership. The insurance industry, in the end, may not give up without a fight.

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A Xiaomi store is seen in Beijing Jan. 12, 2015.(Wang Zhao / AFP / Getty Images)A Xiaomi store is seen in Beijing Jan. 12, 2015.(Wang Zhao / AFP / Getty Images)

Recent years haven’t been kind to Chinese smartphone maker Xiaomi, China’s biggest company in the industry three years ago.

The company’s market share has steadily eroded since 2014. In fourth quarter 2016, Xiaomi’s smartphone shipment volume and market share was 7.4 prosent, less than half of its 2015 market share and a distant fifth behind current leaders OPPO, Huawei, and Vivo, according to data from market research firm IDC.

OPPO and Vivo—who share the same parent—came out of nowhere to displace Xiaomi and dominate the middle range of the Chinese smartphone market—a segment filled with commodity-like Android devices sold at lower price points than devices from Apple and Samsung.

Beyond Xiaomi’s sluggish sales, its fortunes were further dented by the January departure of Hugo Barra, head of the company’s international business and arguably its most well-known figure. Barra joined the company in 2013 as a VP from Google, and has been instrumental in building Xiaomi’s business abroad most notably in India where Xiaomi maintains a 6.6 prosent markedsandel.

Despite declining sales, Xiaomi still has higher ambitions. Its Chairman Lei Jun styled himself as China’s homegrown Steve Jobs, and the company recently joined Apple as one of the few global smartphone makers to design and manufacturer its own processor chips.

Xiaomi_China_IDCQ416

(Kilde: IDC)

Homegrown Chip

Xiaomi announced its own chip, called Pinecone Surge S1, on Feb. 28 at an event at the China National Convention Center. The chip—which has eight cores running at up to 2.2 GHz—is used in the company’s new midrange Mi 5c smartphone. With this, the company joins Apple, Samsung, and domestic rival Huawei as the only smartphone makers in the world with their own processor manufacturing capabilities.

Xiaomi’s introduction of a self-made chip is interesting on a few fronts.

The private startup has not raised capital since 2014, when Xiaomi was valued at $45 billion by investors. I dag, given slowing sales, its valuation is presumably lower. But during the launch event to unveil its new smartphone chip, Xiaomi deviated from its usual script of thanking investors for their ongoing support. I stedet, Lei Jun flashed a slide that read, “Thanks for the government’s support,” according to the Wall Street Journal.

While few details about Xiaomi’s funding from Beijing are known, the support seems to be broad-based. According to Lei, financial backing came from a semiconductor development fund set up by Beijing, China’s Ministry of Science and Technology, and Beijing’s municipal government.

Beijing has identified semiconductors as a nationally important sector and last year, numerous funds were set up at the national, provincial, and local levels to support sector R&D. China’s desire to be self-sufficient in the sector was driven by foreign government opposition to acquisitions of semiconductor companies by Chinese firms due to security concerns.

Xiaomi’s new chip is also a shot across the bow of leading global chipmaker Qualcomm by the Chinese communist regime. China has long eyed Qualcomm’s dominance among high-end smartphone chips with disdain. Beijing fined Qualcomm in 2015 for almost $1 billion after a years-long investigation into supposed “anti-competitive practices.” As part of the fine, Qualcomm was forced to lower the royalty rates it charged Chinese smartphone makers using the company’s chips. Qualcomm’s royalty calculation basis was lowered from 100 percent of selling price as was the norm globally, til 65 percent of the selling price for Chinese phones.

Broadening Product Range

Politics aside, Xiaomi’s introduction of its own chip shouldn’t have a material impact on Qualcomm’s business. All of China’s leading phone brands use Qualcomm chips in some of their smartphones, especially the higher end ones. And Xiaomi’s meager global market share isn’t likely to have a meaningful impact to Qualcomm, even if it ceases using Qualcomm chips entirely.

But given Xiaomi’s current struggles—the company last year decided to stop releasing quarterly smartphone shipment figures—the chip is all about its future. Having a first-party chip allows Xiaomi to cut production costs and obtain control over a vertically integrated process from design to hardware to software (Xiaomi has its own MIUI Android custom OS).

This is the model Apple has built and perfected over two decades. And Xiaomi is among the earliest first movers to tackle the “internet of things” and smart home ecosystem products in China. The new chip allows Xiaomi to more effectively connect and integrate its wide range of product offerings.

For eksempel, Xiaomi has been an aggressive player in the wearables segment. Its Mi Band wrist monitor has a 15.2 percent global market share right behind Fitbit, according to IDC. It’s the fastest growing major brand in the wearables sector, with year-over-year growth of 96 percent compared to Fitbit’s decline of 22.7 prosent.

Xiaomi has a broad range of connected home and personal products spanning action cameras, routers, smart coffee machines, and smart scales. Its most recent product is a smart guitar with accompanying app to facilitate learning.

Taking another page from Apple and Samsung’s playbook, Xiaomi has been quietly amassing a portfolio of patents.

Xiaomi recently bought intellectual property (IP) assets from Intel, Broadcom, Microsoft, and most recently Casio, according to IAM, a leading IP industry journal. The lack of IP portfolio has long been an Achilles’ heel for Xiaomi; it’s a chief reason for the company’s limited scope outside of China. Amassing IP assets should further equip Xiaomi for future growth.

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The headquarters of investment bank JPMorgan at Chater House in Hong Kong. (Bilder fra Philippe Lopez / AFP / Getty)The headquarters of investment bank JPMorgan at Chater House in Hong Kong. (Bilder fra Philippe Lopez / AFP / Getty)

Two of the biggest global banks, HSBC and Citigroup, announced they are under investigation by the U.S. Securities and Exchange Commission (SEC) for candidate hiring practices.

It’s believed that the investigations focus on the banks’ hiring of so-called princelings, or children of state-owned enterprises or government officials, in Asia. Companies have used this practice to curry favors with local politicians or business executives in order to win business, mostly in China.

Such probes into a widespread industry practice have long been expected, but they serve to further crimp the competitiveness of Western banks in an increasingly difficult market.

HSBC and Citigroup are not the only banks under inquiry. Goldman Sachs, UBS, and Credit Suisse have also received letters from the SEC seeking information related to hiring practices in Asia. The practice is widespread beyond the banking sector, as chipmaker Qualcomm last year was also investigated for hiring princelings in China.

Last November, New York-based JP Morgan Chase agreed to pay $264 million to settle U.S. probes into its hiring of princelings of well-connected officials and executives in China. JP Morgan was the first company to settle with U.S. authorities over hiring practices in China.

HSBC disclosed on its earnings call on Feb. 22 that the impact of ongoing SEC investigation and possible resolution could be “significant.”

‘Quid Pro Quo’

“JP Morgan engaged in a systematic bribery scheme by hiring children of government officials and other favored referrals who were typically unqualified for the positions,” said Andrew Ceresney, Director of the SEC Enforcement Division in a statement after the JP Morgan settlement.

According to Department of Justice records, JP Morgan bankers kept a spreadsheet to track the hiring of princelings, including their relationship to new business. An email from a Hong Kong banker—who copied then-head of JP Morgan’s Asia-Pacific investment banking—even inquired upon how to “get the best quid pro quo” deal from the parents of such princelings.

Amongst the hirings probed by regulators was Tang Xiaoning, the son of the chairman at China Everbright Group, a state-owned financial services holding for which JP Morgan was in initial talks for IPO issuance and other possible deals.

It’s a thin tightrope for banks. Investment banking is a relationship business, and the business culture in Asia emphasizes personal relationships, or “guanxi” in Chinese. In some cases, JP Morgan was on the receiving end of referral requests to hire such princelings by senior executives at existing clients, according to Department of Justice records.

Global investment banks were quick to rush into the Chinese market without the opportunity to build a solid foundation—cultivated over years of relationships.

The “quid pro quo” evidenced in the myriad JP Morgan emails obtained by regulators seemed shallow and lacked the presence of real “guanxi.” JP Morgan was far from the first bank to use its princeling hires as leverage. According to a Bloomberg report, JP Morgan ramped up its hiring program after the bank lost a key deal to competitor Deutsche Bank in 2009 because the client’s chairman’s daughter had worked for Deutsche.

It’s not hard to see how “quid pro quo” deals could be tempting for global banks operating in an often-inhospitable market. Banking is a protected core industry to the Chinese Communist Party, and Western banks have been losing market share to domestic Chinese competitors over the last decade. Advisors to companies raising capital often come across sensitive corporate financial data—information Beijing may not want foreign banks to witness.

Take a quick glance at investment banking league tables and it’s evident that foreign banks face an uphill battle in China. Many Western investment banks are retrenching their business in China. Among the top equities advisors in Asia-Pacific (excluding Japan), China International Capital Corp. is No. 1 and Goldman Sachs is the only non-Chinese bank among the top five bookrunners, according to Dealogic. And no foreign bank resides among the top five Chinese onshore debt advisors.

Why Is Hiring Princelings a Crime?

It’s common for U.S. corporations to hire the sons or daughters of American politicians and business executives. American universities also compete to admit the children of powerful politicians, business executives, and celebrities—with the hope of winning business, in their case fully paid tuition bills and possible donations.

But it seems companies operating in emerging markets face greater scrutiny over corruption. The ongoing SEC investigations and settlements reached so far are related to the U.S. Foreign Corrupt Practices Act (FCPA), which bar U.S. corporations from engaging in bribery overseas.

“The FCPA prohibit … authorization of the payment of money or anything of value to any person while knowing that all or a portion of such money or thing of value will be offered, given or promised directly or indirectly to a foreign official to influence… or to secure any improper advantage in order to assist in obtaining or retaining business for or with or directing business to any person,” according to the Department of Justice.

The regulators interpret the hirings of princelings to be bribes (thing of value) to Chinese officials in order to directly curry favors and win business.

In the most public case—JP Morgan—the bank’s hiring of princelings clearly wasn’t just a one-off idea or the under-the-table strategy of one department. The bank seemed to run a well-orchestrated but unfortunately named “Sons and Daughters” program. The plan was documented and recorded within memos and tracked on spreadsheets, and its specific goal was hiring princelings to win new business.

That is the difference between a “wink wink nod nod” arrangement and a documented program. And it came at a cost of $264 million to JP Morgan shareholders.

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Anbang Insurance Group's headquarters in Beijing, mars 16, 2016. (AP Photo / Andy Wong)Anbang Insurance Group's headquarters in Beijing, mars 16, 2016. (AP Photo / Andy Wong)

Beijing’s recent decision to crack down on activities of Chinese insurance companies could push insurers toward riskier asset investments and create a liquidity crunch within the industry.

Industry regulator China Insurance Regulatory Commission (CIRCUS) announced strict new rules late December, curbing an industry that has been flush with cash. The new rules are choking a main source of funding and growth for insurers by lowering their allowed investments into stocks (til 30 prosent), and barring insurance companies from using customer deposits to fund large equity purchases.

The regulations come after a period of unprecedented growth for the Chinese insurance industry. From 2012 til 2016, China’s insurance sector grew 14.3 percent overall and non-life insurance grew 16.5 percent in premiums volume, according to data from Munich Re. I fjor, China overtook Japan to become the world’s second biggest insurance market by premiums.

Traditionally, insurers are considered to be bastions of security by holding conservative assets such as government securities and corporate bonds.

But not in China. Sensing opportunity in a low interest rate environment, Chinese insurers have expanded outside of traditional insurance activities. They have been the biggest issuers of wealth management products called universal life policies. These products, which offer high interest rates and are a hybrid between a bond and a life insurance policy, have been extremely popular with consumers dissatisfied with bank deposit rates of around 1 prosent.

Flush with cash but saddled by promises to pay high yields, Chinese insurance companies poured money into assets not traditionally associated with insurers. These firms took large positions in Chinese publicly listed companies and snapped up overseas assets including foreign companies and real estate.

For eksempel, Evergrande Life—a unit of property developer China Evergrande Group—saw its premiums increase more than 40 fold in 2016. It used the proceeds to accumulate a significant stake in rival developer China Vanke last year.

Som en bransje, insurance has been a major driver of Chinese foreign acquisitions. Anbang Livet er i forkant av slike kjøp. It made headlines in 2015 for purchasing New York’s Waldorf-Astoria hotel for nearly $2 milliarder. I 2016, det kjøpt Strategiske Hotels & Resorts fra Blackstone Group for $6.5 milliarder. Most recently, Anbang has been in negotiations to purchase U.S. life insurer Fidelity & Guaranty Life for $1.6 milliarder, a deal which has been put on hold for New York insurance regulatory review. Anbang’s biggest gambit was a failed $14 milliarder tilbud om overtakelse av Starwood Hotels & Resorts Worldwide.

Riskier assets—such as equities—accounted for 49 percent of the insurance industry’s assets at the end of November 2016, en 27 percent increase from the end of 2013, according to a report by Moody’s Investors Service.

Som en bransje, insurance has been a major driver of Chinese foreign acquisitions.

“In particular, the industry’s rising exposure to single-name equity investments is increasing concentration risk, and leaves the insurers’ profitability and capital profiles sensitive to capital market movements,” analyst Kelvin Kwok wrote in the Moody’s note.

Cashflow Problems

Chinese regulators are concerned about the size of stock investments on insurers’ balance sheets. Such stock investments are risky and volatile, and could put depositors’ capital at risk.

CIRC’s fears are not unfounded.

Traditional insurers manage their business by attempting to match projected payouts of liabilities—such as annuities and insurance payouts—with assets whose cash inflows are stable and predictable enough to fund the outflows.

But the explosive growth of universal life policies, and the insurers’ acquisitions of riskier, longer-dated assets, throw this model out of the window. Insurers such as Evergrande Life have marketed universal life policies with very high yields (up to 8 eller 9 prosent). And to attract even more customers, these products often have no penalty for early withdrawal.

As such, insurers are forced to buy riskier assets to grow their capital enough to fund such high promised returns. But with insurers holding such large stakes in Chinese listed companies, if depositors withdraw their capital en masse, it could suddenly force the insurers to sell their stakes and cause the stock market to plunge.

China Life holds a 44 percent stake in China Guangfa Bank and a 30 percent stake in Sino-Ocean Group. Foresea owns large stakes in Gree Electric Appliances and China Vanke. If they are forced to sell their stakes, the Chinese stock market could see a sudden downturn.

Insurers such as Anbang, which owns several entire foreign companies, has trapped cash and will find it even more difficult to raise money quickly.

This means that to stay liquid, insurers are forced to sell more universal life policies in the short term—with new proceeds used to pay interest on existing policies.

But that source of capital is quickly drying up, and a liquidity crunch could ensue. Anonymous sources told Chinese-based 21st Century Business Herald that is CIRC is preparing to block sales of certain universal life policies entirely. The CIRC temporarily suspended a handful of insurers late December, including Evergrande and Foresea, from selling universal policies over the internet.

Buyers of new policies are finding the returns have lowered. Marketing a 4.7 percent return on a two-year universal product, an Anbang customer service agent in Shanghai told a reporter from the South China Morning Post, “It could be the highest return on the market nowadays. Next time you come, you might not get hold of a product with no fees on early surrender of two years.”

Some insurers have already felt the squeeze. Evergrande Life, according to regulatory filings, reported that its solvency rate dropped from 180 percent to around 110 prosent ved utgangen av 2016.

Solvency rate of 100 percent is the minimum threshold for insurers in China.

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Shoppers walk pass a Cartier store in Beijing, august. 25, 2015. (Kevin Frayer / Getty Images)Shoppers walk pass a Cartier store in Beijing, august. 25, 2015. (Kevin Frayer / Getty Images)

Luxury shopping is back in vogue in China. Sales growth increased year-over-year for the first time since growth stalled after Chinese communist leader Xi Jinping began its anti-corruption campaign in 2013.

I dag, much of the sales growth is coming from within China, with consumers eschewing overseas shopping trips to make their purchases domestically and online.

Luxury goods sales growth had historically been strong in China. The market expanded 19 percent annually from 2007 through 2014, according to consultancy Bain & Co. “But since 2014, China has seen a more modest performance,” Bain said in its 2016 Luxury Goods Market Study.

During 2013 og 2014, luxury sales were hampered by Xi’s anti-corruption campaigns. That was followed by 2015’s stock market crash which further sapped consumer spending power. “However, i 2016, at constant exchange rates, the market grew 4%, the first sign of a revitalization in three years.”

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Chinese luxury market expanded at 4 percent adjusted for effects of currency (Bain & Co.)

Kering Group, which operates Gucci and YSL brands, said on Feb. 10 at 2016 same-store sales increase of 11 percent in Asia ex-Japan, which was mostly led by a rebound in China. LVMH, which owns brands such as Louis Vuitton, Bulgari, and Hennessy, also highlighted positive momentum going forward in its fourth quarter earnings call with investors. Hugo Boss Group’s Mainland China same-store sales also increased close to 20 percent during 2016, adjusted for currency.

That’s good news to the luxury goods sector—from Swiss watches to high fashion and expensive cognac—for which Chinese consumers make up around 30 percent of all global sales. In a note to investors, analysts at investment firm Exane BNP Paribas expects growth to continue to trend upwards during 2017, with Swatch Group, Richemont SA, and Burberry the companies most likely to gain.

The growth during the second half of 2016 was led by middle-class consumers, a segment that retailers and luxury brands aim to court going forward. Middle-class sales will be especially important as sales in the super high-end bracket could be volatile this year leading up to the 19th National Congress of the Communist Party in the autumn.

E-commerce Gains

Positive contribution is also expected to come from a platform that has been underutilized by luxury brands in the past—e-commerce.

But that is quickly changing, according to a joint study by Exane BNP Paribas and ContactLab. Luxury brands are increasing their presence online and on mobile across a variety of platforms, including standalone websites and storefronts on popular Chinese e-commerce portals such as Tmall, Secoo.com, and JD.com. This is a departure from luxury sales strategy in the West, where most of such sales still originate from physical stores and white-glove customer service is a large driver of purchase decision.

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(Illustration by Exane BNP Paribas and ContactLab)

Increased personalization and localization has helped some brands in China.

Montblanc and Chanel are two luxury brands that set up stores within the social networking hub WeChat, to take advantage of Chinese consumers’ affinity for mobile shopping. Burberry is also one of a handful of brands that offer localized website content, such as partnerships with Chinese celebrities and region-exclusive promotions.

Overseas Sales Lag

There are some headwinds facing luxury retailers, such as a weak yuan and Beijing’s crackdown on overseas spending. These factors will help increase sales domestically at the expense of overseas purchases.

The growth during the second half of 2016 was led by middle-class consumers.

Last year’s so-called parcel tax enacted by the Finance Ministry has already put a dent in online overseas purchases of luxury goods. The tax, similar to import duties, is levied on all consumer online purchases shipped directly to China. Samtidig, Beijing also cut actual import duties on imported goods such as clothing and cosmetics to drive down domestic prices and repatriate overseas Chinese consumers spending.

These efforts—along with recent terrorist attacked in France and Germany—have largely kept Chinese consumers home in the second half of 2016.

Pricing decisions by luxury retailers also contributed to this trend. Luxury goods maker Richemont—which owns Cartier, Van Cleef & Arpels, and Dunhill—and Chanel were two of the first companies to normalized prices globally, setting the same price on a single product across all markets before effects of local currencies and taxes.

This trend served to narrow the price difference on the same item between China and abroad—a principle reason why many Chinese consumers previously made purchases outside of China.

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Pakistani and Chinese workers sit on an excavator as they leave the newly built tunnel in northern Pakistan's Gojal Valley, on Sept. 25, 2015. The project is part of China's ambitious One Belt, One Road initiative. (Aamir Qureshi/AFP/Getty Images)Pakistani and Chinese workers sit on an excavator as they leave the newly built tunnel in northern Pakistan's Gojal Valley, on Sept. 25, 2015. The project is part of China's ambitious One Belt, One Road initiative. (Aamir Qureshi/AFP/Getty Images)

China’s “One Belt, One Road” initiative seeks to makes infrastructure investments in more than 60 countries across Asia, Africa, and Eastern Europe. But it also could burden China’s already capital-constrained banks with even more risky assets, increasing default rates and further destabilizing the country’s financial system.

The program lends to developing countries to finance roads, bridges, and other infrastructure projects as part of Beijing’s broader efforts to expand trade and influence.

While policy banks such as the Asian Infrastructure Investment Bank (AIIB) have pledged support, a large portion of financing expects to come from China’s major commercial banks.

Source of Demand

The project has been described as China’s version of the “Marshall Plan.” It aims to do more than just upgrade the infrastructure of developing countries. The initiative was created partly to cultivate new markets to buy up China’s large excess capacity in the steel, kull, and container shipping industries.

Beijing for years has looked to cut dependency on heavy industries. But it cannot do so without simultaneous lowering economic growth rates and creating potential social instability in its poorer inland and Northeastern provinces whose economies depend on coal and steel production.

Projects sponsored by One Belt, One Road provide a vehicle to sell such surplus coal and steel to developing countries, and increase utilization of maritime shipping.

Repayment Question

According to estimates from Fitch Ratings, total overseas loans—including One Belt, One Road—extended by Chinese banks during the first half of 2016 utgjorde $1.2 billioner, with commercial banks providing two-thirds of the funding.

“The lack of commercial imperatives behind OBOR (One Belt, One Road) projects means that it is highly uncertain whether future project returns will be sufficient to fully cover repayments to Chinese creditors,” a Jan. 26 Fitch report warned. Med andre ord, the ratings agency is skeptical as to whether the loans would be repaid as agreed. Fitch assigns “junk” ratings to several markets China invests in, but a few nations, such as Laos, have no rating at all and are highly risky.

The entire project is more of a political gamble than a calculated commercial venture. It would be less a concern if One Belt, One Road was primarily funded by infrastructure or policy banks, or the Chinese government directly. The issue lies in that most of the funding for the initiative was provided by commercial banks. These banks hold most of the cash savings of ordinary Chinese consumers, are publicly listed, and their stocks are widely held by retail investors.

“Banks do not have a track record of allocating resources efficiently at home, especially in relation to infrastructure projects—and they are unlikely to have more success overseas,” Fitch said.

Systemic Risks

One Belt, One Road hardly represents the first instance that commercial banks have been forced to put political interests ahead of profitable commercial activity.

While the structure of most loans is not public, it is believed that the loans have variable seniority, with the most senior (least risky) tranches going to the commercial banks. But if returns are subpar, the initiative could put further strain on an already taxed banking system.

Chinese domestic infrastructure loans already make up a disproportionately large part of total non-performing loans (NPL) within the banking sector.

Officially, China’s NPL ratio—the ratio of NPLs to total loans outstanding—was 1.81 percent during the fourth quarter 2016, a bit higher than the 1.76 percent reported at the third quarter, according to the China Banking Regulatory Commission.

But independent estimates peg the actual rate of NPLs at much higher. Third-party estimates from CLSA and other banks state China’s NPL rates to be as high as 15 til 20 prosent.

Infrastructure loans already make up a disproportionately large part of total non-performing loans (NPL) within the banking sector.

Beside the rate of bad loans, the speed of growth in total debt has been dizzying. Debt in the non-financial sector grew almost 75 percent since 2011, compared to the 8.6 percent in debt growth during the same period leading up to the 2008 financial crisis.

Additional loans from the One Belt, One Road initiative will likely only exacerbate China’s growing NPL problem, and could lead to a banking system crisis.

And the crisis wouldn’t just be confined to the Chinese banking system. From the perspective of borrowers, failure to repay the loans could trigger crises for the governments and regional economies of the countries receiving the investment.

Some countries, such as Laos, provided guarantees or asset collateral to backstop their One Belt, One Road loans, which could raise lending recovery rates in the event of repayment difficulty. For eksempel, Kyrgyzstan’s debt from China’s Export Import Bank was almost 20 percent of its GDP in 2015.

Whether the ambitious One Belt, One Road project can succeed will have huge ramifications within the Chinese banking system, and impact the economic well-being of several regions.

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A driver uses his smartphone to pay the highway toll using Alipay, an app of Alibaba's online payment service, at a toll station on the Hangzhou-Ningbo Expressway in Hangzhou, Kina.
(Bilder STR / AFP / Getty)A driver uses his smartphone to pay the highway toll using Alipay, an app of Alibaba's online payment service, at a toll station on the Hangzhou-Ningbo Expressway in Hangzhou, Kina.
(Bilder STR / AFP / Getty)

By most accounts, China is the global leader in internet banking and financial technology (fintech) investments.

Fintech’s relevance in China will be on full display this month—during last year’s Chinese New Year holiday week, consumers used Tencent’s WeChat app to send out more than 30 billion digital red envelopes.

Chinese search provider Baidu Inc. in January became the latest technology giant to open a direct bank, joining forces with investment firm China CITIC Bank to form Baixin Bank. Baixin will offer online-only banking and lending services for consumers and small businesses.

With this launch, Baidu joins internet giants Alibaba and Tencent Holdings (together, BAT) in offering direct banking through online banks. Tencent, which runs China’s largest social network WeChat, formed WeBank in 2014. Alibaba introduced two of China’s most successful fintech ventures in MYBank and Ant Financial.

Other Chinese companies are following BAT into the internet banking foray. In late December Xiaomi, one of China’s biggest online smartphone sellers, bought a 30 percent stake in Sichuan XW Bank, a major internet bank in Western China which leverages data to target small-businesses and consumers. Meituan.com, a website that specializes in group buying, also formed an internet bank called Jilin Yilian Bank, which received its banking licenses on Dec. 16.

Fintech investments surged to $8.8 billion in the twelve months ended June 30, 2016, according to a joint report by DBS Bank and consultancy firm EY. tidlig 2016, Ant Financial alone raised $4.5 milliarder, the largest single private placement in fintech history, putting a $60 billion valuation in the Alibaba-affiliated company. In total, fintech attracted around half of all of Chinese venture capital during 2016.

The major internet banks have performed well financially relative to other startups. In an interview with Chinese media last December, WeBank CEO Gu Min said that financial performance was above expectations and the internet bank was on track to break even or eke out a small profit for 2016.

Two Factors Driving Growth

Fintech’s growth in China is largely an extension of services from BAT, China’s dominant technology giants. There are more than 700 million smartphones in use in China. Those three companies control much of the online and mobile life of Chinese internet users, and converting millions of captive users already in the fold is an evolution of their product strategy.

But the pervasiveness of fintech isn’t just about sheer numbers. I USA, Facebook and Amazon.com both have millions of captive users, but the companies’ banking and payment services are still in their nascent stages with low adoption rates.

The biggest growth enabler of fintech and internet banking is the traditional banking industry in China. The major banks’ complete neglect of large swaths of consumers, small businesses, and private enterprises has single-handedly spurred recent rise of fintech in China.

China_bank_access

(Kilde: EY and DBS data as of 2014. Illustration by The Epoch Times)

The phenomenon is akin to consumers in parts of Africa quickly moving from having no telephone service to widespread mobile phone adoption, skipping land line service entirely.

China’s big banks generally focus on serving local and regional governments, state-owned enterprises, and large private companies.

Despite being the world’s second-biggest economy, one in five of China’s adults doesn’t have a bank account, according to the DBS and EY report. Bank access for consumers is especially poor outside of major cities. Besides solving the access issue, online banks provide consumers with cheaper and more tailored, customized products.

Small and medium-sized businesses make up another segment overlooked by major banks. While accounting for 60 percent of China’s GDP and 80 percent of urban employment, they make up only 20 til 25 percent of total loans originated by banks.

Despite being the world’s second-biggest economy, one in five of China’s adults doesn’t have a bank account.

This under-served sector has been a major benefactor of internet banks in recent years. During the first eight months after its launch, MYBank said it disbursed over 45 milliarder yuan ($6 milliarder) of credit to over 800,000 small to medium-sized businesses.

Large banks also haven’t kept pace in digital infrastructure. The consultancy McKinsey & Co. estimated that major Chinese banks only invested 1 til 3 percent of their pre-tax income to new technology and digital innovations, far below the 17 til 20 percent earmarked for technological innovation at global banks outside of China. The Industrial and Commercial Bank of China, the country’s biggest bank by assets, has recently upgraded its mobile apps and online access, but such services are only available to its corporate clients as of now.

Risky Business

The growth of internet banking in China has also seen its share of problems. Peer-to-peer (P2P) lending is one area within fintech that fizzled in 2016 after explosive initial growth.

Ezubao—at one time China’s biggest P2P lender—turned out to be a Ponzi scheme, defrauding almost $8 billion from 900,000 investors. The company’s collapse set into motion new regulatory rules issued last year to regulate P2P lender activity, including requirements to register with the state, appoint bank custodians, and disclose their use of deposits.

P2P’s rise and fall underscores the risks of fintech’s quick growth in China. Internet banks must receive banking licenses, and fintech solutions provided by major companies such as BAT are often self-regulated and have large internal credit departments.

But other corners of fintech—a broad term that covers everything from mobile payments to online wealth management—are lightly policed and often little understood. Regulators have often been slow to react to market trends and sheer number of new companies formed.

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A user posing with an iPhone showing an installed New York Times app on Jan. 5 i Beijing. (Fred Dufour/AFP/Getty Images)A user posing with an iPhone showing an installed New York Times app on Jan. 5 i Beijing. (Fred Dufour/AFP/Getty Images)

China’s “Great Firewall” has been central to the Communist Party’s strategy of controlling what residents can and cannot browse online. Websites ranging from search engines, discussion forums, to online media are closely monitored and censored.

Up until now however, mobile apps occupied a corner that has largely been under the radar of the “Great Firewall.” Alphabet Inc’s Google Play Store isn’t available in China and Apple Inc.’s App Store has a severely limited selection of apps in China. Outside of a few major domestic players, Chinese mobile app stores haven’t been heavily regulated.

Forrige uke, new regulations were passed aimed at reining in the hundreds of unregulated mobile app stores in China. The exact number of app stores are unknown, but marketing firm AppInChina estimates that over 200 exist currently. Most of these stores have little to no established process to vet apps before their release.

The announcement was released by the Cyberspace Administration of China (CAC). Since Jan. 16, mobile app stores must register with the CAC to continue to operate legally. Such registration will make it visible to authorities who owns the app store and how many apps are present, allowing regulators to shut down stores as necessary.

Fragmented Market

Despite Beijing’s stance on regulating mobile app stores, the environment and fragmentation of the market makes it almost impossible to enforce the new measures.

The biggest smartphone platform in China—a country with more than 700 million smartphone users—is Google Android. But Google Play, the default app platform of the operating system, is disabled in China. This gave rise to a proliferation of third-party app stores, the biggest ones are those run by the nation’s large technology companies such as Tencent, Baidu, Xiaomi, and Alibaba. App stores run by these large companies are self-regulated.

Content that would be strictly blocked on a Chinese website sometimes could be found inside mobile apps.

But hundreds of other smaller third-party app stores have also sprouted, many with low security and vetting standards. Content that would be strictly blocked on a Chinese website can sometimes now be found inside mobile apps downloaded from these platforms.

Like many Chinese regulations, the guidelines are vague and open-ended. “It’s almost impossible for the regulators to register and supervise all the millions of apps there one by one,” Zhu Wei of the China University of Political Science and Law told the Wall Street Journal.

Hard to Enforce

Judging by the CAC’s language, the enforcement, monitoring, and censorship of content within these apps seems to fall on those operating the mobile app stores. The model CAC has adopted is to police the app stores, with the hope that the app stores will police the apps within.

But that’s a strategy that has proven faulty.

Earlier this month, the New York Times app was taken down by Apple after Chinese government censors demanded Apple remove it. Apple told the Times that its app violated local laws, without elaborating on which laws it violated.

This is hardly a surprise, until one realizes that the New York Times’ website has been blocked by China since 2012. This means that while Chinese censors intended to fully block access to New York Times’ content since 2012, Chinese residents were still able to access New York Times content through its mobile app for the last five years.

And this example involves Apple and New York Times, two of the most visible targets of Chinese censors. There are millions of Chinese mobile apps across hundreds of app platforms, most of which are small, private, and lack the resources to self-censor all of the apps and their content.

How long will it take to cull all of them?

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Entrance of Chinese peer-to-peer (P2P) lender Ezubao is seen in Hangzhou, Zhejiang-provinsen, on Dec. 17, 2015. Ezubao, once China's biggest P2P lender, was uncovered as a massive Ponzi scheme. (Bilder STR / AFP / Getty)Entrance of Chinese peer-to-peer (P2P) lender Ezubao is seen in Hangzhou, Zhejiang-provinsen, on Dec. 17, 2015. Ezubao, once China's biggest P2P lender, was uncovered as a massive Ponzi scheme. (Bilder STR / AFP / Getty)

Boom-to-bust cycles come and go quickly in China. Chinese peer-to-peer (P2P) lending growth slowed significantly in 2016, as a leading P2P lender was caught in a massive fraud and the industry faced a slew of compliance regulations to weed out unqualified firms.

P2P lending exceeded 2.8 trillion yuan ($400 milliarder) i 2016, a jump from 2015 but at a far slower pace than the increase from 2014 til 2015. P2P lending activity stalled during the second half of the year after authorities issued strict new rules expected to cripple the majority of industry players in the next year.

P2P allows individuals to lend to other individuals while earning high interest rates. As a platform, P2P has been at the forefront of China’s financial technology industry. Thousands of P2P firms sprouted in the last few years, which connect investors (lenders) with borrowers.

These firms help fill a gap in the market. Banks—already buckling under piles of bad loans—are reluctant to offer credit to consumers or small businesses, many of whom are internet-based and cannot provide collateral. Middle-class investors, i mellomtiden, are flush with cash but have few places to put it for a return. P2P firms offer platforms to connect yield-hungry investors with cash-strapped individuals or small businesses.

New Barriers to Entry

Following a slew of P2P industry scandals in 2015 og 2016, the China Banking Regulatory Commission (CBRC) and three other regulators issued rules last August for P2P lenders. Compliance is mandatory by August 2017.

The rules aren’t directed at P2P arms of giant internet firms such as Tencent and Alibaba—which have in-house credit rating arms to weed out suspect borrowers. Authorities seek to regulate the massive underbelly of the industry, consisting of thousands of small and poorly run P2P lenders often targeting unqualified borrowers and promise high returns to investors. I fortiden, the industry’s very low barrier to entry meant that “almost anyone can open one of these platforms,” Barry Freeman, cofounder of Chinese P2P lender Jimubox, told Business Insider last year.

China’s “Big Five” banks have been reluctant to take on P2P lenders as custodian clients.

CBRC’s new rules will require P2P lending companies to appoint qualified banking institutions as custodians and disclose their use of deposits. The custodian rules is especially important as it would require the funds to be held outside of the company at a state-regulated bank to minimize misuse or theft of investor deposits.

Authorities also expect to conduct on-site examinations of risk management, IT infrastructure, and shareholder verification before certifying P2P lenders.

Most P2P Firms Expect to Close

Så langt, China’s “Big Five” banks have been reluctant to take on P2P lenders as custodian clients, despite recent regulation. Most of the P2P firms that did sign up custodians have used small regional banks.

For banks, servicing most P2P firms is unprofitable due to the industry’s fragmentation and small scale, and its recent negative publicity—once large P2P firms such as Ezubao and Boliya turned out to be scams. Custodian fees charged to P2P lenders vary but is believed to be high, with annual maintenance fees of up to 300,000 yuan ($40,000) and up to 20 basis points (0.2 prosent) of commissions on deposits.

The new barriers mean rule adoption has been slow for P2P lenders. Only around 180 bedrifter, or less than 10 percent of viable P2P lenders, have signed up with custodian banks at the end of 2016, according to P2P001, an industry tracker.

Bare 200 P2P lenders—a fraction of the P2P industry which is believed to have between 2,500 til 3,000 total lenders—are expected to pass the regulatory review process and remain viable by next year, according to estimates by the South China Morning Post. The majority will shutter their business and return capital to investors.

Biggest P2P Fraud Case Set to Begin

The weeding out process begins just as the much-publicized trial of the executives of Ezubao—once China’s biggest P2P lending platform which turned out to be a scam—is set to commence.

Ezubao, which once held around 60 milliarder ($9 milliarder) yuan in deposits, was deemed a Ponzi scheme. The lending platform allegedly defrauded between $6 og $8 billion from 900,000 investors during its 18 months in operation. As part of the Ezubao scandal, Beijing launched a website specifically dedicated to rooting out P2P industry fraud as a channel for investors to submit complaints online.

As many P2P firms prepare to close and return funds to investors, the question becomes how much investors’ capital has already been lost.

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I en fil bilde, gruvearbeidere skyve vognene inneholder kull i en gruve i qianwei, Sichuan. (Liu Jin / AFP / Getty Images)I en fil bilde, gruvearbeidere skyve vognene inneholder kull i en gruve i qianwei, Sichuan. (Liu Jin / AFP / Getty Images)

Et oppsving i globale kullprisene ble en av de største historiene i råvarer i løpet av andre halvdel av 2016. En mer enn 90 prosent økning siden midten av året i referanse australske termisk kullprisen har løftet aksjer i internasjonale kullprodusenter.

Men ikke si det til kinesiske kullprodusenter. Den siste rally i kullprisene har ikke reversert av velstand for mange kinesiske kullprodusenter fortsatt vasse i overleveraged balanser, høy gjeldsbelastning, og svak etterspørsel.

Siste obligasjonsmarkedet lidelser av disse selskapene signaliserer flere mislighold kan ligge i forkant for kinesiske utstedere land som billioner yuan i obligasjoner forfaller i 2017.

Sichuan Coal Standard

Statseide Sichuan Coal Industry Group savnet en obligasjon betaling på desember. 25. Totalt 1 milliarder yuan ($150 million) i prinsippet pluss renter skyldtes.

Det var den andre standard for kull selskap i år. Sichuan Coal også savnet en rentebetaling i juni, men at standard ble til slutt løst etter at Sichuan regjeringen trappet. Obligasjonsinvestorer ble utbetalt i slutten av juli med lån fra statseide Sichuan Provincial Investment Group og et konsortium av lokale og nasjonale banker.

ATC_Coal

Australske termisk kullprisen under siste tolv måneder (Indexmundi.com)

Andre kinesiske statseide bedrifter (SOEs) opplever lignende likviditetsproblemer. Kinas største utlåner-Industrial and Commercial Bank of China-on desember. 30 enige om å investere i Taiyuan Iron & Steel Group, Datong Coal Mine Group, og Yangquan Coal Industry Group via gjeld til egenkapital swaps. Slike bytteavtaler har vært et sentralt verktøy Beijing for å redusere gjeldsgrad blant selskaper med statlig eierandel ved å utveksle gjeld for egenkapital. De swaps umiddelbart eliminere gjeld og redusere leverage ratio på cash-strapped bedrifter.

Stål, kull, og annen tungindustri har vansmektet på svak global og innenlandsk etterspørsel. Beijing også lansert et program for å stenge dårlige gruver og planter og redusere sin kull produserende kapasitet. Kinas Shanxi-provinsen i nordøst er den største kull-produserende område, sto for mer enn 25 prosent av landets kullproduksjon i fjor.

Billioner av Yuan bli Due

historisk, obligasjons mislighold har vært uhørt i Kina. Men i 2016, 55 bedriftens mislighold ble registrert, mer enn dobbelt så mange for 2015. Og 2017 vil trolig se enda flere mislighold.

Mer enn 5.5 trillion yuan ($800 milliarder) i obligasjoner med løpetid til 2017, eller 1.8 billioner yuan mer enn 2016, henhold til Kina Chengxin International Credit Rating Gruppe. Det er en betydelig mengde kontanter kinesiske selskaper må komme opp med i løpet av neste år.

Sichuan Coal standard gode kommune- avslår å utvide en annen bailout-kunne signalisere at kinesiske kommunist myndigheter er villige til å tillate flere obligasjons mislighold fremover. I sannhet, analytikere har ventet massive obligasjons standarder for år, mens Beijing har vært selektiv i å velge hvilke selskaper med statlig eierandel å kausjon ut. Uansett, antallet av slike redningsaksjoner har sunket, understreker myndighetenes økende komfort nivå med å la selskaper mislykkes. Med den betydelige mengden av obligasjoner med forfall i 2017, en topp i obligasjons mislighold vil trolig resultere.

Fremme utfordringen kinesiske selskaper er det økonomiske bakteppet, som ikke ser vennlig for det kinesiske obligasjonsmarkedet.

Kinas vaklevorne finansielle systemet er bygget helt på overleveraging med billige gjeld.

I likhet med resten av det globale obligasjonsmarkedet, Kinesiske obligasjoner har allerede vært under press fra US-. Federal Reserves planer om å heve kortsiktige renter. Dette har hevet rentene over hele verden. Kinas 10-års statsobligasjonsrente avgjort på 3.07 prosent på desember. 30, litt lavere enn midten av måneden, men langt høyere enn den 2.8 prosent utvalg i begynnelsen av 2016 (obligasjonsrenter og prisene beveger seg i motsatt retning).

Konfrontert med økt risiko for kapitalflukt, Kina kan velger å veilede sine egne priser høyere. Men i et slikt scenario, innhenting av ny gjeld ville bli uoverkommelig dyrere i en tid da mange kinesiske selskaper står overfor likviditetsproblemer blant avtagende økonomisk vekst. Sentralbankens tiltak vil ytterligere presse kinesiske låntakere behov for ny gjeld for å rulle over eksisterende gjeld.

Kinas vaklevorne finansielle systemet er bygget helt på overleveraging med billige gjeld. Det er spesielt utsatt for renteøkninger og uten den type økonomisk vekst er nødvendig for å tåle slike renteøkninger.

Med så mye gjeld som forfaller og bevæpnet med få muligheter til å hente inn ny kapital, 2017 kunne stave katastrofe for cash-strapped kinesiske selskaper.

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Oppo sin OnePlus 3 Smarttelefonen er sett på et lanseringsarrangement i New Delhi juni 15, 2016. (Bilder Money Sharma / AFP / Getty)Oppo sin OnePlus 3 Smarttelefonen er sett på et lanseringsarrangement i New Delhi juni 15, 2016. (Bilder Money Sharma / AFP / Getty)

Det er slutten av 2016, og de mest populære smarttelefoner i Kina-en nasjon av 700 millioner smarttelefonbrukere-Arent laget av Apple, Samsung, eller kinesisk kult merket Xiaomi.

Oppo og Vivo, to lite kjente selskaper i Vesten, har kommet til å dominere det kinesiske markedet for smarttelefoner bruker tilsynelatende antikverte markedsføringsstrategier.

Per tredje kvartal 2016, Oppo holdt den største smarttelefon markedsandel på 16.6 prosent, med Vivo tett bak med 16.2 prosent. Huawei og Xiaomi kom i tredje og fjerde, med 15 prosent og 10.6 henholdsvis prosent, ifølge markedsundersøkelser firmaet Counter. Apple var en fjern femte med 8.4 prosent markedsandel.

De to selskapene kom ut av tilsynelatende ingensteds å selge millioner av smartphones. Oppo salg var 84 prosent høyere enn i fjor, hovedsakelig på populariteten til OnePlus, en linje av smarttelefoner med edgy design, high-end spesifikasjoner, og lave priser. Vivo er avhengig av enkle, men solide design og rock-bottom priser, en formel som propelled salget 114 prosent høyere enn tidligere års.

En Sårbar Xiaomi

Telefonen markedet i Kina er ganske enkelt å gå inn, men vanskelig å dominere.

Ved den høye enden av markedet, Apple fortsatt regjerer. Rundt $60 milliarder av Apples totale salget ble generert fra Kina alene i fjor, og det var ikke så lenge siden at Apple konkurrerte med Xiaomi-som hyllet seg selv som Kinas egen Apple-for topp smarttelefon markedsandel. Mens Apple har fortsatt et kvelertak på den øvre enden av markedet, sin posisjon har erodert over det siste året på grunn av Beijings blokkering av iTunes, en bremse kinesiske økonomien, Xi Jinping anti-pode tiltak, og en flom av billigere, men høy kvalitet alternativer.

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Det er den midterste området av markedet som er mer interessant, og det er der Oppo og Vivo har nylig utmerket seg. Dette er et marked som har sett mange vinnere dukke opp i løpet av årene som Lenovo, Huawei, og mest kjent, Xiaomi. Xiaomi CEO Lei juni stylet seg selv som en Kina-versjon av Steve Jobs, fokus på design, high-end spesifikasjoner, men til en lavere pris enn Apple. Xiaomi-populært med urbane Millennials-var kjent for sin høyprofilerte lanseringen parter og inntil nylig, en Internett-bare salgsmodell.

Men Xiaomi kjører en versjon av Googles Android operativsystem. Og uten en app økosystem for å låse brukere, selskaper funnet at kundelojalitet var nesten ikke-eksisterende blant råvare som smarttelefoner som kjører Android. Selv en merkevare med kultstatus som Xiaomi var utsatt for nyere deltakere.

Going Brick og mørtel

Oppo og Vivo er begge eid av Guangzhou-baserte BBK Electronics, et selskap startet av Billionaire investorer og entreprenør Duan Yongping. Begge merkene har lignende tilnærminger til selger telefoner.

De observerte at Xiaomi var en favoritt av urbane millenials-minst de som ønsker et billigere eller Android-basert alternativ til Apple iPhone. Xiaomi inntil nylig bare solgt telefoner direkte via sin hjemmeside, og fremmet hver telefon utgivelse via hip lanseringsfester.

Oppo og Vivo så en åpning i å jobbe med butikker, hvor to av tre telefoner er fortsatt selges i Kina. Selskapene spesielt målrettet butikker utenfor de store byene og i distriktene, der forbrukerne er mer prissensitive, har mindre tilgang til internett, og plassere mer avhengighet av lokal teknisk og kundestøtte. Oppo og Vivo inngått samarbeid med detaljhandel selgere i små leverandører og tilbudt betydelig affiliate salgsprovisjoner og subsidier til selgere.

"Oppo og Vivo er villig til å dele sin profitt med lokalt salg,"Jin Di, en analytiker ved markedsundersøkelser IDC, fortalte Bloomberg.

"Belønningen var en svært aktiv og lojal landsdekkende salgsnett. De gjør noe annet, de gjør lokal markedsføring. "

Det er en gammeldags strategi, men det er en passe med kinesiske forbrukere utenfor de store byene. De små leverandørene tjene som selskapenes lokale selgere, teknisk støtte, og kundestøtte. Med den ekstra insentiver, de bidra til å fremme produktene til venner og forbrukere på WeChat, og styre salget bort fra konkurrentene mot Oppo og Vivo telefoner.

Deres andre killer app? Oppo og Vivo telefoner bære ofte kraftig, zoom-aktivert frontkamera for selfies.

Xiaomi, i mellomtiden, har flyttet opp markedet de siste årene. Det produserer nå en rekke andre produkter som for eksempel videokameraer og "Internet of Things" hjemme-enheter i et forsøk på å posisjonere seg som Kinas hjemmelaget Apple.

Gjennom suksessen med Oppo og Vivo, Xiaomi også innsett verdien av å ha en retail tilstedeværelse. Det kjører nå et par hundre butikker i Kina.

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Investorer ser prisbevegelser på skjermer i Beijing februar. 22. Kinas forsikring regulator sa risikabelt aksjemarkedet spill av innenlandske forsikringsselskaper undergraver stabiliteten. (Greg Baker / AFP / Getty Images)Investorer ser prisbevegelser på skjermer i Beijing februar. 22. Kinas forsikring regulator sa risikabelt aksjemarkedet spill av innenlandske forsikringsselskaper undergraver stabiliteten. (Greg Baker / AFP / Getty Images)

Nyheter Analyse

Beijing har slått ned på innenlandske forsikringsselskaper, undertrykke industrien over hva som regulatorer har nylig anses spekulative investeringer. Flyttingen såre forsikringsaksjer, kjører nedover Shanghai Composite Index 3 prosent i uken endte desember. 15.

Det er et trekk som ytterligere befester Kinas "Wild West" business rykte: landskapet er mest lovløse, men du vet aldri hvem som vil sitte i byen for å ødelegge festen.

Chen Wenhui, nestleder i Kina Forsikring Regulatory Commission (CIRCUS) varslede strengere regelverk enn industrien på desember. 13, inkludert senke prosenter av egenkapital som skal holdes, og sperre forsikringsselskaper fra å bruke forsikrings innskudd for å finansiere aksjekjøpene.

Chen fordømte forsikringsselskapene for å lage spekulative aksjemarkedet spill og forstyrre markedet stabilitet, ifølge en lederartikkel i kommunistpartiet munnstykket folks daglige. I tillegg, KRETS lansert undersøkelser i to privateid forsikringsgiganter-Evergrande Livsforsikring og Foresea Rednings, en enhet av forsikringsgiganten Baoneng.

Beijing har vært tett overvåking forsikringsselskapenes virksomhet i flere måneder. Deres høyt belånte utstyrskjøp er risikabelt, og hvis aksjekursene faller, sine formuer kunne fort rakne.

Men tidspunktet og arten av sprekken ned er interessant. For en, Beijing har forsøkt å begrense strøm av kontanter, og forsikringsselskaper har vært en viktig agent for utenlandske aktiva oppkjøp i løpet av de siste tolv månedene. Samtidig, KRETS undersøkelse to spesifikke forsikringsselskaper kan være drevet av en helt annen motiv.

Stanse Avløp

Kinesiske forsikringsselskaper er i flukt med penger fra salg av såkalte "universal life" produkter, en høyrente hybrid produkt som kombinerer død nytte og investeringer. Foresea er "universelle liv" produkter, for eksempel, lover avkastning på mellom 4 til 8 prosent. For å finansiere høy avkastning, forsikringsselskaper har vært å utnytte opp til å kjøpe eiendeler både i Kina og utlandet.

Som en bransje, forsikring har vært en viktig driver for utenlandske oppkjøp. Anbang Livet er i forkant av slike kjøp. Anbang skapte overskrifter i fjor for å kjøpe New Yorks Waldorf-Astoria hotell for nesten $2 milliarder. Tidligere i år, det kjøpt Strategiske Hotels & Resorts fra Blackstone Group for $6.5 milliarder, og sist, Anbang har vært i forhandlinger om å kjøpe rundt $2.3 milliarder av japanske bolig eiendomsmegling eiendeler, også fra Blackstone. Anbang største gambit i år var det feilet $14 milliarder tilbud om overtakelse av Starwood Hotels & Resorts Worldwide.

Tidspunktet og natur sprekk ned er spennende.

Fosun er et annet konglomerat som finansierer kjøp av eiendeler fra forsikring datterselskaper. Fosun har en diversifisert portefølje av utenlandske eiendeler, inkludert kjente utenlandske aktiva som feriested operatør Club Med, sirkusforestilling troupe Cirque du Soleil, tilbehør maker Folli Follie, kvinners motemerke St. John, og downtown Manhattan skyskraper One Chase Manhattan Plaza.

Cash forlate landet har akselerert yuan er devaluering. Men kanskje av større bekymring for kinesiske myndigheter er likviditet og cash forlater landets banksystem. Kinas banker allerede står overfor høye lovovertredelse priser og motta jevnlige likviditets injeksjoner fra sentralbanken. Mens offisielle misligholdte dekning på store bankene er lave (rundt 2 prosent), sanne lovovertredelse priser-som påvirker bankenes kontanter og likviditet-er anslått til mellom 20 til 30 prosent.

Begrense forsikringsselskapenes evne til å generere kontanter som kan brukes til å finansiere utenlandske oppkjøp-derfor indirekte begrenser kontantuttak og bevarer likviditet på kinesiske banker.

Beijing griper inn i Vanke

Utenfor generelle restriksjoner på selskapenes virksomhet, KRETS aksjon mot Evergrande og Foresea er den mest alvorlige.

Regulators utestengt Foresea fra utsteder "universal life" politikk som gjorde opp nesten 90 prosent av firmaets premie. Foresea har brukt slike premier i de siste månedene for å øke sitt eierskap i en rekke høyprofilerte kinesiske selskaper.

KRETS også utestengt Evergrande Livet, forsikringen enhet av stor eiendomsutvikler Kina Evergrande Gruppe, fra å investere i aksjer. I en kunngjøring på sin hjemmeside, KRETS sa Evergrande er "aktivaallokering plan er ikke klart, og dets kapital finansieringsvirksomhet ikke er standardisert. "

Beijing beslutning om å gripe inn i Foresea og Evergrande er interessant, gitt at de to forsikringsselskapene gigantene er begge store aksjonærene i China Vanke, en stor boligeiendomsutvikler. Evergrande og Baoneng både eier store andeler i andre kinesiske selskaper, men Vanke er den mest offentlige og kjente.

Baoneng gjennom Foresea og flere andre datterselskaper assurandører-er Vanke største aksjonær og har vært låst i en langvarig tvist å fravriste kontrollen av selskapet fra Vanke grunnlegger og administrerende direktør Wang Shi, en av Kinas mest kjente og tidligste gründere.

Forrige uke, KRETS kritisert hele innenlandske forsikringsbransjen, kalle sine siste investeringer i andre kinesiske selskaper "barbarisk." Tonen og karakterisering ligner Wang Shi skildring tidligere i år av Baoneng som "barbaren,"En referanse til boken" barbarene ved Gate "om 1988 fiendtlig overtakelse av RJR Nabisco av private equity giganten Kohlberg Kravis Roberts & Co.

Evergrande er en annen topp aksjonær i Vanke og har vært å bygge opp sine aksjer raskt i løpet av de siste månedene. Dens intensjoner så langt er uklart, men Evergrande foreldre er klar til å kjøre forbi Vanke som Kinas største boligutvikler i 2016.

Begge selskapene kan kreve styreplasser på Vanke aksjonærmøter i mars 2017, som kan bestemme skjebnen til Wang Shi.

Og her er der Beijing skritt i så Wang hvite ridder. Wang er en kjendis med en rockestjerne-lignende rykte, og en av Kinas første generasjon gründere som er synonymt med framveksten av Shenzhen som en business hub. Siden han grunnla selskapet i 1984, Wang nøye forvaltet hans forhold til lokale og regionale kommunistpartiorganene. Vanke stor grad fulgt parti skissene til å utvikle og bygge boliger og leiligheter over hele Kina i løpet av fast eiendom boom, og sies å ha et vell av kommunistpartiet tilkoblinger.

Til vestlige observatører, Vanke overtakelsen slaget synes rutine. Aktivistiske investorer som Carl Icahn og Daniel Loeb risting opp styrene er vanlig i USA. Men showdown løpet Vanke er en sjeldenhet i det kinesiske markedet, hvor det regjerende kommunistpartiet craves stabilitet og kontroll over alt.

I de senere år, regulatorer har økt retorikk om å la frie markedskreftene spiller en mer avgjørende rolle i utformingen av landets finansmarkedene. Analytikere hadde lurt hvordan det kinesiske regimet ville håndtere en mulig fall av en av Kinas mest vellykket forretnings, som vil avsløre mye om sine markeds intensjoner.

Det ser ut som vi har vårt svar-KRETS aksjon mot Vanke aksjon vil trolig stoppe Baoneng og Evergrande videre forhånd.

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Flags fly utenfor hovedkvarteret til chip utstyr maker Aixtron i Herzogenrath, Tyskland den okt. 25. Oppkjøp av Aixtron ble blokkert av president Obama i forrige uke.
(Oliver Berg / AFP / Getty Images)Flags fly utenfor hovedkvarteret til chip utstyr maker Aixtron i Herzogenrath, Tyskland den okt. 25. Oppkjøp av Aixtron ble blokkert av president Obama i forrige uke.
(Oliver Berg / AFP / Getty Images)

Et kinesisk selskap ventende kjøp av tysk chip utstyr maker Aixtron SE ble blokkert av president Obama på grunnlag av nasjonal sikkerhet angår desember. 2. Flyttingen streker voksende valpen av økt søkelys på kinesiske investeringer i Vesten.

President for effektivt sperret oppkjøpet av Aixtron og dens US-. datterselskaper av Fujian Hotel Chip Fund. Aixtron ble varslet av Committee on Foreign Investment i US-. (CFIUS) tidligere at det ville råde presidenten mot godkjenning av fusjonen.

Beslutningen var ikke uventet. I slutten av oktober, den tyske regjeringen trakk sin tidligere støtte til € 670 millioner ($714 million) Aixtron-Fujian tie-up på "tidligere ukjente sikkerhetsrelatert informasjon."

Mens CFIUS avslører aldri grunner for å blokkere grenseoverskridende avtaler, beslutningen sies å være drevet av produksjonsteknikker av et stoff som heter gallium nitride, kilder til nyhetsbyrået Reuters. Den lite kjente material som Aixtron teknologi bidrar til å produsere-brukes i produksjon av militært utstyr som radar, antenner, og lasere. Det er nok å si at US-. Regjeringen er ikke interessert i Beijing skaffe militær-grade teknologi.

økt Inquiry

Den Aixtron Beslutningen reflekterer voksende følelser i US-. og Europa mot kinesiske investeringer generelt som verdens Nei. 2 Økonomien har gått forbi USA som verdens største aktivum overtak.

Sigmar Gabriel, Tysklands næringsminister, har signert av på lovgivning for å begrense utenlandske oppkjøp av EU selskaper som involverer "viktige teknologier som er av særlig betydning." tyske bekymringer over kinesiske investeringer økte etter kinesisk apparatprodusenten Midea kjøpt tyske robotikk og ingeniørfirma Kuka tidligere i år for € 4.5 milliarder ($5.0 milliarder). Kuka er en viktig leverandør til mange tyske og US-. industribedrifter og forsvar entreprenører.

USA er også gradvis oppbygging gjennomgang av grenseoverskridende avtaler. CFIUS tidligere i år blokkerte en buyout av Lumileds, en belysning selskap under nederlandsk teknologi giganten Philips NV, av Go Scale, en kinesisk private-equity firm. I februar, Kina Tsinghua Unigroup forlatt en foreslått avtale om å kjøpe digital lagring produsenten Western Digital Corp. også på grunn av forestående CFIUS etterforskning.

Store deler av kinesisk industri er fortsatt forbudt for utenlandske oppkjøp eller utenlandsk majoritetseierskap.

Analytikere mener at kinesiske investeringer i US-. Selskapene vil få ytterligere gransking gang president Donald Trump går inn på kontoret. I løpet av hans presidentvalgkamp, Trump lovet å gjennomføre strengere vurdering av Beijings handel og økonomisk politikk.

Kinas Proteksjonisme

Hva kinesiske selskaper møter i Vesten i dag er fortsatt et langt gråte i forhold til hindringer vestlige selskaper konfrontere i Kina. Store deler av kinesisk industri er fortsatt forbudt for utenlandske oppkjøp eller utenlandsk majoritetseierskap, slik som bank, verdipapirer, telekom, transport, og profesjonelle tjenester.

Mens enkelte næringer ble tatt ut av "begrenset" liste av kinesiske myndigheter de siste årene, noen vestlige selskaper mener proteksjonisme følelser er økende i de siste månedene.

"Tyske selskaper her føler at det har vært en betydelig økning i proteksjonisme,"Tysklands ambassadør til Kina, Michael Clauss, Reuters.

"Vi får flere og flere klager, spesielt siden begynnelsen av dette året,"Clauss sa. Mens tyske selskaper-spesielt bilprodusentene-ha dratt nytte av en voksende kinesiske økonomien i det siste tiåret, de fortsatt må produsere biler i Kina med lokale partnere.

OSS. bedrifter i Kina har hatt lignende opplevelser. I den siste undersøkelsen av American Chamber of Commerce i Kina gjennomførte tidligere i år, en i 10 OSS. selskaper med tilstedeværelse i Kina sa de planla å flytte eller hadde allerede flyttet en del av sine aktiviteter vekk fra Kina på grunn av regulatoriske hindringer.

Selskaper innen teknologi, industriell, og naturressurser sektorer var det mest downbeat på Beijings holdning til utenlandske selskaper-83 prosent sa at de følte seg uvelkomne. Og synspunktene ble reflektert i deres økonomi-64 prosent av US-. bedrifter i Kina var lønnsomme i fjor, ned fra 73 prosent 2014.

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Kinesiske pensjonister gå på gaten i Beijing oktober. 16, 2014. (Kevin Frayer / Getty Images)Kinesiske pensjonister gå på gaten i Beijing oktober. 16, 2014. (Kevin Frayer / Getty Images)

For å øke avkastningen og støtte en voksende befolkning av aldrende pensjonister, Kina er igang med en plan for å sentralisere forvaltningen av pensjonsmidlene og avlede mer penger inn i mer risikofylte aktivaklasser.

Blåkopi krever for å overføre deler av lokale og regionale pensjonsmidler i den sentralt styrt National Social Security Fund (NSSF), som er basert i Beijing og har bredere mandat til å investere i mer risikable aktiva som aksjer, aksjefond, og private equity.

Utvidelsen av NSSF og distribusjon av penger inn i aksjemarkedet tjener et dobbelt formål for det kinesiske kommunistregimet. I teorien, investere i aksjemarkedet skal generere større avkastning og øke størrelsen på fondet for å dekke økende pensjonsforpliktelser. Dette er noe de lokale og regionale fond kunne ikke tidligere oppnå på grunn av deres investeringsbegrensninger og lav rente miljø.

I tillegg, lede mer institusjonelle penger inn i Kinas aksjemarkeder vil kunne redusere volatiliteten aksjemarkedet ved å redusere påvirkning av ustadig private investorer. Jo mer stabil flyt fondet fra pensjonskasser skal stabilisere markedene som har lidd av plutselige retail investor tilsig og utbetalinger i løpet av de siste to årene.

Beijing begynte skisserte en overføring av verdier til NSSF siden juni i fjor, midt i Shanghai aksjemarkedet boble og påfølgende krasj. Guangdong-provinsen var den første til å overføre eiendeler til NSSF, og andre provinser følger etter. Per desember 2015, den NSSF forvaltet 1.9 trillion yuan ($276 milliarder) av eiendeler.

høy Belønning, høyere risiko

For øyeblikket, lokale og provinsielle pensjonskasser er begrenset til å investere i tryggere aktivaklasser som bankgjeld og statsobligasjoner for å bevare kapitalen. Men på grunn av lave renter, slike investeringer har gitt slike magre avkastning som mange pensjonskasser finner seg ikke i stand til å dekke pensjon utbetalinger i en tid da flere statsansatte nærmer seg pensjons.

Den NSSF har ingen slike begrensninger, og kan investere opptil 40 prosent i aksjer. Ved slutten av 2015, 46 prosent av NSSF eiendeler var direkte investeringer i selskaper, mens resten ble forvaltet eiendeler og investeringer, herunder aksjer. Ifølge National Council for Social Security Fund som forvalter NSSF, sine eiendeler verdsatt 15.2 prosent 2015 og 8.8 prosent begynnelse-to-date.

De er god avkastning, anta at tallene er troverdig. Men avkastning og pengepolitikken er ofte flyktig. Innenfor et annet sett av omstendigheter-en høyere rente miljø, for eksempel-rente tunge lokale og provinsielle pensjonskasser kunne slå avkastningen av risikofylt NSSF.

Hva denne eiendelen overføring fra provinsielle midler til NSSF betyr at fremover, formuene av alle kinesiske statlige pensjonister nå hvile på kapitalforvaltere i Beijing.

Problemet er ikke de ulike investeringsstrategier mellom fonds kompetente forvaltere kan være uenige om aktivaallokering filosofi. Pensjonister bør være bekymret for at interessene til NSSF forvaltere i Beijing ikke alltid på linje med de av pensjonister.

Eksponering for misligholdte lån

Den NSSF synes allerede å være dobling ned på sine risikable veddemål ved dypping i stadig mer giftige aktivaklasser som kan delvis bli motivert av politisk press.

De fire massive statlige fondsforvaltningsselskaper-satt opp for å kjøpe hauger av misligholdte lån (misligholdte lån) fra kinesiske banker-er midt i innhenting av ny kapital fra en kombinasjon av børsnoteringer og strategiske investeringer fra forsikringsselskaper og pensjonskasser.

Den NSSF vil investere i minst to av disse "bank banker,"Som de er ofte referert til Kina Great Wall Asset Management og Kina Orient Asset Management. Begge er også søker børsnotering tidlig neste år.

De dårlige banker ble satt opp av Kina i 1999 for å løse landets NPL problemer som følge av mange års banklån til vanstyrte statsforetak (SOEs). De dårlige bankene kjøpte misligholdte lån fra statsbankene, frigjøre sistnevntes balanser slik at de kunne holde utlån til selskaper med statlig eierandel.

Disse dårlige bankene i hovedsak fungere som clearinghouses for Kinas dårlig-gjeld problem. Beijing er i stand til å skifte slik devaluert-og noen ganger verdiløs-midler fra bankenes balanser, byttet ut for enten kontanter eller obligasjoner utstedt av de dårlige bankene. Det er hvordan landets store banker kan kreve sub-to prosent dårlig dekning.

Utgangspunktet, dårlige banker ble gitt ti-års lån for å finansiere kjøp av eiendeler og skulle gå bort etter svingete ned misligholdte lån på ti år. Men Kinas gjeldsdrevet økonomi har vært å generere så mange misligholdte lån at disse dårlige bankene er kommet for å bli og trenger tilført kapital for å holde kjøpe flere misligholdte lån.

Og det er der Beijing ønsker NSSF og andre private investorer til å gå inn. Trenger flere bevis på at interessene til Beijing kommer til å stadig påvirke forvaltningen av pensjonsmidler? Kinas nylig avsatte finansminister Lou Jiwei ble utnevnt som ny leder av NSSF, ifølge finansmagasinet Caixin.

Tidlig pensjonering og sosial uro

Samtidig, noen kinesiske provinser er iverk førtidspensjonering planer om å presse arbeiderne av aktive statlige payrolls. Minst sju provinser-meste i Nordøst-annonserte planene, delvis for å overholde Beijing direktiv siste året for å redusere stål og gruvedrift kapasitet.

Ligner på 1990-tallet politikk vedtatt av daværende statsminister Zhu Rongji, disse tidlige pensjonister teller ikke offisielle ledighetsstatistikken og sine pensjonsytelser er utsatt. Kinas offisielle pensjonsalderen for statsansatte er 60 for menn og enten 55 eller 50 for kvinner, avhengig av stilling. Tidlig pensjonsordninger generelt akselerere disse reglene etter fem år. De får en redusert månedlig stipend i løpet av de fem årene, men må vente til den formelle pensjonsalderen for å nyte pensjonsytelser.

Dette alene har generert en flom av små, men økende protestene i landets rust belte. Hvis NSSF avkastning svikte og fondet har problemer med å møte sine gjeldsbetalinger i fremtiden, Beijings problemer kan raskt forverre.

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