Wang Jianlin, the billionaire chairman of property and entertainment giant Dalian Wanda, vowed famously last year to drive Disney out of China with homegrown amusement parks favoring patriotic performances and high-speed roller coasters. Wang’s love of country would appear to have gone unrequited. Attendance at his theme parks has been underwhelming. Meanwhile Wang himself has had something of a wild ride as government regulators have instructed banks to restrict credit to Dalian Wanda, forcing Wang to sell off assets.
On July 10, Wang stunned investors with an announcement that, to reduce debt, Dalian Wanda would sell off a controlling stake in most of its tourist attractions together with nearly all of its hotels in China, to Sunac China, a leading property developer, for $9.3 billion. Terms of the deal provoked howls of protest from major credit rating agencies. Sunac itself is so heavily indebted that Dalian proposed to lend the company $4.4 billion to facilitate the sale.
Days later, Wang relented, announcing that he would sell only the amusement parks to Sunac and had brought in a new buyer, Guangzhou R&F, to take on the hotels. The revised deal was worth $9.45 billion. Sanac was left to foot a smaller bill of $6.5 billion, eliminating the need for Dailin Wanda to float it a loan. At a press conference, Wang insisted the renegotiated deal was friendly. “No glasses were smashed,” he said.
Perhaps not. But many global investors see ample reason to worry about the risk of broken china in China — not just at Dalian Wanda, but throughout the nation’s financial system. China’s bank regulators have advised state-owned lenders to review their risk exposure to Dalian Wanda and three other companies that have been among the nation’s most aggressive overseas investors: Anbang Insurance, Group Fosun International and HNA Group.
Of the four, Dalian Wanda has moved the most decisively to restructure and may have the best prospects for revival. The group delisted its commercial unit from the Hong Kong stock exchange last year in hopes of re-listing on mainland exchanges in Shanghai or Shenzen where stocks trade a much higher multiples. But there is a huge backlog of companies hoping to do likewise and its not clear how long Wanda will have to wait its turn.
A document purporting to be an internal memo from the Agricultural Bank of China suggests China’s bank regulators have given state-owned lenders strict instructions not to lend to Dalian Wanda’s overseas operations. According to a report in Caixin, a leading Chinese financial news service, Wang has vowed to “actively respond to the state’s call” and intends to switch the focus of his investments to China’s domestic market.
Meanwhile, the New York Timesreports that Bank of America has decided to stop doing business with HNA. As for Angbang, chairman Wu Xiaohui is still missing and presumed in the custody of Chinese graft inspectors.
The larger question is how the recent crackdown on high-profile overseas investors fits into Xi Jinping’s goals for restructuring the nation’s financial system. Xi convened a meeting of top officials in Beijing last week for a once-in-five years National Financial Work Conference. The meeting’s main achievement: creation of a cabinet-level committee to coordinate financial oversight, a task currently divided among four regulators including the People’s Bank of China.
Standard Chartered economist Ding Shuang hailed that move as a “positive” for China. But I’m inclined to concur with Cornell University economist Eswar Prasad, who faulted the conference for failing to grapple with the Chinese economy’s real problem: an over-reliance on debt-laden, unproductive state-owned enterprises.
“The lack of any substantive outcomes is troubling,” Prasad argued in the Financial Times. “With financial risks increasing even as the sector becomes more important to the economy, fundamental reforms rather than tinkering are needed. China’s leadership seems unwilling to tackle this head on, raising the odds of dire consequences.”
More China news below.
| Clay Chandler | |
| @claychandler | |
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Technology and innovation
China's ban on WhatsApp is only the beginning. China cracks down on WhatsApp, Liu Xiao Bo and Winnie the Pooh.CNN Money
All eyes on AI. China seeks to become the world leader in artificial intelligence by 2030, according to a plan released this week by the State Council. MIT Review
Uber to halt services in Macau. After encountering legal roadblocks in Hong Kong and surrendering to local competitors on China's mainland, Uber has announced that, starting today, it will “temporarily suspend” services in Macau. The ride-sharing company first announced plans to pull out of Macau last September, following prolonged disagreements with local regulators. Reuters
Politics and policy
A Xi rival falls from grace. Sun Zhengcai, who seemed poised for promotion to a top national post at this falls Communist Party congress and was seen by some as a potential successor to Xi Jinping, is out. Sun has been dismissed as party secretary for Chongqing. His whereabouts are unknown but he appears to be under investigation for corruption. State media announced his removal but provided no reason for his investigation.Wall Street Journal
Is Jared Kushner's family still using his White House connection to lure Chinese investors? It certainly looks that way. Kushner's family's company apologized for mentioning his name during a sales pitch to Chinese investors in May. But CNN finds that two businesses working with Kushner Companies are still dropping his name to attract Chinese investors willing to invest in the 1 Journal Square development in exchange for a US visa. CNN
In Case You Missed It
This Chinese startup solved the biggest problem in bike-sharingFORTUNE
China's shedding its copycat imageCNBC
China's deleveraging campaign takes on toughest target yet BLOOMBERG
China's railway campaign hits the buffersFINANCIAL TIMES
Ten new Chinese debuts in the Coins2Day Global 500 FORTUNE
Business, commerce, trade and finance
U.S. Grows wary of Chinese takeovers: The Committee on Foreign Investment in the U.S. (CFIUS), a congressional panel with oversight of other nation's investments in the U.S. Economy, has put the brakes on a host of deals from China, including a high profile bid for MoneyGram International by Alibaba Group's Ant Financial Services. Wall Street Journal
After 100 days, little progress in trade talks. The U.S. And China failed to agree on major new market opening measures in time for a 100 day deadline set by the Trump administration. The United States unsuccessfully pressed China to make a substantial commitment to cut its steel production and open its market for agriculture, financial services and data flows. Washington Post