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Category: Financial markets
Rich, Young “Fuerdai” Chinese Are Buying Overseas Properties on Their Smartphones – WSJ
The truth is that for all of the tough talk from Li Xinping about stopping the massive outflows of capital from China, some of it probably dark money obtained from dubious enterprises and kickbacks, nothing has changed in China or in the Western cities eager to share in the wealth. Rich, Young “Fuerdai” Chinese Are Buying Overseas Properties on Their Smartphones. Millennials acquire real estate in other countries as hedge against a weakening currency, homes for their own children when they study abroad
The truth is that for all of the tough talk from Li Xinping about stopping the massive outflows of capital from China, some of it probably dark money obtained from dubious enterprises and kickbacks, nothing has changed in China or in the Western cities eager to share in the wealth.
Rich, Young “Fuerdai” Chinese Are Buying Overseas Properties on Their Smartphones
Millennials acquire real estate in other countries as hedge against a weakening currency, homes for their own children when they study abroad
An increasingly larger group of Chinese millennials are looking to buy property abroad. Above, a potential buyer inspects a house for sale in Australia.
BEIJING— Zheng Xiaohei, a marketer from Urumqi in western China, made his first overseas property investment without so much as a visit.
Mr. Zheng, 29 years old, in March purchased a studio apartment in Thailand for about 650,000 yuan ($94,255) using his smartphone and an app called Uoolu that connects users to overseas property listings.
“Investing in overseas real estate was mainly due to my good impression of Thailand,” Mr. Zheng said.
Founded two years ago, Beijing-based Uoolu is focused on tapping a specific group of home buyers: Chinese millennials looking for foreign properties.
About 70% of Chinese millennials, those born between 1981 and 1998, own a home, the highest share of respondents from nine countries and regions who were surveyed in a recent HSBC study. Chinese parents often register home purchases under their child’s name to prepare the child for marriage and raising a family, which likely boosts the percentage.
Still, a growing sliver of Chinese millennials are looking to buy property abroad. Kevin Lee, chief operating officer of Beijing-based consulting firm Youthology, put the percentage in the low single digits but said it would continue to increase.
The lure? A millennial’s desire to hedge against yuan depreciation and find affordable homes in cities with cleaner air for their children to live in when they study abroad. In the past year, home prices have soared to more than 30 times household income in major Chinese cities.
Uoolu said about 80% of its monthly active users are between the ages of 20 and 39, and that 20,000 customers have bought or are in the process of purchasing overseas property. A similar real-estate platform, Juwai.com, estimates that roughly 30% to 40% of its buyers are millennials.
Cherubic Ventures, a venture-capital firm with offices in Beijing and San Francisco, invested an undisclosed sum in Uoolu. One selling point, said the firm’s founder, Matt Cheng, was Uoolu’s target of reaching young Chinese buyers who are tech savvy and interested in cross-border investments, “but don’t know where to begin.”
Overseas investing isn’t easy at a time when the Chinese government is clamping down on capital flight amid concerns about a weakening currency. Chinese citizens aren’t allowed to transfer more than $50,000 a year out of the country or use those funds to buy overseas property.
However, this increased government scrutiny is “slowing but not cutting off” the surge of investment in U.S. property, said Arthur Margon, partner at Rosen Consulting Group.
“The more the government limits people, the more they want to invest overseas,” said Wang Hao, Uoolu’s 33-year-old chief operating officer.
People often skirt the foreign-exchange rules by, for example, pooling money among family members and friends and separately sending it into overseas bank accounts. Also, Chinese citizens who have studied or worked abroad for a few years might already have bank accounts in other countries and those overseas funds are beyond the Chinese government’s control.
Alan Wang, a 19-year-old college student in Toronto who comes from Shenzhen, said he opened a bank account in Canada for education expenses. Now it is useful for buying property, too. He and his family are thinking about purchasing a home on a budget of about 1 million Canadian dollars (US$730,600) this summer. To do so, he will have relatives send money to his bank account, he said.
Uoolu helps buyers open bank accounts in other countries and apply for mortgages there. Users pay a deposit to reserve the right to purchase a home. The money is sent directly from a buyer’s bank account to the overseas developer—Uoolu says it doesn’t handle the cross-border transaction within the mobile app.
Chris Daish, a real-estate agent at Triplemint in New York, said one of his Chinese clients, an accountant in her mid-20s who works in New York, earlier this year pooled $110,000 from five family members to help buy her a condo in the city.
“It’s a really arduous task even to get a couple hundred grand out,” said Mr. Daish, who emphasized that he doesn’t help clients with money transfers.
A 28-year-old who works in finance in Beijing in February bought two apartments in Bangkok for a total of 5 million yuan ($725,000), one for a vacation home and the other for rental income. She declined to disclose her name out of fear of government retaliation for violating capital controls.
As for some of her friends, she said, “They wish to buy but dare not.”
Source: Rich, Young Chinese Are Buying Overseas Properties on Their Smartphones – WSJ
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Chinese company Anbang Insurance to buy B.C. retirement home chain
Reading this article today, I am dumbfounded that Anbang managed to get this far in the purchase of B.C. commercial real-estate without red flags going up. This mysterious Chinese company, Anbang Insurance Group has attracted the attention of The New York Times, The Wall Street Journal, Forbes, Fortune Magazine, and government authorities in the United States and other countries. A months-long investigation by the New York Times revealed an extremely opaque structure, empty offices, obscure shareholders, and extensive political connections to the Chinese elite. Anbang has all the earmarks of Chinese money laundering, corruption at the highest levels, and mysterious shell companies. It is a cautionary tale for Canadian authorities fretting over foreign real-estate buyers and skyrocketing real-estate prices.
Reading this article today, I am dumbfounded that Anbang managed to get this far in the proposed purchase of B.C. commercial real-estate without red flags going up. This mysterious Chinese company, Anbang Insurance Group has attracted the attention of The New York Times, The Wall Street Journal, Forbes, Fortune Magazine, and government authorities in the United States and other countries. A months-long investigation by the New York Times revealed an extremely opaque structure, empty offices, obscure shareholders, and extensive political connections to the Chinese elite. Anbang has all the earmarks of Chinese money laundering, corruption at the highest levels, and mysterious shell companies. It is a cautionary tale for Canadian authorities fretting over foreign real-estate buyers and skyrocketing real-estate prices.
The dingy fourth floor of this building in Beijing houses two companies that control assets of Anbang Insurance Group worth more than $15 billion.
The Anbang Insurance takeover is currently under scrutiny by the federal government’s Investment Review Division because it exceeds the $600-million threshold and it will ultimately be up to Innovation Minister to make a decision.
Source: Chinese company Anbang buys stake in B.C.-based retirement home chain – The Globe and Mail
Chinese company Anbang buys stake in B.C.-based retirement home chain
A massive Chinese insurance company with a murky ownership structure is buying a majority stake in one of British Columbia’s biggest retirement home chains, a deal believed to exceed $1-billion that would give Beijing-based Anbang Insurance an important role in the delivery of health care in B.C.
Anbang Insurance Group, which has emerged in recent years to launch a global buying spree, has cut a deal to buy Vancouver-based Retirement Concepts, a family-owned retirement home business established in 1988.
This foreign takeover is currently under scrutiny by the federal government’s Investment Review Division because it exceeds the $600-million threshold and it will ultimately be up to Innovation Minister Navdeep Bains to make a decision.
Retirement Concepts owns and operates about 24 retirement “communities,” mostly in B.C., except for several properties in Calgary and Montreal. What makes it even more attractive is that it also owns holdings of unused or partly developed land that would allow a major expansion of facilities in the future.
The company is an important part of B.C.’s health-care delivery system. Retirement Concepts is the highest-billing provider of assisted living and residential care services in the province. The B.C. government paid the company $86.5-million in the 2015-16 fiscal year, more than any other of the 130 similar providers.
A source familiar with the deal said it exceeds $1-billion, but Retirement Concepts declined to confirm the size of the transaction. “The terms of the proposed transaction have not been disclosed publicly and we cannot comment on the amount you refer to,” said Azim Jamal, president and chief executive of Retirement Concepts.
Foreign investments are reviewed to determine whether they provide a net benefit to Canada and are compatible with this country’s industrial, economic and cultural policies and what impact they will have on Canadian participation in the business.
The Canadian government is eager to attract foreign money to make up for insufficient investment capital within Canada and acquisitions by foreigners are rarely rejected. Prime Minister Justin Trudeau is particularly eager to attract more investment from China and has begun exploratory free-trade talks with Beijing. The Liberals have already signalled they are open to rolling back a ban on state-owned Chinese investment in the oil sands imposed by former prime minister Stephen Harper.
Anbang appears to have gone to some lengths to conduct this B.C. deal below the radar.
The name of the firm acquiring Retirement Concepts is Cedar Tree Investment Canada, which was incorporated as a federal Canadian company only in July. Cedar Tree’s registration initially gave the names of its two directors as Hong Zhao and Ye Zhang with their contact address as Suite 2560 at 200 Granville St. in downtown Vancouver. People with the same names and address are also the two listed directors for Maple Red Financial Management Canada Inc., the company that Anbang used to buy a controlling interest in all four towers of Vancouver’s Bentall Centre last year.
The directors have since changed, as has their address, and Cedar Tree’s contact information is now a major Canadian law firm’s downtown Vancouver office.
Telephone calls and e-mails to Cedar Tree Investment’s listed directors were not returned. The Globe and Mail was also unable to reach anyone at Anbang International, Anbang Insurance’s global investment arm, at its Vancouver number.
In April, after abruptly walking away from an effort to buy Starwood Hotels & Resorts, one the world’s largest hotel companies, Anbang appears to have been shifting its attention to the Canadian market with a bid for Innvest, one of this country’s biggest hotel owners. This came amid reports from China that Chinese regulators were looking into whether its foreign asset acquisition binge – including the Waldorf Astoria hotel in New York – exceeded allowable limits.
Bloomberg News, citing a source involved in the transaction, reported that the CEO of the firm that would go on to buy Innvest, Bluesky Hotels & Resorts’ Li Chen, had said at the outset of the acquisition talks that she was representing Anbang but did not wish this company to be publicly identified as the buyer. Anbang later publicly denied “any connection” between it and Bluesky.
An investigation by The New York Times earlier this year revealed that 92 per cent of Anbang is currently held by firms either fully or partly owned by relatives of Anbang’s chairman, Wu Xiaohui, or his wife, the granddaughter of the former Chinese leader Deng Xiaoping, or Chen Xiaolu, the son of a famous People’s Liberation Army leader.
The B.C. retirement home acquisition thrusts Anbang into a new area of business: Canada’s health-care system.
Under international trade deals that Canada has signed, the provinces retain the right to refuse to give health-care contracts to foreign companies. That’s because Canada reserved the right in trade agreements for governments to discriminate against foreign suppliers of services in the health-care sector and foreign investors when it comes to health care.
Retirement Concepts, however, says it will remain as operator under a deal with Cedar Tree. Asked about how the Beijing company conducted itself in the transaction, Mr. Jamal said, “Anbang was transparent in its bidding from the outset.”
Mr. Jamal said Retirement Concept’s existing corporate team will remain intact to “provide continuity” to residents and the business.
“Under the partnership agreement, Retirement Concepts will retain a minority share and will continue to manage the day-to-day operations of all of our seniors’ communities,” the CEO said.
“As a result, there will be no change to staffing plans, the quality of care provided to our residents, nor to our policies, procedures and other operating standards.”
British Columbia’s Liberal government, however, says it is not concerned about the Retirement Concepts deal because it does not believe the patients at the company’s facilities will see a difference in the care they receive.
“Cedar Tree has assured patients, families and staff that it does not intend to make any changes to day to day operations, patient care, staff or leadership. In fact, they will all remain in operation as they are today,” B.C. Minister of Health Terry Lake said in a statement.
“We expect this change to be seamless, and that the patients residing in these facilities will continue to get the same quality of care.”
The B.C. government said nothing also prevents a foreign-owned company from owning a health-care provider.
“The Community Care and Assisted Living Act does not prohibit facilities from being sold to an out-of-province, or to an off-shore purchaser,” spokeswoman Kristy Anderson of B.C.’s Health Ministry said.
The Investment Review Division at the federal department of Innovation confirmed it’s reviewing the acquisition before Mr. Bains makes a decision. “Cedar Tree Investment Canada has filed an application for review under the Investment Canada Act of its proposed acquisition of Retirement Concepts,” spokeswoman Stéfanie Power said in a statement.
“Due to the confidentiality provisions of the Investment Canada Act, we cannot comment further on the timing of the review.”
The department likely received the application in late September or early October but it will not confirm the date the review began. “In general terms, the Minister has 45 days from the date the application is received to make a decision. However, the Minister can extend this period by 30 days. Further extensions are possible with the investor’s consent,” Ms. Power said.
China itself faces a daunting retirement-care challenge with a rapidly graying population and it is seeking the expertise and capacity to design the vast system necessary to look after its elderly.
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Mysterious Chinese Firm On Real Estate Spending Spree A Cautionary Tale For Canada
A mysterious Chinese company, Anbang Insurance Group has attracted the attention of The New York Times, The Wall Street Journal, Forbes, Fortune Magazine, and government authorities in the United States and other countries. The cause of the scrutiny has been Anbang’s sudden involvement in a number of massive multi-billion dollar real estate investments around the World. Formed in 2004, Anbang apparently holds assets worth at least $295 Billion, but a months-long investigation by the New York Times has revealed an extremely opaque structure, empty offices, obscure shareholders, and extensive political connections to the Chinese elite. Analysis of Anbang and its operations holds a potential lesson for Canadian authorities fretting over foreign buyers and skyrocketing real-estate prices.
A mysterious Chinese company, Anbang Insurance Group has attracted the attention of The New York Times, The Wall Street Journal, Forbes, Fortune Magazine, and government authorities in the United States and other countries. The cause of the scrutiny has been Anbang’s sudden involvement in a number of massive multi-billion dollar real estate investments around the World. Formed in 2004, Anbang apparently holds assets worth at least $295 Billion, but a months-long investigation by the New York Times has revealed an extremely opaque structure, empty offices, obscure shareholders, and extensive political connections to the Chinese elite. Wu Xiaohui, Anbang’s Chairman, is married to Deng Xiaoping’s granddaughter and involved with at least two others with family connections to the People’s Liberation Army. Both Wu and his wife, Zhuo Ran have disappeared from Anbang’s list of shareholders after the New York Times investigation began. Anbang has all the earmarks of a Panama Papers situation: Chinese money laundering, corruption at the highest levels, and mysterious shell companies. Analysis of Anbang and its operations is a cautionary tale for Canadian authorities fretting over foreign real-estate buyers and skyrocketing real-estate prices.
Last Spring, as B.C. Premier Christy Clark was preparing to announce new regulations to stem the flood of non-resident residential real-estate buyers, she simultaneously flew to China on a trade mission with a group of B.C. commercial real estate moguls, apparently to reassure the Chinese that B.C. was still interested in Chinese commercial real-estate investment. But by the time Clark made her trip to China, questions about the Anbang Insurance Group’s ownership had already been flying in the U.S. financial press for over two years. Whether it may have been more prudent for Clark to defer promoting Chinese commercial real estate investment in Vancouver, only time will tell. What does appear clear is that China is demonstrating a much more aggressive, arrogant and even hostile tone in its relations with both Canada and the United States. This is evidenced by this week’s G20 Summit in Hangzhou, beginning with the deliberate snubbing of Barak Obama on arrival in China, and a number of other incidents, including Trudeau’s inability to achieve an agreement with China on canola oil. Canada needs to be smarter about how it deals with these new realities.
Anbang Insurance Group Corporate Headquarters, Beijing
The dingy fourth floor of this building in Beijing houses two companies that control assets of Anbang Insurance Group worth more than $15 billion.
Wu Xiaohui, Chairman of Anbang Insurance Group
Pingyang County’s verdant hills still hint at a long-lost China. Rice paddies and villages surround its bustling towns, and in the fields, farmers wade into the mud to plant seedlings as they have for thousands of years.
It is an odd place to find the people behind a Chinese corporate powerhouse that is turning heads on Wall Street with a global takeover binge. Yet the area is home to a tiny group of just such people — small-time merchants and villagers who happen to control multibillion-dollar stakes in the Anbang Insurance Group, which owns the Waldorf Astoria in New York and a portfolio of global names and properties.
American regulators are now asking who these shareholders are — and whether they are holding their stakes on behalf of others.
The questions add to the mystery surrounding a company that seemed to come out of nowhere, surprising deal makers with offers to pay more than $30 billion for assets around the world.
Anbang’s shopping spree is part of an outflow of money from China that has reshaped global markets but has often been shrouded in secrecy, sometimes by prominent Chinese looking to shift their wealth abroad without attracting attention at home. That poses a problem for international regulators trying to identify the buyers behind major acquisitions and to assess the riskiness of these deals.
The Anbang shareholders in the Pingyang County area hold their stakes through a byzantine collection of holding companies. But according to dozens of interviews and a review of thousands of pages of Anbang filings by The New York Times, many of them have something in common: They are family members and acquaintances of Wu Xiaohui, Anbang’s chairman, a native of the county who married into the family of Deng Xiaoping, China’s paramount leader in the 1980s and ’90s.
In many ways, Anbang and Mr. Wu appear to be archetypal products of China’s mix of freewheeling capitalism and Communist Party dominance, a formula that has fueled nearly four decades of untrammeled growth.
Anbang got its start as an auto insurance company in 2004 in the eastern Chinese city of Ningbo. For years it was only a minor player. But it took off as it became more aggressive with its finances, buying stakes in Chinese banks and bringing in money by selling high-risk, high-yield investment funds to ordinary Chinese.
Mr. Wu, 49, a former car salesman and low-level antismuggling official, led Anbang through this transformation and is now known as one of China’s most successful businessmen. He wears tailored suits and polished loafers,hobnobs with the likes of Stephen A. Schwarzman of Blackstone, and sometimes holds court at Harvard.
But he does not appear in Anbang’s filings as an owner.
It is common in China for the wealthy to have their shares in companies held in others’ names. Known in Chinese as baishoutao, or white gloves, these people are often trusted relatives or acquaintances. Many defend the practice as a way to protect their privacy in a nation where riches can be a political liability. But others say white gloves can be used to hide ill-gotten gains and thwart corruption investigators.
On the fourth floor of this shabby building in Beijing is an office that is home to two companies with a total stake of more than $15 billion in assets of one of China’s biggest financial conglomerates: the Anbang Insurance Group. CreditGilles Sabrie for The New York Times
Anbang did not respond when asked if Mr. Wu was a shareholder and declined to answer questions about its owners.
The company, a spokesman said, “has multiple shareholders who have made all required disclosures under Chinese law. They are a mix of individual and institutional shareholders who made a commercial decision to invest in the company. Anbang has now grown to be a global company thanks to the support of these long-term shareholders.”
For investors and regulators, white gloves can make it difficult to evaluate the financial health of a Chinese buyer. Ownership may be concentrated in the hands of a few people, posing hidden risks, and companies with government connections could be vulnerable to political shifts or become magnets for corruption.
“It is very important for businesses to know who they are ultimately doing business with, and for investors, what they are investing in,” said Keith Williamson, a managing director in Hong Kong at Alvarez & Marsal, a firm that carries out corporate fraud investigations.
It is not clear whether the shareholders in the Pingyang County region are holding large stakes on behalf of anyone else. But on May 27, Anbangwithdrew its application with New York State to buy an Iowa insurer, Fidelity & Guaranty Life, for $1.6 billion. Regulators had asked about ties between several shareholders with the same family names, said one person briefed on the matter who spoke on the condition of anonymity.
A $6.5 billion deal for a portfolio of hotels that includes the Essex House in New York and several Four Seasons locations is awaiting results from a security review by the American government. In March, Anbang withdrew a $14 billion bid for Starwood, the operator of Sheraton and Westin hotels, in a move that surprised Wall Street.
The company could come under greater scrutiny as it prepares to sell sharesin its life insurance business on the Hong Kong stock exchange next year. Already, at least one major New York-based investment bank has raised concerns about Anbang’s ownership after studying its shareholding structure to evaluate whether to help with its overseas deals, according to two people involved in the matter who asked not to be identified because the process was private. The bank did not participate in Anbang’s deals.
Separately, the Chinese magazine Caixin reported in May that Chinese regulators were examining Anbang’s riskier financial products. It is unclear where that inquiry stands or whether Anbang’s ownership structure is being investigated.
President Xi Jinping has waged a campaign against graft since taking office, and the use of white gloves has recently come under scrutiny. “White gloves are accompanied by power’s black hands,” the Communist Party’s disciplinary watchdog wrote in a report last year.
Questions about Anbang’s owners come as Chinese companies make deals around the world — sometimes representing efforts by China’s powerful to move money out of the country, as the economy slows and the party tightens its grip on everyday life.
Wu Xiaohui, chairman of Anbang, at a global insurance conference in 2015.CreditBen Asen/International Insurance Society
China has encouraged some capital outflow to improve the performance of its investments and expand its influence. But the subject of the elite moving money overseas is politically sensitive, raising questions about the source of their wealth and their confidence in the Chinese economy.
Luo Yu, the son of a former chief of staff of China’s military, said China’s most politically powerful families had been transferring money out of the country for some time.
“They don’t believe they will hold on to power long enough — sooner or later they would collapse,” said Mr. Luo, a former colonel in the Chinese Army whose younger brother was a business partner with one of Anbang’s founders. “So they transfer their money.”
At its founding in 2004, Anbang had an impressive list of politically connected directors. Records show early Anbang directors included Levin Zhu, son of a former prime minister, and Chen Xiaolu, the son of an army marshal who helped bring Communist rule to China.
Then there was Mr. Wu, who was born Wu Guanghui but was known as Wu Xiaohui from a young age. Relatives said he grew up in a Catholic family; a crucifix sat on his aunt’s dining room table, and she wears a necklace with a portrait of the Virgin Mary.
Mr. Wu married Zhuo Ran, a granddaughter of Deng, the Chinese leader who brought China out of the chaos of the Mao era. Together, Mr. Wu, Ms. Zhuo, Mr. Chen and their relatives owned or ran the companies that controlled Anbang, according to company filings.
Anbang leapt onto the global stage with last year’s purchase of the Waldorf Astoria and its aborted bid for the Starwood chain. By this year, Anbang’s assets had swelled to $295 billion.
It is not clear what prompted Anbang’s sudden interest in overseas assets. But the shift came after a reshuffling of its ownership structure that also led to the injection of more than $7.5 billion into the company.
Company documents filed with Chinese agencies show that the number of firms holding Anbang’s shares jumped to 39, from eight, over six months in 2014. Most of those firms received large injections of funds. At the same time, Anbang’s capital more than quintupled.
Ms. Zhuo disappeared from the ownership records by the end of that year. Many of Mr. Wu’s relatives did as well. Mr. Wu and Mr. Chen had disappeared earlier from the records.
Mr. Zhu, who does not appear to have owned shares, disappeared in paper filings from Anbang’s roster of directors by 2009, though he was listed as a director on online government filings as late as 2014.
Mr. Wu, Mr. Chen and Mr. Zhu did not respond to requests for comment, and Ms. Zhuo could not be reached. In March, Mr. Zhu told Chinese reporters that he was not an Anbang director.
Anbang’s current shareholding firms are not well-known names in China, and some appear to have been set up just to hold Anbang shares. One lists its address as the empty 27th floor of a dusty Beijing office building. Two more list an address at a mail drop above a Beijing post office.
Using corporate filings, The Times compiled a list of nearly 100 people who own shares in the firms and traced about a dozen to Pingyang County or nearby. Reporters visited the area, in China’s eastern Zhejiang Province, and interviewed dozens of residents, including several whose names appeared on the list. They also interviewed an uncle, an aunt and a nephew of Mr. Wu.
The latter two, as well as others in the area, said one name matched that of his sister, Wu Xiaoxia. The family members said several other names matched those of Mr. Wu’s extended kin, including two cousins and others on his mother’s side of the family. Through their various stakes in Anbang shareholding companies, these people control a stake representing more than $17 billion in assets.
Other names matched local acquaintances of Mr. Wu, including Huang Maosheng, a local businessman who confirmed in a brief phone interview that he had a business relationship with Mr. Wu but declined to elaborate.
One village leader and neighbors identified the names of four of Mr. Huang’s relatives — including some whom they described as common workers — from among those on the list. Their Anbang holdings represent about $12 billion in assets.
Another resident, Mei Xiaojing, said two names on the list matched those of her relatives. Asked if she knew Mr. Wu, she said, “Well, yes,” then ended the phone conversation and did not respond to subsequent calls. Through multiple holding companies, those three people have a stake representing about $19 billion in Anbang assets.
As Anbang rose, so did Mr. Wu’s profile. In 2013 Mr. Wu secured a yearlong position as a visiting fellow at the Asia Center of Harvard, joining a growing list of politically connected Chinese billionaires with ties to Harvard.
Ezra F. Vogel, a professor emeritus at Harvard who wrote a biography of Deng, said he met Mr. Wu on several occasions.
“He had this staff of sharp people who were working for him,” Mr. Vogel said. “It seems that they were doing the detail work, and he was the friendly man supplying the connections.”
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The Panama Papers and Thomas Piketty
I am sharing this because of its particular relevance to the ongoing revelations about connections between global tax evasion shell companies and real estate markets: London, Miami, New York City, San Francisco and Vancouver.
The Panama Papers and Thomas Piketty
How the Leak May Transform Politics
The Panama Papers—the massive collection of leaked documents from Mossack Fonseca, a Panamanian law firm that helps set up offshore shell corporations—have already had political consequences. Iceland’s prime minister, Sigmundur David Gunnlaugsson, resigned after the leak revealed that he had partly owned an offshore firm. David Cameron, the British prime minister, is facing criticism over an offshore company that his father set up. In Brazil, many of the people connected to the country’s unfolding corruption scandal appear to have held offshore shell companies set up by Mossack Fonseca. And in Russia, Sergei Roldugin, a cellist who is a close friend of Vladimir Putin, appears to control assets of over $100 million. Roldugin hasclaimed that this fortune is the result of donations from Russian businessmen to help buy expensive musical instruments for poor students. Clearly, classical music has some very generous friends among the Russian business elite.
At first glance, the Panama Papers leak looks a lot like other big leaks, such as the classified documents that U.S. Army soldier Chelsea Manningprovided to WikiLeaks or the former NSA contractor Edward Snowden’s trove of information on international surveillance. Like those leaks, the Panama Papers highlight the hypocrisy of prominent politicians and officials. The leak also recalls a series of less glamorous data leaks on the customers of secretive Swiss and Liechtenstein-based banks, which put pressure on governments to crack down on tax havens and allowed some authorities to pursue cases against tax evaders. Although few may remember, WikiLeaks began with a similar leak from the Swiss bank Julius Baer.
Yet the best comparison—and the best guide to what may happen next—is not to Snowden or Julian Assange but to Thomas Piketty, the famous French economist. Piketty’s book, Capital in the 21st Century, has been interpreted as an economic history, as a grand economic theory and a gloomy political prognosis. Yet few have paid attention to its closing pages, where Piketty lays out the political bet that underlies his research program: that people simply do not know the full extent of economic inequality, and that politics would be transformed if they ever found out.
Piketty’s research and his political program are motivated by a belief that the true extent of economic inequality is invisible. Everyday statistics simply cannot capture the extent to which the rich are different from ordinary people. They are not designed to. Common techniques of measuring inequality, by comparing the income or wealth of the top ten percent of the population to the rest, do not capture how much richer the top one percent is than the top 10 percent, or how much richer the top 0.1 percent is than the mere one-percenters. As the American political commentator Chris Hayes observed in Twilight of the Elites: America After Meritocracy, inequality is like a fractal in that it gets deeper and stranger the further one investigates it. One reason why Piketty’s research has influenced other economists is that it figures out clever ways, such as using university endowment funds as a proxy for hidden fortunes, to measure the consequences of inequality despite imperfect data.
Piketty’s aspirations may yet be fulfilled, but only if the Panama Papers create a new, self-sustaining politics that demands ever more information on the ways in which wealth is being hidden.
But the problem goes beyond deficient datasets. The truly rich have the means and the incentives to hide their staggering wealth. Piketty’s collaborator, the Berkeley economist Gabriel Zucman, estimates that $7.6 trillion is hidden in offshore arrangements. The London real estate market has been reshaped by oligarchs from Russia and elsewhere who use shell corporations to park their capital in a safe and predictable economic system. Activists run Hollywood-style bus tours of the houses of the new kleptocracy.
As the economist Branko Milanovic argues in his new book, Global Inequality, these trends are reshaping economic and political development. It used to be that economic elites had an interest in building up the rule of law in their own country, if only to protect their own property. Now they can just transfer the loot to London or New York, where “nobody will ask where the money came from,” Milanovic writes. Financial globalization is building a world similar to the one depicted in William Gibson’s grimly satirical science fiction novel, The Peripheral, in which the truly rich are unaccountable to anyone but themselves.
Piketty wants to map this hidden world and destabilize it. He believes that ordinary people simply don’t understand the extent of wealth because they aren’t able to comprehend it. There is thus an urgent need to generate new information that will help people understand how important wealth is, and who has it. This explains, for example, why Piketty wants a utopian global tax on economic capital. It’s not because such a tax would be a complete solution to inequality but because the tax would generate reporting requirements, and hence information on who holds which assets, allowing democracies to hold a “rational debate about the great challenges facing the world today” and who should pay for them.
Piketty’s perspective provides a different—and more fundamental—way of thinking about the long-term consequences of the Panama Papers. The Panama leaks, measured in gigabytes of information, are far larger than the Snowden and Manning ones. Yet compared with the true size of the offshore sector, they are less a leak than a trickle. Mossack Fonseca is not the only law firm setting up shell corporations to help people avoid taxes and scrutiny. And shell corporations are just one small part of a much larger system designed to hide people’s wealth. The document release—although significant—is no substitute for the kind of detailed and comprehensive information that a global tax arrangement might provide.
The truly rich have the means and the incentives to hide their staggering wealth.
Still, the leak brings the world one step closer toward better information on global wealth. The United Kingdom, for example, has come under pressure to stop protecting its tax haven dependencies. France and Germany are calling for a blacklist of tax havens, which might be cut off from the SWIFT financial messaging network, a global network that financial institutions use to transmit information securely, if they do not make their ownership structures completely transparent.
People demonstrate against Iceland’s Prime Minister Sigmundur David Gunnlaugsson in Reykjavik, April 2016.
Perhaps more important, in some countries the revelations are creating a new popular politics around tax avoidance and fraud. The Panama Papers have spurred massive public protests in Iceland and political furor in the United Kingdom. They are connecting technical questions of tax evasion and tax avoidance to everyday politics by identifying well-known politicians, officials, and celebrities who benefit from complex arrangements. Some of Piketty’s hopes for popular debate are being realized.
Even so, the effects have been sporadic. The revelations have had little popular impact in the United States, where no public figures have been identified as taking advantage of Mossack Fonseca. They have also yet to lead to substantial public outcry in countries such as Russia or China, where there are limited channels for public dissent. If this is indeed a first step toward identifying the true extent of global wealth inequality, it is only that.
Piketty’s aspirations may yet be fulfilled, but only if this release of information creates a new, self-sustaining politics that demands ever more information on the ways in which wealth is being hidden. This is a tall order given the complexities of international politics and the incentives for individual states to cheat, but the world is significantly closer to it now than anyone would have predicted three weeks ago.
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China’s Problems Grow: Shanghai Billionaire Guo Guangchang Caught Up in Scandal
In the Autumn of 1999, I joined a Hong Kong friend for the amazing “K98” train trip from Hong Kong north through the heart of China to Beijing, just in time for the 50th Anniversary celebration of the People’s Republic of China. It was my version of Paul Theroux’s “Riding the Iron Rooster,” and the images of China at that time still stick in my head. Since then China has changed so dramatically that those images no longer exist. Since Deng Xiaoping declared that “getting rich is glorious,” and China’s growth has skyrocketed, China’s domestic and international problems have also multiplied.
In the Autumn of 1999, I joined a Hong Kong friend for the amazing “K98” train trip from Hong Kong north through the heart of China to Beijing, just in time for the 50th Anniversary celebration of the People’s Republic of China. It was my version of Paul Theroux’s “Riding the Iron Rooster,” and the images of China at that time still stick in my head. Since then China has changed so dramatically that those images no longer exist. Since Deng Xiaoping declared that “getting rich is glorious,” and China’s growth has skyrocketed, China’s domestic and international problems have also multiplied.
The situation is now a complex hairball of numerous massive problems. In Beijing in 1999, the PRC for the first time shut down all industry to clear the atmosphere for the celebration. We could see all the way to the Great Wall. Today the pollution is so severe in many Chinese cities as to be a potential source of social unrest. The Shanghai financial markets were established to compete with Hong Kong for dominance in the Chinese economy. But the recent severe instability in the Shanghai market, compounded by ham-fisted government actions, have caused serious concerns around the World about Chinese naiveté with regard to capitalism. Now, numerous Chinese Billionaires and industry leaders are being whisked away as part of a major investigation into corruption. Finally, Xi Jinping is seen as a “neo-Maoist,” who seems to be using issues like the Spratley Islands to promote Chinese nationalism, in an attempt to distract the Chinese people from its internal problems. Harvard Professor Niall Ferguson argues that little has changed in China in 2000 years. China is still a feudal culture dominated by an Emperor, and the Mandarin class, lording over the peasants. Sadly I share that view, but now it is dangerous for all of us.
Chinese Billionaire Said to be Assisting Authorities in Investigation
Shares in Guo Guangchang’s Fosun halted trading amid questions around his whereabouts
Fosun’s co-founder and chairman Guo Guangchang in Hong Kong in May. Local media reported late Thursday that he has been out of contact.
SHANGHAI— Guo Guangchang became a billionaire by investing where China’s economy was going over the past two decades, pouring money into steel, property and finance while turning his gaze increasingly overseas.
On Friday, Mr. Guo indicated authorities are holding him in connection with an investigation, a stark illustration of how Chinese business and finance is coming under intense scrutiny.
After nearly two days of mystery over the whereabouts of the man who styles himself a Chinese Warren Buffett, a vague statement near midnight issued by his flagship investment conglomerate, Fosun International Ltd., said he is “assisting in certain investigations” by Chinese judicial authorities. The statement, which was signed by Mr. Guo, didn’t divulge his location but said he is still able to participate in “major matters” before the company.
There was no indication of what the investigations were about or whether Mr. Guo could be implicated himself. Chinese investigators have broad powers to detain both suspects and potential witnesses even when they don’t face accusations of wrongdoing. A Chinese Foreign Ministry spokeswoman said Friday she had no information.
Since a midyear stock-market crash exposed weaknesses in China’s financial system, authorities have detained senior stockbrokers, fund managers and bankers from a handful of the country’s top firms, saying little about the progress or findings of their investigations. About a dozen of the most senior people at the biggest brokerage, Citic Securities Co., have been held for questioning by authorities for months, and the firm says it is cooperating with investigations.
Jitters are particularly high in Shanghai, China’s largest city, where the biggest markets are based.
In addition, the Communist Party’s antigraft agency put a vice mayor in Shanghai under official investigation last month, then named certain local brokerages, insurers, a private-equity firm and business schools as targets of its next inspections.
Fosun’s investment in Club Med is possibly its most eye-catching holding. The Chinese company won a prolonged bidding war this year for control of the struggling French tourism brand, with plans to open new resorts in China aimed at the growing middle class.
With a proud mercantile tradition that has produced the largest regional economy in China, Shanghai has long celebrated business champions. And few stand taller than Mr. Guo, a 48-year-old with a steely focus on building asset values.
A standard-bearer for private entrepreneurs, Mr. Guo’s personal fortune was estimated this year at $7.8 billion by Shanghai research firm Hurun Report, putting him at No. 17 on its list of China’s wealthiest people.
But as China’s economy slows after three decades of furious expansion, conspicuous wealth has become suspect. Just as rumors began to spread on social media that Mr. Guo had gone missing around midday Thursday, the Communist Party secretary in Shanghai, Han Zheng, gathered top cadres to admonish them to stop chasing profits and maintain a strong “sense of responsibility and dedication,” according to an official account.
Fosun spokesmen declined to comment beyond the corporate statements. A mobile phone with a number Mr. Guo has used was turned off, according to a message heard when the phone was dialed.
Uncertainty about his situation has added to a chill in finance circles. “This news is akin to an earthquake of sorts to the business community,” Rupert Hoogewerf, founder of the Hurun Report, said in a video commentary.
Operating from a riverfront tower in downtown Shanghai, Fosun is highly diversified in China. It owns a major steelmaker in Nanjing; a development unit is building office towers in downtown Shanghai; it runs one of the country’s biggest drugmakers; it is involved in private equity, insurance, and banking as well as tourist sites including Shanghai’s Yu Gardens, a remake of an ancient Chinese city.
Mr. Guo also has dispatched investment teams around the world. It built a private-equity operation with Carlyle Group LP, property and insurance investments with Prudential Financial Inc. plus banking in operations in Europe. It added to its prominence by buying into recognizable names, from French resort chain Club Méditerranée SA and Greek jeweler Folli Follie to the Canadian performing group Cirque du Soleil and One Chase Manhattan Plaza, a choice property in lower Manhattan.
While Mr. Guo has assembled a professional team of deputies, analysts say that like many Chinese entrepreneurs he has retained more power for himself than is common in big Western companies. That could make Fosun vulnerable should something go wrong, a point illustrated in trading Friday when its trading halt for its primary business triggered selling in related stocks and bonds.
During his three years in power, President Xi Jinping has cast a more critical eye toward private-sector wealth than his predecessors, especially Jiang Zemin, who is strongly identified with Shanghai and its business-minded political leanings. Mr. Xi has engineered an anticorruption campaign that has regularly exposed links between politicians and executives in oil, mining, and other industries.
“The financial sector is the newest target of this strategy and is being pursued with great intensity,” researchers from Eurasia Group said in a report published Thursday that concludes that Mr. Xi’s campaign, rather than winding down, is intensifying.
Mr. Guo hasn’t evaded public scrutiny. In August, the tycoon was named during the sentencing for corruption of a former senior Communist Party member in Shanghai who had run a government-owned dairy company. Mr. Guo had granted the man favors for unspecified benefits, according to China’s official Xinhua News Agency, which said that Mr. Guo wasn’t accused of wrongdoing. Fosun issued a statement at the time, saying Mr. Guo supported China’s anticorruption push.
Mr. Guo’s success story is widely known in China where he personified the nation’s fast rise and its embrace of entrepreneurialism. He grew up on a farm in Zhejiang province, studied philosophy at Shanghai’s top university, Fudan, and with three fellow alumni founded a business in the early 1990s that soon accumulated vast assets.
The business was listed as Fosun International on the Hong Kong stock exchange in 2007, and today is capitalized at nearly $15 billion. According to mid-2015 filings, Mr. Guo effectively controls about 71% of the listed company. He said in an online commentary this year that the Fosun group manages assets worth $160 billion.
Mr. Guo has repeatedly named Mr. Buffett as his inspiration. He said he seeks to mirror the famed U.S. investor’s focus on fundamental asset values, rather than market fluctuations. “At most, we are Warren’s apprentice in China,” Mr. Guo told The Wall Street Journal early this year.
Like many other entrepreneurs in China, Mr. Guo has also remained close to Chinese leaders with positions on numerous official bodies, while some of Fosun’s businesses have overlapped with government priorities.
He has served as a deputy to China’s legislature, the National People’s Congress, as well as represented Shanghai on a high-level government advisory body called the Chinese People’s Political Consultative Conference. Mr. Guo has often been asked to speak on behalf of private business owners at government-sponsored events, such as an October visit to China by German Chancellor Angela Merkel.
Possible political problems have always been a worry, said one fund manager whose firm holds Fosun shares. The investor described Mr. Guo as the ultimate “red capitalist,” equal parts private entrepreneur and government official.
It isn’t known how close Mr. Guo’s ties to the party are; he has said the party is represented within Fosun. In 2001, he told a gathering of the party-affiliated Shanghai Federation of Trade Unions, according to the organization’s website, “Although I’m not a party member, those around me are all party members.”
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