On this episode of China Uncensored,
When a giant Chinese corporation
goes bankrupt,
should the Chinese government bail it out,
or let it fail?
In the case of Anbang Insurance Group,
the decision was neither.
No, the government has their own
unique solution.
Welcome back to China Uncensored.
I’m Chris Chappell.
The Chinese Communist Party loves
to have its influence felt around the world.
That’s one reason why over the last few years,
it’s been encouraging Chinese companies
to buy up assets overseas.
It’s even supported them with policies
like low interest rate loans
from Chinese state-owned banks.
For example,
the Chinese company Dalian Wanda
bought up AMC Theaters—
which owns about one third
of American movie screens.
Shuanghui International bought Smithfield Foods—
so they can literally bring home the bacon.
And Anbang Insurance Group
has spent 10 billion dollars
buying up hotels and resorts—
including the Waldorf Astoria.
From which I have been banned for life.
But now Anbang Insurance Group
is facing a bit of a problem.
China Uncensored producer Matt Gnaizda reports.
Thanks, Chris.
For more than a century,
the Waldorf Astoria was one of
America’s great hotels—
a host to US presidents,
world leaders...
and weird tea parties.
But now,
this proud testament
to American history,
hospitality, and sophistication...
is run by the Chinese government.
Here’s what happened:
In 2014, privately owned Chinese conglomerate
Anbang Insurance Group bought the Waldorf
for almost 2 billion dollars.
Anbang also bought billions more
in other American companies and hotel chains.
US investors were happy to work with Anbang.
Anbang was willing to pay big money—
and who doesn’t love getting big money?
In fact,
investors loved Anbang’s big money so much,
they were willing to overlook Anbang’s
other shady business operations.
But it turns out,
Anbang had pulled a Lehman Brothers of sorts.
That is,
they’re a hundred-billion-dollar company
that made risky, highly leveraged investments.
And they went into quite a bit of debt
as part of their spending spree.
What could go wrong?
Apparently, a lot.
In late February,
Chinese authorities prosecuted Anbang’s CEO
for economic crimes.
And Chinese regulators took control of the company.
It’s only for a year.
But it could be more than a year,
if they feel like it.
This government takeover is
a very different approach
than the US took with Lehman Brothers in 2008.
The US just let Lehman Brothers fail,
its poor employees turned out into the streets
with nothing but their $5,000 suits.
According to Bloomberg,
Anbang was doing something similar
to what went on during the 2008
subprime mortgage crisis in the US.
For example, thanks to some financial alchemy,
Anbang had been posting pretty good growth
in its life insurance business.
And when I say pretty good,
I mean that from 2010 to 2016,
Anbang’s annual life-insurance premium revenue
increased by 11 million percent.
If I had a nickel—
and grew it at 11 million percent—
I’d have enough to buy
one of those $5,000 suits.
Anyway, Anbang was taking
life insurance products,
repackaging them,
and selling them to investors—
with the promise of high interest rates.
And who doesn’t love earning high interest rates?
Pretty soon,
life insurance made up
96 percent of Anbang’s revenue.
And it was using all that extra revenue
to buy up cool playthings—
like the Waldorf Astoria hotel.
But maybe that was a bad idea.
Because they almost collapsed—
and now the Chinese government has taken over.
Now as much as this sucks for Anbang—
and its CEO who’s going jail
for a long time—
there’s a bigger issue.
It shows that China’s government
is willing to use heavy-handed tactics
to take control of private companies.
An analyst from the Economist Intelligence Unit
says it’s a warning shot to other companies
that are leveraging investor money
and complex financial products
to buy assets overseas.
Who will Chinese regulators go after next?
It could be conglomerates like HNA Group.
They own everything from real estate
to airline catering to luxury hotels.
It could be Dalian Wanda,
which owns movie theaters,
film studios, and luxury hotels.
Or it could be Fosun Group,
which owns Canada’s Cirque du Soleil,
a British soccer club,
and you guessed it,
luxury hotels.
So what do they all have in common?
Besides a weird fetish for luxury hotels?
Their CEOs are all being investigated
by Chinese authorities.
So the Anbang takeover
could be a message to Chinese companies
to clean up their financial transactions
that have gotten a little too,
shall we say, “creative”—
in the Lehman Brothers sense.
Or else we’ll arrest your CEO
and take over your company.
But this should also serve as a warning
to American investors:
When you do business with China,
things can get really complicated really fast.
One reason that Anbang made such a splash
when it first started investing overseas,
besides its seemingly endless billions of dollars,
was its high-level political connections.
Back in 2016,
the Financial Times called Anbang
one of China’s most politically connected companies.
Turns out,
that might have been part of the problem.
After the CEO was first taken into custody last June,
the Epoch Times reported that he was
close to former leader Jiang Zemin’s faction,
and helped his cronies launder money.
And the New York Times found that
Anbang’s assets were mostly controlled
by a series of shell companies
owned by relatives of the CEO.
By the way,
that is not normal.
So to recap:
If you sell your company
to an opaque Chinese conglomerate
with deep pockets,
you might find that someday,
your company will be partly controlled
by the Chinese government.
Good thing Jared Kushner scrapped that deal
to sell his Fifth Avenue building to Anbang.
Back to you, Chris.
Thanks Matt.
Well, now that the Waldorf
is directly controlled by the Chinese government—
I doubt I’m going to get my
lifetime ban lifted anytime soon.
So what do you think of the Chinese
government takeover of Anbang?
Leave your comments below.
Once again I’m Chris Chappell.
See you next time.
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