Alert: This was written in late January 2018 and the picture has shifted again. Still, it may be useful to keep the larger lesson in mind.
In the opaque policy environment in China, it may behoove those of us on the outside to take a closer look at what Chinese investors are thinking and doing. What lies behind the woes of China’s juggernaut, HNA? Many in Chinese bond market see the saga as part of a power play at the top that is far from over. A mid-December 2017 WeChat commentary retweeted by “The Finance Gossip Girl” (金融八卦女) pointed out that the bond market had not been overly hasty to dismiss HNA and Wanda as dead and gone. Some investors had been, until as late as December 2017, content to “sit back and watch the big show unfold,” having learned their lesson when “blind short-selling” over the embattled Wanda and Hongqiao did not pay off earlier in the summer. The writer delicately alludes to the “labyrinthine shareholder arrangements, opaque subsidiary deals, the two mysterious charities and the stake giveaway that defies common sense,” echoing suspicions that HNA is organized deliberately to hide owners with high-level political connections. This is consistent with Western press reporting.
While this is only a theory, we do have some evidence that some powerful players went to bat for HNA late in the day against central government stance. Eight policy and commercial banks and the provincial government in Hainan were still vocally supportive of HNA by year-end in a public Dec. 13 announcement (CDB, BOC, CCB，EIBC, ABC, SDPB, ICBC, BOCOM all spoke up here.) The Hainan-based executives said they wanted to get behind the Hainan Deputy Party Secretary Shen Xiaoming’s directive that the well-being of the province is tied to HNA’s fortunes. Only after Guo Shuqing of CSRC said in the People’s Daily on Jan. 17, 2018 that there needs to be a cleanup of “a vast financial conglomerate” did the banks change direction.
The fight may still not be over. One of China’s widely read financial social media accounts confirms that Guo’s interview forms part of a larger and consistent policy trend that bodes ill for private sector conglomerates, including Ping An, HNA and, of course, Xiao Jianhua’s Tomorrow Holdings. We are to infer, from Guo’s reticence in not naming the firms directly, that the power play is still ongoing. A Hong-Kong based Chinese commentator thinks the December move by the banks and the Hainan official shows continuing local government disregard of central directives whenever possible, and may point to deeper political rifts. This makes sense since, in the Chinese system, provincial and banking officials rarely act on their own without some significant backing in the top leadership.
What does this mean for the rest of us? In short, in China, it’s not over until it’s over. Chinese bond buyers are not making snap decisions. There’s some food for thought in that.
(Note on the bond market reaction reporting: Granted, the writer may have toned down the bad news given the government’s frequent ban of financial information that is judged to trigger investor panic. Still, “The Finance Gossip Girl” has a proven track record of reporting on sensitive financial information. When “The Finance Gossip Girl” was shut down in June 2017 in the wave of crackdown on entertainment social media, a widely reposted article used the account as an example of successful social media 自媒体and the censorship risk they run, reporting that at its height the account had more than 3,000 sources in the industry and over time became widely respected for its integrity and accuracy.)