From the Financial Times. Just sabre rattling by the Chinese government?
The Chinese government has just launched an apparent crackdown on a small number of large conglomerates known in the west chiefly for their aggressive dealmaking. The list includes Dalian Wanda, Anbang, Fosun and HNA Group.
The news that Chinese banking regulators have asked lenders to examine their exposure to these companies has sent the stocks of groups wholly or partly owned by these conglomerates tumbling in Shanghai and Hong Kong.
Obviously, the market was caught by surprise. But it should not be. A moment of reflection should reveal the overpowering logic of such a crackdown.
The immediate trigger is Beijing’s growing alarm over the risks in China’s financial sector and attempt to cut capital outflows. In late April, President Xi Jinping convened a politburo meeting specifically focused on stability in the financial system. Foreshadowing the crackdown, he ordered that those “financial crocodiles” that destabilise China’s financial system must be punished.
While Mr Xi did not name those financial crocodiles, it is not hard to find Chinese tycoons fitting this description: those who have borrowed recklessly and bought expensive overseas assets with abandon. A crackdown on such behaviour is not only long overdue, but also can serve multiple purposes. As the Chinese saying goes, you slaughter a chicken to warn the monkeys.
Making an example of China’s wealthiest tycoons can have an instant and powerful deterrent effect and rein in overly aggressive business practices endangering the stability in China’s overleveraged and under-regulated financial sector. But the political benefits of a clampdown on Chinese tycoons, so far overlooked by most observers, are likely to be even more significant.
