China’s recent detention of Wu Xiaohui, head of the massive insurance conglomerate Anbang Insurance company, is seen by some as a crucial turning point in Chinese President Xi Jinping’s crackdown on wealthy corrupt business people, or “big crocodiles” as they are called here.
But that turning point is not without its risks, analysts note, given that Wu is said to have powerful political backers and millions of policy holders.
Until recently, Anbang Insurance company was on a global buying spree. The company claims to have nearly $300 billion in assets and was behind some of China’s most high-profile overseas acquisitions in recent years, including the purchase of the Waldorf Astoria hotel in New York City. It also tried to buy Starwood Hotels, has ties on Wall Street and has been linked to a potential deal involving U.S. President Donald Trump’s son-in-law, Jared Kushner.
Wu not only connected himself with those in power and influence overseas, but at home as well from high-ranking party members to state owned banks. Political analyst Hu Xingdou said Wu’s arrest is a new milestone for China’s anti-graft crackdown.
“This highlights that the country’s financial sector is now under heavy graft scrutiny. The detention of Wu Xiaohui, as a symbolic figure, ushers in the fight against [corrupt] red generations and the industries they work in,” Hu said.
Wu doesn’t necessarily belong to the so-called "red second generation" – the children of China’s revolutionary leaders – but through marriage he is the grandson-in-law to late leader Deng Xiaoping. The two, however, were reportedly divorced recently.
Political analysts said he is also supported by another heavyweight backer, Zeng Qinghong, former vice-president and right-hand man of Jiang Zemin.
The financial sector is the most corrupt sector of all as it is highly monopolized by the state. That, Hu said, gives room for well-connected people, who have political backers, to pull strings and reap huge gains, for example, in the forms of sweetheart loans.
Wu’s detention, analysts note could be part of a genuine effort to clean up the sector and to send a message to others in the industry. According to the New York Times, in its most recent financial disclosure, nearly three-fifths of Anbang’s assets were overseas.
Chinese regulations stipulate that insurers cannot put more than 15 percent of their assets overseas.
Christopher Balding, a professor at Peking University’s HSBC Business School, said while Anbang was at the very least pushing the boundaries of regulatory limits, so were other companies that were the same size.
“I don't see anything that Anbang has done differently than anyone else that would warrant detention and so that seems to raise the possibility that there are other factors at play besides strict business issues,” he said.
Some believe Wu’s detention could be part of a larger political struggle.
China’s crackdown on big crocodiles has been gaining steam for more than six months. And one key development, said China leadership analyst Willy Lam, was the abduction of Xiao Jianhua from Hong Kong.
“Xiao Jianhua was what the Chinese call a white glove. A broker for powerful families. Xiao Jianhua was apparently friendly with the family of Zeng Qinghong and other clans,” Lam said. “It is well known that Xi Jinping is now in a power struggle with the Shanghai clique, including Jiang Zemin and Zeng Qinghong.”
Cause and effect
Political connections aside, the potential impact the handling of Anbang could have on society is perhaps even more of a concern. Anbang is not just an insurance company, but is really a massive wealth management company. And any mishandling of it brings big risks.
“The people who bought insurance from Anbang, these are not peasants or urban workers, most of them are middle class families. Some with college education. It will be a big problem. They will definitely make a big noise and hold demonstrations,” Lam said.
Lu Siqi, a professor of economics at Peking University, said while it is still too early to tell whether Wu may have manipulated capital markets, or if his political backers were illegally involved in some way, authorities will take measures to avoid unnerving investors.
“The Chinese government will ensure financial stability – a precondition for its clean-up of the mess left behind by the nation’s financial crocodiles. Shall this jeopardize financial stability, the regulator may resort to some measures, but they won't be extreme or drastic,” he said.
If it doesn’t get handled properly, however, the company’s 35 million policyholders and share investors will take the first and direct hit, Lu said. And the government may be further forced to step in with a bailout plan – a tab which will eventually be paid by taxpayers.