China in a state of flux as private companies come under scrutiny

On December 10 last year, Guo Guangchang, one of China’s best-known billionaires, went missing.

Online rumours claimed the 48-year-old co-founder of Fosun Group, the country’s largest private conglomerate, had been taken away by the police. As speculation mounted, the company suspended trading and released a terse statement saying Guo was “assisting in certain investigations carried out by mainland judicial authorities”.

Disappearing chairmen are nothing new in China. Through the boom years, indebted factory bosses regularly hightailed it abroad with suitcases of cash in hand. But Fosun losing contact with its chairman marks a whole new development: the incursion of President Xi Jinping’s anti-corruption campaign into the private sector.

Guo, often known as “China’s Warren Buffett”, is no embezzling factory boss; he is a respected member of the country’s business elite, ranked 17th on last year’s Hurun Rich List. Fosun, which Guo founded with three college friends when he was just 17, is in the vanguard of China’s dynamic private companies, boasting international acquisitions from tourism group Club Med to Canada’s Cirque du Soleil.

In the face of a government investigation, however, Fosun’s size, and the credentials of its founder, became irrelevant.

Three days after Guo was deemed “unreachable”, as the Chinese media dubs such incidents, Fosun’s management finally elaborated on their original statement. They told investors that he was aiding the investigation in an “individual” capacity and said that they had limited knowledge of its content.

“This is a routine process in China,” said Liang Xinjun, Fosun’s chief executive.

For the past three years, President Xi has presided over a sprawling effort to punish graft at all levels of the party. A grand total of nearly 1,500 high-level officials (“tigers”) and the low-level cadres (“flies”) have been investigated, according to data collated by the Asia Society.

The campaign, led by Wang Qishan, the anti-corruption tsar, uses a big net to catch its game: when politicians fall so do their financial henchmen, mostly state-sector businessmen who rose on the back of political connections.

Guo’s involvement in an investigation suggests a new stage of the evolving campaign, and it is a change that will make China’s business elite increasingly anxious.

Though Guo has now reappeared and no charges have been made against him, the worry for China’s entrepreneurial billionaires remains the same: that the once sweet relationship between them and the party is starting to sour.

“Everyone is aware that you are subservient to the government,” said Rupert Hoogewerf, chief researcher at Hurun.

According to Hoogewerf, Guo’s disappearance has yet to scare all private businessmen into looking over their shoulders for Wang Qishan’s inspection teams. He notes, however, that business success and political exposure are closely linked. “There comes a point when you become part of the establishment,” he says.

Being caught up in political campaigns has historical precedence for the moneyed class in China. Under Mao Zedong, power struggles at the top often became mass movements to persecute landowners and “rightists”, the label given to supporters of capitalism.

Most infamous was the Cultural Revolution of 1966-76, a ploy by Mao to regain power by allowing students to prosecute those they saw as revisionist or bourgeois. It is estimated that about 1.5m people died. But Deng Xiaoping, architect of China’s transition out of a planned economy, changed the fortunes of the wealthy by making the private sector a pillar of modern Chinese growth. Axioms such as “Let some get rich first” gave the new crowd of private entrepreneurs political credibility.

While historians debate whether Deng actually said, “To get rich is glorious”, he certainly popularised the sentiment.

For President Xi, wealth is a complex issue. The core of his signature anti-graft campaign is the return to a set of old-fashioned virtues concocted from a blend of Maoism and Confucianism. Yet, a Bloomberg investigation in 2012 alleged his extended family held stakes in companies with combined assets of $376m.

The president’s public stance on exuberance is clear. In a speech to the United Front Work Department last year, he reminded China’s ultra-rich to “think about where their wealth comes from”, singling out in particular the lifestyles of private businessmen’s children.

The new stage in President Xi’s campaign cannot simply be explained as an effort to tame China’s glitterati, however. For every Ferrari-racing, champagne-swilling member of the nouveau riche, there is a marathon runner who eats only organic. Guo Guangchang, for one, regularly practices tai-chi, the glacial martial art designed to channel inner lifeforce.

If a case grabs public attention, being branded ‘unpatriotic’ can be fuel for the fire

Clean-living businessmen and women pose another problem for the Chinese government: flight risk. For China’s conscientious rich, the grass looks greener — and the air cleaner — abroad and with greater wealth comes a greater ability to move funds overseas.

Good schools, clean air and safe food were the key drivers behind emigration in 2015, according to a report by Hurun. More than two-thirds of those who were questioned in the survey either planned to leave or had already. By leaving, China’s wealthy can also buy themselves financial security, something that many see as lacking in China’s poorly regulated banking system.

It is hard to predict which issues may become fodder for a government investigation. Business or personal interests abroad are less damaging than being linked to a corrupt official, but if a case grabs public attention, being branded “unpatriotic” can be fuel for the fire.

After the disappearance of Guo, who, by Chinese standards, is squeaky clean, many business owners will be checking their personal history for exposure to political risk.

“You have to believe that as long as you have made no mistake, the government will not mess with you,” wrote Guo in 2014. And yet it did.