People pedal past a building shaped as a Chinese ancient coin on April 21, 2007 in Shenyang of Liaoning Province, China. (China Photos/Getty Images)People pedal past a building shaped as a Chinese ancient coin on April 21, 2007 in Shenyang of Liaoning Province, China. (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 (SAFE), 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, de acordo com 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, entretenimento, 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. Dentro 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 anos (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.

Semana passada, 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, de acordo com um relatório de Bloomberg. 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.

atualmente, 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, De acordo com o relatório.

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 (with a 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, de acordo com o Financial Times.

HNA is also highly indebted. No fim de 2014, HNA had a combined debt of 196.9 bilhões de yuans ($29.5 bilhão) on its balance sheet, compared to only 73.2 bilhões de yuans ($10.9 bilhão) 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, Junho 14. (AP Photo/Mark Schiefelbein)People walk past an entrance to the Anbang Group's offices in Beijing, Junho 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. At the time, 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.

Em Junho 9, Beijing anti-corruption investigators detained Wu, de acordo com 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.

Hoje, Anbang’s portfolio of well-known foreign assets includes the Waldorf-Astoria Hotel, a 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.


List of major foreign asset holdings of Anbang Group, as of June 1, 2017 (O 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?"

Na China, 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 milhões de yuan ($73 milhão) of capital and eventually became a behemoth with assets of almost 1,971 bilhões de yuans ($292 bilhão).

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 percent and 0.5 percent respectively.


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 por cento.

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. Em fevereiro, chairman of financial conglomerate Baoneng Group Yao Zhenhua was banned from the insurance industry for ten years. Em abril, the former head of China Insurance Regulatory Commission (CIRC) 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.

A partir de 2012 para 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. Ano passado, China overtook Japan to become the world’s second biggest insurance market by premiums.

Durante este período, 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, imobiliária, 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.

Ano passado, 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,” a reference to the 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 por cento, 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 percent market share.

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.


(Fonte: IDC)

Homegrown Chip

Xiaomi announced its own chip, called Pinecone Surge S1, em fevereiro. 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. Hoje, 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. Ao invés, 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, para 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.

Por exemplo, 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 por cento.

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

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, Na ásia. 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, marcha 16, 2016. (AP Photo / Andy Wong)Anbang Insurance Group's headquarters in Beijing, marcha 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 (CIRC) 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 (para 30 por cento), 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. A partir de 2012 para 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. Ano passado, 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 por cento.

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.

Por exemplo, 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.

As an industry, insurance has been a major driver of Chinese foreign acquisitions. Anbang Life is at the forefront of such purchases. It made headlines in 2015 for purchasing New York’s Waldorf-Astoria hotel for nearly $2 bilhão. Dentro 2016, it bought Strategic Hotels & Resorts from Blackstone Group for $6.5 bilhão. Most recently, Anbang has been in negotiations to purchase U.S. life insurer Fidelity & Guaranty Life for $1.6 bilhão, a deal which has been put on hold for New York insurance regulatory review. Anbang’s biggest gambit was a failed $14 billion bid to acquire 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, uma 27 percent increase from the end of 2013, according to a report by Moody’s Investors Service.

As an industry, 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 (até 8 ou 9 por cento). 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 percent at the end of 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, Aug. 25, 2015. (Kevin Frayer / Getty Images)Shoppers walk pass a Cartier store in Beijing, Aug. 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.

Hoje, 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 e 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, dentro 2016, at constant exchange rates, the market grew 4%, the first sign of a revitalization in three years.”


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 that 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,, and 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.


(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. Ao mesmo tempo, 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, carvão, 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 totaled $1.2 trilhão, with commercial banks providing two-thirds of the funding.

“The lack of commercial imperatives behind OBOR (One Belt, uma estrada) 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. Em outras palavras, 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.

Oficialmente, 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 para 20 por cento.

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 por cento desde 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. Por exemplo, 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, China.
(STR / AFP / Getty Images)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, China.
(STR / AFP / Getty Images)

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

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., 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. In early 2016, Ant Financial alone raised $4.5 bilhão, 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. In the United States, Facebook and 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.


(Fonte: 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 para 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 bilhões de yuans ($6 bilhão) 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 para 3 percent of their pre-tax income to new technology and digital innovations, far below the 17 para 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 em Pequim. (Fred Dufour/AFP/Getty Images)A user posing with an iPhone showing an installed New York Times app on Jan. 5 em Pequim. (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.

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

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 trilhão de yuans ($400 bilhão) dentro 2016, a jump from 2015 but at a far slower pace than the increase from 2014 para 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, meanwhile, 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 e 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. No passado, 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

Tão longe, 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 pontos base (0.2 por cento) of commissions on deposits.

The new barriers mean rule adoption has been slow for P2P lenders. Only around 180 empresas, 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.

Somente 200 P2P lenders—a fraction of the P2P industry which is believed to have between 2,500 para 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 bilhão ($9 bilhão) yuan in deposits, was deemed a Ponzi scheme. The lending platform allegedly defrauded between $6 e $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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Em uma foto de arquivo, mineiros empurrar carrinhos contendo carvão de uma mina no condado Qianwei, Sichuan. (Liu Jin / AFP / Getty Images)Em uma foto de arquivo, mineiros empurrar carrinhos contendo carvão de uma mina no condado Qianwei, Sichuan. (Liu Jin / AFP / Getty Images)

A recuperação nos preços globais de carvão se tornou uma das maiores histórias em commodities durante a segunda metade de 2016. A mais de 90 aumento por cento desde meados do ano nos preços do carvão térmico australiano de referência elevou os estoques de produtores de carvão internacionais.

Mas não diga isso para os produtores de carvão chinesas. O recente rali dos preços do carvão não mudou a sorte de muitos produtores de carvão chinesas ainda chafurdando em balanços superalavancadas, elevado endividamento, e demanda fraca.

penúrias do mercado de títulos recentes dessas empresas sinalizar mais defaults pode estar à frente para os emissores terrestres chinesas como trilhões de yuans em títulos vencem em 2017.

Sichuan padrão Coal

Coal Industry Group Sichuan estatal perdeu um pagamento de títulos em dezembro. 25. Um total de 1 bilhões de yuans ($150 milhão) no principal acrescido de juros eram devidos.

Foi o segundo padrão para a empresa de carvão este ano. Sichuan Coal também perdeu um pagamento de juros em junho, mas que a inadimplência foi finalmente resolvido depois que o governo de Sichuan entrou em cena. investidores de títulos foram pagos no final de julho com empréstimos de Investment Group Provincial de Sichuan estatal e um consórcio de bancos locais e nacionais.


os preços do carvão térmico australiano durante os últimos doze meses (

Outros chineses empresas estatais (SOEs) estão enfrentando problemas de liquidez semelhantes. da China o maior credor-o Banco Industrial e Comercial da China-on Dez. 30 concordou em investir em Taiyuan Ferro & Steel Group, Datong Coal Group Mina, e Grupo Industry Yangquan Coal via swaps de dívida em capital. Tais swaps têm sido uma ferramenta fundamental de Pequim para reduzir a alavancagem entre as estatais através da troca de dívida por capital próprio. Os swaps eliminar instantaneamente dívida e reduzir os índices de alavancagem nas empresas com problemas de liquidez.

Aço, carvão, e outras indústrias pesadas têm definhava na fraca demanda global e doméstica. Pequim também lançou um programa para fechar minas e plantas de baixo desempenho e reduzir a sua capacidade de produzir carvão. Província chinesa de Shanxi, no nordeste é a sua maior área de produção de carvão, respondendo por mais de 25 por cento da produção de carvão do país no ano passado.

Trilhões de Yuan vincendas

historicamente, defaults de títulos ter sido inédito na China. Mas em 2016, 55 defaults corporativos foram registrados, mais do dobro do número de 2015. E 2017 provavelmente vai ver ainda mais defaults.

Mais que 5.5 trilhão de yuans ($800 bilhão) em títulos com vencimento em 2017, ou 1.8 trilhão de yuan mais do que 2016, de acordo com China Chengxin Internacional Credit Rating Group. Essa é uma quantidade significativa de dinheiro empresas chinesas deve vir para cima com durante o próximo ano.

os declínios do governo local para estender outra de Sichuan Coal assumindo-default bailout-pode sinalizar que as autoridades comunistas chineses estão dispostos a permitir que mais defaults de títulos daqui para frente. Em verdade, analistas têm esperado defaults de títulos enormes para anos, enquanto Pequim tem sido seletiva na escolha de quais empresas estatais para socorrer. Independentemente, o número de tais salvamentos diminuiu, ressaltando a aumentar o nível de conforto das autoridades com deixar as empresas falham. Com a quantidade significativa de bônus com vencimento em 2017, um pico de defaults de títulos provavelmente resultará.

Ampliando o desafio enfrentado por empresas chinesas é o cenário econômico, que não parece amigável para o mercado de títulos Chinese.

sistema financeiro frágil da China é construído inteiramente em excesso de alavancagem, com dívida barata.

Como o resto do mercado de títulos globais, títulos chineses já têm estado sob pressão do U.S. planos de aumentar as taxas de juro de curto prazo do Federal Reserve. Isso tem levantado rendimentos em todo o mundo. 10 anos de rendimento dos títulos do governo da China estabeleceu-se em 3.07 por cento em dezembro. 30, ligeiramente inferior ao de meados do mês, mas muito maior do que o 2.8 gama percentual no início de 2016 (os rendimentos e os preços dos títulos mover em direcções opostas).

Confrontado com o aumento do risco de fuga de capitais, China pode eleger para orientar suas próprias taxas mais elevado. Mas em tal cenário, elevando nova dívida seria proibitivamente mais caro durante uma época em que muitas empresas chinesas estão enfrentando problemas de liquidez em meio a desaceleração do crescimento econômico. As ações do banco central ainda espremer os mutuários chineses na necessidade de nova dívida para rolar a dívida existente.

sistema financeiro frágil da China é construído inteiramente em excesso de alavancagem, com dívida barata. É especialmente susceptível a aumentos da taxa de e sem o tipo de crescimento necessários para suportar tais aumentos da taxa.

Com tanta dívida vincenda e armado com poucas opções para levantar capital novo, 2017 poderia significar um desastre para as empresas chinesas precisam de dinheiro.

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Oppo's OnePlus 3 smartphone is seen at a launch event in New Delhi June 15, 2016. (Money Sharma/AFP/Getty Images)Oppo's OnePlus 3 smartphone is seen at a launch event in New Delhi June 15, 2016. (Money Sharma/AFP/Getty Images)

It’s the end of 2016, and the most popular smartphones in China—a nation of 700 million smartphone users—aren’t made by Apple, Samsung, or even Chinese cult brand Xiaomi.

Oppo and Vivo, two little-known companies in the West, have come to dominate the Chinese smartphone market using seemingly antiquated marketing strategies.

As of the third quarter 2016, Oppo held the biggest smartphone market share at 16.6 por cento, with Vivo closely behind with 16.2 por cento. Huawei and Xiaomi came in third and fourth, com 15 percent and 10.6 percent respectively, according to market research firm Counterpoint. Apple was a distant fifth with 8.4 percent market share.

The two companies came out of seemingly nowhere to sell millions of smartphones. Oppo’s sales were 84 percent higher than last year, mainly on the popularity of OnePlus, a line of smartphones with edgy designs, high-end specs, and low prices. Vivo relies on simple but solid designs and rock-bottom prices, a formula that propelled its sales 114 percent higher than prior year’s.

A Vulnerable Xiaomi

The phone market in China is fairly simple to enter, but difficult to dominate.

At the high end of the market, Apple still reigns. Around $60 billion of Apple’s total sales were generated from China alone last year, and it wasn’t too long ago that Apple vied with Xiaomi—which hailed itself as China’s own Apple—for top smartphone market share. While Apple still has a stranglehold on the top end of the market, its position has eroded over the last year due to Beijing’s blockage of iTunes, a slowing Chinese economy, Xi Jinping’s anti-graft measures, and a flood of cheaper but high-quality alternatives.


(Fonte: Counterpoint Research)

It’s the middle range of the market that’s more interesting, and it’s where Oppo and Vivo have recently excelled. This is a market that has seen numerous winners emerge over the years such as Lenovo, Huawei, and most famously, Xiaomi. Xiaomi CEO Lei Jun styled himself as a China version of Steve Jobs, focusing on design, high-end specs, but at a lower price point than Apple. Xiaomi—popular with urban millennials—was known for its high-profile launch parties and until recently, an internet-only sales model.

But Xiaomi runs a version of Google’s Android operating system. And without an app ecosystem to lock in users, companies found that customer loyalty was almost non-existent amongst commodity-like smartphones that run Android. Even a brand with cult status like Xiaomi was susceptible to newer entrants.

Going Brick-and-Mortar

Oppo and Vivo are both owned by Guangzhou-based BBK Electronics, a company started by billionaire investors and entrepreneur Duan Yongping. Both brands have similar approaches to selling phones.

They observed that Xiaomi was a favorite of urban millenials—at least those who want a cheaper or Android-based alternative to the Apple iPhone. Xiaomi until recently only sold phones directly via its website, and promoted each phone release via hip launch parties.

Oppo and Vivo saw an opening in working with retail stores, where two out of three phones are still sold in China. The companies especially targeted stores outside of large cities and in rural areas, where consumers are more price-sensitive, have less access to the internet, and place more reliance on local technical and customer support. Oppo and Vivo partnered with retail sales professionals in small vendors and offered sizable affiliate sales commissions and subsidies to sales reps.

“Oppo and Vivo are willing to share their profit with local sales,” Jin Di, an analyst at market research firm IDC, told Bloomberg.

“The reward was an extremely active and loyal nationwide sales network. They’re doing something different—they do local marketing.”

It’s an antiquated strategy, but it’s a fit with Chinese consumers outside of major cities. The small vendors serve as the companies’ local salesmen, technical support, and customer support. With the added incentives, they help promote the products to friends and consumers on WeChat, and steer sales away from competitors toward Oppo and Vivo phones.

Their other killer app? Oppo and Vivo phones often carry powerful, zoom-enabled front cameras for selfies.

Xiaomi, meanwhile, has moved up market in recent years. It now manufactures a variety of other products such as video cameras and “Internet of Things” home devices in an effort to position itself as China’s homegrown Apple.

Through the success of Oppo and Vivo, Xiaomi also realized the value of having a retail presence. It now runs a few hundred stores in China.

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Investors watch price movements on screens in Beijing Feb. 22. China's insurance regulator said risky stock market bets by domestic insurers undermines market stability. (Greg Baker / AFP / Getty Images)Investors watch price movements on screens in Beijing Feb. 22. China's insurance regulator said risky stock market bets by domestic insurers undermines market stability. (Greg Baker / AFP / Getty Images)


Beijing has cracked down on domestic insurers, suppressing the industry over what regulators have recently deemed speculative investments. The move hurt insurance stocks, driving down the Shanghai Composite Index 3 percent in the week ended Dec. 15.

It’s a move that further cements China’s “Wild West” business reputation: the landscape is mostly lawless, but you never know who will ride into town to spoil the party.

Chen Wenhui, vice-chairman of the China Insurance Regulatory Commission (CIRC) announced stricter regulations over the industry on Dec. 13, including lowering the ratios of equity to be held, and barring insurance companies from using insurance deposits to fund equity purchases.

Chen denounced the insurance companies for making speculative stock market bets and disrupting market stability, according to an editorial in the Communist Party mouthpiece People’s Daily. além do que, além do mais, CIRC launched investigations into two privately-held insurance giants—Evergrande Life Insurance and Foresea Life, a unit of insurance giant Baoneng.

Beijing has been closely monitoring insurance companies’ activities for months. Their highly leveraged asset purchases are risky and if stock prices fall, their fortunes could quickly unravel.

But the timing and nature of the crack down is intriguing. For one, Beijing has been attempting to restrict the outflow of cash, and insurance companies have been a major agent of foreign asset acquisitions in the last twelve months. Ao mesmo tempo, CIRC’s investigation into two specific insurers may be driven by an entirely different motive.

Stemming the Outflow

Chinese insurance companies are flush with cash from selling so-called “universal life” products, a high-yielding hybrid product combining death benefit and investments. Foresea’s “universal life” products, por exemplo, promise returns of between 4 para 8 por cento. To fund the high returns, insurance companies have been leveraging up to purchase assets both within China and abroad.

As an industry, insurance has been a major driver of foreign acquisitions. Anbang Life is at the forefront of such purchases. Anbang made headlines last year for purchasing New York’s Waldorf-Astoria hotel for nearly $2 bilhão. No início deste ano, it bought Strategic Hotels & Resorts from Blackstone Group for $6.5 bilhão, and most recently, Anbang has been in negotiations to purchase around $2.3 billion of Japanese residential real estate assets, also from Blackstone. Anbang’s biggest gambit this year was its failed $14 billion bid to acquire Starwood Hotels & Resorts Worldwide.

The timing and nature of the crack down is intriguing.

Fosun is another conglomerate which funds asset purchases from insurance subsidiaries. Fosun has a diversified portfolio of foreign assets, including well-known foreign assets such as vacation resort operator Club Med, circus performance troupe Cirque du Soleil, accessory maker Folli Follie, women’s fashion label St. John, and downtown Manhattan skyscraper One Chase Manhattan Plaza.

Cash leaving the country has accelerated yuan’s devaluation. But perhaps of greater concern for Chinese authorities is liquidity and cash leaving the nation’s banking system. China’s banks already face high delinquency rates and receive regular liquidity injections from the central bank. While official non-performing loan ratios at major banks are low (por aí 2 por cento), true delinquency rates—which affect banks’ cash and liquidity—are estimated at between 20 para 30 por cento.

Restricting insurance companies’ ability to generate cash—which could be used to fund foreign acquisitions—therefore indirectly limits cash withdrawals and preserves liquidity at Chinese banks.

Beijing Intervenes in Vanke

Outside of general restrictions on insurers’ activities, CIRC’s crackdown on Evergrande and Foresea are the most severe.

Regulators barred Foresea from issuing “universal life” policies which made up almost 90 percent of the firm’s premiums. Foresea has used such premiums in recent months to increase its ownership in a number of high-profile Chinese companies.

CIRC also banned Evergrande Life, the insurance unit of major property developer China Evergrande Group, from investing in equity securities. In an announcement on its website, CIRC said Evergrande’s “asset allocation plan is not clear, and its capital funding operations are not standardized.”

Beijing’s decision to intervene in Foresea and Evergrande is interesting, given that the two insurance giants are both major shareholders of China Vanke, a major residential real estate developer. Evergrande and Baoneng both own major stakes in other Chinese companies, but Vanke is the most public and well-known.

Baoneng—through Foresea and several other subsidiary insurers—is Vanke’s biggest shareholder and has been locked in a protracted dispute to wrest control of the company from Vanke founder and CEO Wang Shi, one of China’s best-known and earliest entrepreneurs.

Semana passada, CIRC criticized the entire domestic insurance industry, calling its recent investments into other Chinese companies “barbaric.” The tone and characterization is similar to Wang Shi’s portrayal earlier this year of Baoneng as “barbarian,” a reference to the book “Barbarians at the Gate” about the 1988 hostile takeover of RJR Nabisco by private equity giant Kohlberg Kravis Roberts & Co.

Evergrande is another top shareholder in Vanke and has been building up its shares quickly over the last few months. Its intentions so far are unclear, but Evergrande’s parent is poised to overtake Vanke as China’s biggest residential developer in 2016.

Both companies could demand board seats at Vanke’s shareholder meetings in March 2017, which could determine the fate of Wang Shi.

And here’s where Beijing steps in as Wang’s white knight. Wang is a celebrity with a rock star-like reputation, and one of China’s first-generation entrepreneurs who is synonymous with the rise of Shenzhen as a business hub. Since founding the company in 1984, Wang carefully managed his relationship with local and regional Communist party organs. Vanke largely followed party blueprints to develop and build homes and apartments across China during the real estate boom, and is said to have a wealth of Communist Party connections.

To Western observers, the Vanke takeover battle seems routine. Activist investors such as Carl Icahn and Daniel Loeb shaking up corporate boards is commonplace in the United States. But the showdown over Vanke is a rarity in the Chinese markets, where the ruling Communist Party craves stability and control above all.

In recent years, regulators have increased rhetoric about letting free-market forces play a more decisive role in shaping the country’s financial markets. Analysts had been wondering how the Chinese regime would handle a possible downfall of one of China’s most successful businessman, which will reveal much about its market intentions.

It looks like we have our answer—CIRC’s crackdown on Vanke’s top shareholders will likely stop Baoneng and Evergrande’s further advance.

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Flags fly outside headquarters of chip equipment maker Aixtron in Herzogenrath, Germany on Oct. 25. Acquisition of Aixtron was blocked by President Obama last week.
(Oliver Berg/AFP/Getty Images)Flags fly outside headquarters of chip equipment maker Aixtron in Herzogenrath, Germany on Oct. 25. Acquisition of Aixtron was blocked by President Obama last week.
(Oliver Berg/AFP/Getty Images)

A Chinese company’s pending purchase of German chip equipment maker Aixtron SE was blocked by President Obama on the basis of national security concerns Dec. 2. The move underscores growing sentiments of increased scrutiny on Chinese investments in the West.

The presidential order effectively barred the acquisition of Aixtron and its U.S. subsidiaries by Fujian Grand Chip Fund. Aixtron was notified by the Committee on Foreign Investment in the U.S. (CFIUS) earlier that it would advise the president against approval of the merger.

The decision wasn’t unexpected. In late October, the German government withdrew its prior support for the €670 million ($714 milhão) Aixtron-Fujian tie-up on “previously unknown security-related information.”

While CFIUS never discloses reasons for blocking cross-border deals, the decision is said to be driven by production techniques of a compound called gallium nitride, sources told Reuters. The little-known material—which Aixtron’s technology helps produce—is used in production of military equipment such as radar, antennae, and lasers. It suffices to say that the U.S. government isn’t keen on Beijing obtaining the military-grade technology.

Increased Inquiry

The Aixtron decision reflects growing sentiments in the U.S. and Europe against Chinese investments in general as the world’s No. 2 economy has overtaken the United States as the world’s biggest asset acquirer.

Sigmar Gabriel, Germany’s economics minister, has signed off on legislation to limit foreign acquisitions of EU companies involving “key technologies that are of particular importance.” German concerns over Chinese investments increased after Chinese appliance manufacturer Midea purchased German robotics and engineering firm Kuka earlier this year for €4.5 billion ($5.0 bilhão). Kuka is a key supplier to many German and U.S. industrial firms and defense contractors.

The United States is also ramping up review of cross-border deals. CFIUS earlier this year blocked a buyout of Lumileds, a lighting company under Dutch technology giant Philips NV, by Go Scale, a Chinese private-equity firm. Em fevereiro, China Tsinghua Unigroup abandoned a proposed deal to purchase digital storage manufacturer Western Digital Corp. also due to impending CFIUS investigation.

Large swaths of Chinese industry are still off limits to foreign acquisition or foreign majority ownership.

Analysts believe that Chinese investments into U.S. companies will receive further scrutiny once President-elect Donald Trump enters office. During his presidential campaign, Trump pledged to conduct more stringent review of Beijing’s trade and economic policies.

China’s Protectionism

What Chinese companies encounter in the West today is still a far cry compared to the obstacles Western companies confront in China. Large swaths of Chinese industry are still off limits to foreign acquisition or foreign majority ownership, such as banking, securities, telecom, transporte, and professional services.

While some industries were taken off of the “restricted” list by Chinese authorities in recent years, some Western companies believe protectionism sentiments are increasing in recent months.

“German companies here feel that there has been a considerable rise in protectionism,” Germany’s ambassador to China, Michael Clauss, disse à Reuters.

“We are receiving more and more complaints, especially since the beginning of this year,” Clauss said. While German companies—especially the automakers—have benefitted from a growing Chinese economy in the past decade, they still must manufacture cars within China with local partners.

NOS. firms in China had similar experiences. In the most recent survey of American Chamber of Commerce in China conducted earlier this year, one in 10 NOS. companies with presence in China said they planned to move or had already moved a portion of their activities away from China due to regulatory obstacles.

Companies within the technology, industrial, and natural resources sectors were the most downbeat on Beijing’s attitude towards foreign companies—83 percent said they felt unwelcome. And the sentiments were reflected in their financials—64 percent of U.S. businesses in China were profitable last year, down from 73 por cento em 2014.

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aposentados chineses andar na rua em Beijing outubro. 16, 2014. (Kevin Frayer / Getty Images)aposentados chineses andar na rua em Beijing outubro. 16, 2014. (Kevin Frayer / Getty Images)

Para acelerar os retornos e sustentar uma população crescente de idosos pensionistas, China está embarcando em um plano para centralizar a gestão dos fundos de pensão e desviar mais dinheiro em classes de ativos mais arriscados.

O projeto prevê a transferência de partes de fundos de pensão locais e regionais para o Fundo Nacional de Segurança Social gerenciado centralmente (NSSF), que tem sede em Pequim e tem mandatos mais amplos para investir em ativos mais arriscados, como ações, fundos de ações, e private equity.

A expansão da NSSF e implantação de dinheiro no mercado de ações serve a um propósito duplo para o regime comunista chinês. Em teoria, investir no mercado de ações deve gerar retornos maiores e aumentar o tamanho do fundo para cobrir crescentes compromissos com pensões. Isso é algo que os fundos locais e regionais não poderia realizar anteriormente devido às suas restrições de investimento e ambiente de baixa taxa de juros.

além do que, além do mais, canalizando dinheiro mais institucional em mercados de ações da China poderia reduzir a volatilidade do mercado de ações, diminuindo a influência dos pequenos investidores volúveis. O fluxo financeiro mais estável de fundos de pensão devem estabilizar os mercados que sofreu súbita entrada de investidores de varejo e saídas nos últimos dois anos.

Pequim começou delineando uma transferência de activos para o NSSF desde junho passado, no meio da bolha do mercado de ações de Xangai e posterior colisão. Província de Guangdong foi o primeiro a transferir activos para o NSSF, e outras províncias estão seguindo o terno. A partir de dezembro 2015, o NSSF gerenciado 1.9 trilhão de yuans ($276 bilhão) de ativos.

alta recompensa, Risco maior

atualmente, fundos de pensão locais e provinciais estão restritos a investir em classes de ativos mais seguros, como de dívida e governamentais obrigações bancárias para preservar o capital. Mas devido a baixas taxas de juros, tais investimentos geraram retornos tão escassos que muitos fundos de pensão se vêem incapazes de cobrir os pagamentos de aposentadoria num momento em que mais funcionários estaduais estão se aproximando da aposentadoria.

O NSSF não tem tais restrições e pode investir até 40 por cento em ações. No fim de 2015, 46 por cento dos ativos da NSSF eram investimentos diretos em empresas, enquanto o restante foram geridos bens e investimentos, incluindo ações. De acordo com o Conselho Nacional de Fundo de Segurança Social, que administra o NSSF, seus ativos apreciado 15.2 por cento em 2015 e 8.8 por cento inception-to-date.

Esses são bons retornos, assumir as figuras são críveis. Mas retornos de investimento e da política monetária são muitas vezes fugaz. Dentro de um conjunto diferente de circunstâncias-um ambiente de maior taxa de juros, por exemplo, o de renda fixa pesados ​​fundos de pensão locais e provinciais poderia bater os retornos do NSSF mais arriscado.

O que esta transferência de ativos de fundos provinciais para o NSSF significa é que vai para a frente, as fortunas de todos os aposentados estatal chinesa agora descansar em cima gerentes de investimento em Beijing.

O problema não é as estratégias de investimento díspares entre gestores de investimentos dos fundos-competentes podem discordar sobre a filosofia de alocação de ativos. Pensionistas devem estar preocupados que os interesses dos gestores de investimentos NSSF em Pequim não pode sempre alinhados com os dos aposentados.

A exposição ao crédito em incumprimento

O NSSF já parece estar dobrando para baixo em suas apostas arriscadas por imersão em classes de ativos cada vez mais tóxicas que poderiam ser parcialmente motivadas por pressões políticas.

As quatro enormes empresas-estabelecidos de gestão de ativos de propriedade estatal para comprar pilhas de crédito em incumprimento (NPLs) de chineses bancos são no meio de levantar capital novo a partir de uma combinação de IPOs e investimentos estratégicos das companhias de seguros e fundos de pensões.

O NSSF vai investir em pelo menos dois destes “banco bancos,”Como eles são comumente referidos-China Great Wall Asset Management e China Orient Asset Management. Ambos também estão buscando IPOs no início do próximo ano.

Os bancos ruins foram criados pela China em 1999 para resolver problemas NPL do país resultantes de anos de empréstimos bancários a má gestão das empresas estatais (SOEs). Os bancos ruins comprou NPLs de bancos estatais, libertando balanços deste último para que pudessem manter os empréstimos para as empresas públicas.

Esses bancos maus agem como câmaras de compensação para problemas de inadimplência da China. Pequim é capaz de mudar tais inúteis-ativos desvalorizados-e às vezes longe de balanços dos bancos, trocados por dinheiro ou títulos emitidos pelos bancos ruins. É assim que os grandes bancos do país pode reivindicar rácios de bad-de empréstimo sub-2 por cento.

Inicialmente, bancos ruins receberam empréstimos de dez anos para financiar as compras de ativos e deveriam desaparecer após o encerramento dos NPLs em dez anos. Mas a economia alimentado pela dívida da China vem gerando tantas NPLs que esses bancos ruins estão aqui para ficar e precisa de injeções de capital para manter a compra de mais NPLs.

E é aí que Pequim quer que o NSSF e outros investidores de varejo para intervir. Precisa de mais provas de que os interesses de Pequim vão influenciar cada vez mais a gestão de ativos de pensão? O ministro das Finanças recentemente deposto da China Lou Jiwei foi apontado como o novo presidente do NSSF, de acordo com a revista financeira Caixin.

Reforma antecipada e da agitação social

Ao mesmo tempo, algumas províncias chinesas estão instituindo planos de aposentadoria antecipada para empurrar os trabalhadores off folhas de pagamento estado ativo. Pelo menos sete províncias principalmente no Nordeste, anunciou os planos, em parte, a conformidade com a directiva de Pequim no ano passado para reduzir a capacidade de siderurgia e mineração.

Semelhante à política de 1990 promulgada pelo então primeiro-ministro Zhu Rongji, esses aposentados primeiros não contam para as estatísticas oficiais de desemprego e seus benefícios de pensão são diferidos. idade de aposentadoria oficial da China para os funcionários do Estado é 60 para os homens e quer 55 ou 50 para as mulheres, dependendo posição. planos de aposentadoria antecipada geralmente acelerar essas regras por cinco anos. Eles recebem uma bolsa mensal reduzido durante os cinco anos, mas deve esperar até que a idade oficial de aposentadoria para desfrutar de benefícios de pensão.

Isso por si só tem gerado uma série de pequenas, mas crescentes protestos no cinturão da ferrugem da nação. Se os retornos de NSSF vacilar e o fundo tem dificuldade em atender os seus pagamentos de responsabilidade no futuro, Os problemas de Pequim poderia rapidamente exacerbar.

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