A rising tide of corporate debt defaults is sparking some concern that another banking crisis may be just around the corner. More than 20 Chinese firms have failed to meet bond or loan repayments so far this year, many of them the victims of monetary tightening as Beijing tries to ward off financial risks by reducing borrowing levels. With bonds worth about CNY20 trillion due to expire within the next year, and tighter liquidity making it difficult for indebted companies to access new financing, there are fears the number of defaults could start to spiral.

“Investors are getting skittish about the defaults, fearing that more will come in the next few months,” said Wang Feng, Chairman of Ye Lang Capital, a financial services company based in Shanghai. “The financial regulators are standing firm in deleveraging the economy, and it is certain that dozens of debt-ridden corporate borrowers grappling with the cash squeeze will have difficulties in repaying loans.” Nonetheless, some analysts and business executives contend that any panic at this stage is premature. Gao Ting, head of China strategy at UBS Securities, said the defaults only represented a small portion of the country’s corporate debt market, which is valued at USD2.8 trillion. “No high risks have been seen yet,” he said. “The defaults are not likely to have an impact on the overall market.”

According to data provider Wind Information, 12 listed companies have defaulted on repayments for 20 bonds worth a combined CNY16 billion in 2018, including a CNY2 billion bill sold by a principal unit of asset buyer CEFC China Energy. As the central bank keeps tightening liquidity, it is likely that some of the corporate borrowers, unable to access new financing, will fail to repay the principals and interest.

China’s debts at the end of last year’s second quarter represented 268% of the country’s economic output, according JP Morgan. It was not until March 2014 that China’s bond market saw its first default when Shanghai Chaori Solar Energy Science & Technology failed to make an interest payment. Prior to that, the authorities would step in to bail out struggling corporate borrowers with cash injections or restructuring plans to ensure repayments would be made, the South China Morning Post reports. S&P Global Ratings said in January that China is likely to see its first bond default by a local government this year as the deleveraging efforts by Beijing continue.

Two foreign ratings agencies — Fitch Ratings and S&P Global Ratings — have announced that they plan to launch their own companies in China, amid the further opening-up of the financial sector as they target the huge potential of the world’s third largest bond market. Fitch sold its 49% equity interest in China Lianhe Credit Rating Co to Singapore’s sovereign wealth fund GIC in January, after jointly running the business since April 2007.

China has mapped out a national financial development plan, setting the goal of building a modern financial system by 2020 and preventing systemic risks. The plan was jointly drawn up by nine ministry-level bodies led by the People’s Bank of China (PBOC), the central bank. The release of the five-year development plan (2016-20) for the financial sector has been delayed by almost two years, due to the restructuring of the nation’s top financial regulatory framework and the fast-changing global financial environment. Compared with the draft version proposed in August 2016, specific sections on further financial opening-up measures were added in the final version.

The plan also clarifies the duty of the Financial Stability and Development Committee under the State Council, which was launched last November. Monetary policy targets will be further optimized, with more emphasis to be put on maintaining price stability The interest rate will gradually replace M2, the broad measure of money supply, as the key factor for monetary policy implementation. The newly-established Committee will supervise financial regulatory departments as well as local governments, which will be held accountable for financial risks. The regulation of “shadow banking” business will be strengthened through greater supervision and wider coverage of the regulation, while irregular financial activities such as illegal fundraising will be combated, media reports said. Prevention of financial risks will continue to be the policy priority in the coming years.

Chen Wenhui, Vice Chairman of the China Banking and Insurance Regulatory Commission (CBIRC), said at a forum at Tsinghua University that China is stepping up efforts to roll out detailed opening-up measures, including easing restrictions on foreign investment and expanding the business scope of foreign-funded banks. Zhu Min, former Deputy Managing Director of the International Monetary Fund (IMF), said that “a modern supervision and regulation system can only be established with an open market”, the China Daily reports.

An example of the opening of the financial sector is the green light given to S&P Global to set up a ratings business in China, a market closed to foreign players for two decades. So far, foreign rating agencies have had to work with a Chinese partner, and S&P had a partnership with Shanghai Brilliance Credit Rating & Investors Service Co. German Chancellor Angela Merkel, on a visit to Beijing last week, said she welcomed recent announcements that China would further open its financial sector to foreign participation, adding that she hoped “concrete progress” could be made on an investment treaty between China and the EU to show both sides’ commitment to free trade.

Foreign investment in China-listed stocks is also expected to rise in the near future. For years, foreign ownership of China’s A shares, or renminbi-denominated equities traded on the stock exchanges in the Chinese mainland, has been static around 2% or less, despite the fact that China’s stock market, whose capitalization is over USD8.5 trillion, is the world’s second largest. Foreign participation was also minimal in the Chinese bond market, the world’s third-largest valued at USD8 trillion as of April. But this will change as Chinese stocks and bonds are poised to be included in major global indices and Chinese regulators intend to further open up the markets by loosening controls on two-way capital flows.

Anbang’s Wu Xiaohui

Sun Zhengcai, former Chongqing Party Secretary

Wu Xiaohui, former Chairman of Anbang Insurance Group, was sentenced to 18 years in jail by a court in Shanghai for fundraising fraud and embezzling corporate funds. Wu was also deprived of his political rights for four years, and had CNY10.5 billion of his assets confiscated, according to the Shanghai Municipal No. 1 Intermediate People’s Court. The court said Wu embezzled CNY10 billion from Anbang’s insurance fund, and defrauded Anbang of CNY65.2 billion by illegally selling insurance products using fake documents. The China Insurance Regulatory Commission (CIRC) took over Anbang in February to maintain normal operations and to protect the interests of consumers. 


nder Wu, Anbang led high-profile mergers and acquisitions overseas, including the 2014 purchase of the Waldorf Astoria Hotel in New York for USD1.95 billion and Strategic Hotels & Resorts for USD6.5 billion in 2016.

Wu’s trial, however, left many questions unanswered, such as how he could obtain difficult-to-get insurance licenses and who the source of his seed capital was. It also remained unclear why his crimes remained undiscovered or were condoned in the heavily regulated insurance industry. The fundraising fraud started in 2011 when Anbang raised capital through selling “wealth management” insurance policies, exceeding the regulators’ approved quota by CNY723.87 billion in the next six years, before the insurance regulator put a stop to it. The former Chairman of the CIRC Xiang Junbo is now awaiting trial on corruption charges.

Sino-Ocean Land, a company controlled by China Life Insurance, is buying Anbang Insurance’s equity stake in a real estate venture in Beijing, becoming the first firm to swoop on major assets owned by the insurer since the Chinese government took it over. Sino-Ocean will take over half of Anbang’s equity interest in Beijing Bangbang Commercial Property Company, a wholly-owned Anbang subsidiary with a registered capital of CNY200 million.

In a separate trial, Sun Zhengcai, former Party Secretary of Chongqing municipality and Member of the Communist Party’s Politburo, was sentenced to life in prison for taking bribes of over CNY170 million. He was also deprived of his political rights for life and all of his personal property was confiscated. A court in Tianjin found that between 2002 and 2017, Sun took advantage of various posts to provide help for certain entities and individuals in project bidding, project approvals, enterprise operations and personnel promotions. His posts during that period included Party Secretary of Shunyi district in Beijing, Secretary General of the CPC Beijing Municipal Committee, Minister of Agriculture, and Party Secretary of Jilin province and of Chongqing municipality. During the court proceedings, Sun pleaded guilty and expressed “sincere repentance”. He said he accepted the sentence and would not appeal.

Neil Shen, Founding & Managing Partner of Sequoia Capital China

Hongkonger Neil Shen, Founding & Managing Partner of Sequoia Capital China, tops this year’s Forbes’ 2018 Midas list, which ranks the world’s top 100 venture capitalists (VCs) who have made strong exits or notable investment deals involving technology start-ups. Shen, ranking 11th in 2017, is one of the three Sequoia Capital venture capitalists to make the Midas top 10 this year, and one of 16 China-based or China-born VCs to make the 100-person list, the largest number ever. Shen, who co-founded China’s leading online travel site Ctrip, has also invested in Alibaba, JD.com, and China’s leading online platform for food ordering and cinema booking Meituan Dianping. The other two Sequoia entries were Jim Goetz, a partner based in Menlo Park California, who held the top spot for the past four years but this year descended to third place, and Doug Leone, the Managing Partner who oversees the firm’s global operations, who ranked ninth.

Neil Shen is joined in the top 10 by J.P. Gan, Managing Partner of Qiming Venture Partners, who’s ranked eighth. Ranked 30th last year, J.P Gan, Managing Partner of Qiming Venture Partners, is elevated to the 8th spot, rocketing into the top 10 through investments in Chinese start-ups such as popular selfie-editing app Meitu, and Meituan-Dianping. Gan began his VC career in 2000 at the Carlyle Group, where he was a founding member of the firm’s Asian venture fund in Hong Kong. His firm Qiming has also invested in Xiaomi, China’s leading smartphone maker and application developer, whose listing is expected this year. Xiaomi was valued at USD46 billion at its last financing round in December 2014, the world’s third biggest unicorn.

Beijing-based Joy Capital founder Erhai Liu (62) returns to the list thanks to investments in Chinese transport start-ups such as bike-sharing start-up Mobike and electric vehicle start-up NIO. In the 24th spot is Bob Xu of ZhenFund, who rose nearly 50 spots on this year’s list thanks to investments in companies including Meicai, an online marketplace for selling agricultural produce directly to restaurants that raised USD450 million in a series-E round in January.

The Midas list is based on two primary yardsticks measured over the last five years: all exits, either through initial public offering (IPO) or merger and acquisition (M&A), valued at USD200 million each, and financing rounds in a private company that have valued the start-up at USD400 million and above. To make it into the top 10, an investor needs 13 qualifying deals and eight unicorns – start-ups valued at USD1 billion or above – in their portfolio. With 79 venture capitalists from the U.S., 16 China-based or -born, three from the United Kingdom, two from Switzerland, and one each from Israel and India, Forbes said the 2018 top 100 list is the most international list over its 17 years’ publication, the South China Morning Post reports.

The Midas List

Sequoia Capital China website.

Wu Xiaohui, who founded Anbang Group, has been put on trial in Shanghai, the first among China’s entrepreneurs to be prosecuted amid the government’s current crackdown on financial irregularities. The China Insurance Regulatory Commission (CIRC) removed him from his position as Chairman on February 23. He is on trial at the No 1 Intermediate People’s Court in Shanghai on charges of illegal fundraising, fraud, and embezzlement. Anbang had raised capital through selling wealth management insurance policies to 10.56 million policy holders, exceeding the regulator’s approved quota by CNY723.87 billion, according to the court. An estimated CNY65.25 billion of funds were diverted to Wu’s personal accounts for paying debt and for spending, the court said. Another CNY10 billion of insurance premium income was transferred to his personal company under Wu’s instructions in 2007 and 2011. Prosecutors said Wu owned and controlled more than 200 companies which were little-known to others and that he had increased his stake in Anbang with investments from these companies to have “absolute control” over the group. His stake in Anbang had reached 98.22% by the end of 2014 after more than 30 of his companies injected CNY49.9 billion in additional capital. Prosecutors said Wu ordered senior executives to go abroad and destroy information so as to cover up his crimes after he was told of a police investigation in March last year. “He severely destroyed the financial order and impacted the country’s financial safety,” prosecutors said.

In his defense, Wu said that he did not understand Chinese law, and that he did not know whether his actions constituted crimes that could be punishable. Moreover, he disputed that Anbang had breached the regulatory quota. A crime involving such financial magnitude could result in life imprisonment, said Benben Law Firm’s Attorney Liu Guohua in Guangzhou, who isn’t involved in Anbang’s case. A verdict will be announced later.

Anbang was one of the biggest sellers of wealth management products that were used to finance hostile takeovers and acquisitions. Anbang’s daily operations have been taken over by the China Banking and Insurance Regulatory Commission (CBIRC) for one year, which is seeking new investors. Anbang, founded in 2004, had grown from a seller of car insurance policies into one of China’s largest insurance providers, with more than CNY800 billion in assets in a little over a decade.

Anbang became famous in 2014 with the USD2 billion acquisition of the Waldorf Astoria hotel in New York from the Blackstone Group. Two years later, Anbang made an unsolicited USD14 billion bid to buy Starwood Hotels and Resorts Worldwide against the Marriott Group, which it finally lost. Between 2012 and 2016, Anbang had been involved in 14 acquisitions valued at USD25.22 billion.