Das Evil Kapital


(China Vanke Chairman Wang Shi)

Speaking of the pot calling the kettle black, nothing sounds weirder than a Chinese real estate developer accusing a private insurer of bringing in sinful capital, which incidentally pushed up the former’s stock price to a historic high.

In what has become one of China’s most spectacular melodramas of the year, the attempted hostile takeover of China’s largest home builder, China Vanke, by a little known insurance conglomerate, Baoneng, creates a sense of intrigue so intense that it almost redefines how a corporate deal could be received by the Chinese society. In the process, it reveals the multi-layered, fantastic imagination that the society attaches to capital and those who wields it.

The substance of the event is pretty simple on the surface. In the time span of less than half a year, the Baoneng conglomerate has acquired tens of billions RMB worth of Vanke’s share through the stock market. Quietly, the insurer had become Vanke’s largest shareholder with 22.45% of its total shares by Dec 17, a dramatic increase from only 5% four months earlier.

Nothing in the public domain suggests that Baoneng’s operation violates any written rules. This is reflected in the authority’s largely ambivalent attitude toward the deal up to this point. China’s securities watchdog has openly expressed its willingness to “leave the matter to the market”, while its supervisory body for banking is “looking into” potential exposure of local banks to risks involved in the deal. But what Baoneng essentially does is disrupting Vanke’s carefully maintained shareholder structure that has been in place for two decades. The essence of that structure is highly dispersed shareholding that allows senior management a freehand in steering the company. Until Baoneng emerged on the horizon, China Resources, a state-owned conglomerate friendly to the Vanke management, had been Vanke’s largest shareholder owning about 15% of its shares. Other major shareholders held less than 6% combined.

This explains why those most unsettled by Baoneng’s move are Vanke’s senior managers, specifically its chairman, the 60-year-old Wang Shi.

In an internal speech made public on Dec 18, Wang makes it clear that he does not welcome Baoneng as Vanke’s no.1 shareholder. He sneers at the new comer’s business as risky and irresponsible, which will tarnish Vanke’s stellar reputation as China’s most credit-worthy home builder.

According to details revealed by the Chinese media, Baoneng financed its 40-billion-RMB stock market advancement on Vanke largely through margin financing, layers of collateralized loans leveraged by money from its sales of Universal Life Insurance that is often marketed as short-term investment products. In his speech, Wang blasts the financing model as excessively risk-taking. He is not without his points. Equity investment as a long-term investment strategy would put pressure on Baoneng’s short-term based money line. In an event of large-scale redemption of the ULI product or unexpected regulatory intervention, the insurer will face serious liquidity problems.

But Wang’s criticism of his fervent bidder goes beyond finance. His account of his first face-to-face encounter with Yao Zhenhua, the man behind Baoneng, betrays a hint of contempt: “He appeared not able to control his mouth… Nobody has heard of such persons before. They came out of nowhere and suddenly got very rich using leveraged money.

Unlike his “nobody” adversary, Wang has been the torch bearer of Chinese entrepreneurship for as long as “entrepreneurship” is valued in China. Being the founder of Vanke, Wang has led the legendary company for 31 straight years. Vanke was the second earliest stock ever listed on China’s Shenzhen Stock Exchange, with its trading code 000002 as a badge of honor.  Over the years, Wang has cultivated a larger-than-life public image that sets him apart from the typical “Chinese businessman”. He is adventurous, spending his leisure time climbing Mount Everest, kayaking in the torrents of western China and flying gliders over the sky. He radiates wisdom, taking three years off his corporate chairmanship to ruminate about Japanese history at Harvard; He advocates for a business culture that sounds refreshing for a Chinese audience: He claims that Vanke never bribes anyone to get business deals in China; He promotes high-quality, sustainable architecture and neighborhood; He serves as WWF US’s board member and delivers inspiring speeches at the world’s most prestigious green events.

The stark contrast between the public images of Wang and Yao creates an interesting tension that defines initial reaction to the Vanke-Baoneng conflict. Specters were somehow led to believe that there are two kinds of businesses, those that are benign and decent, and those that are hostile and crooked. Wang’s internal speech certainly helps create this impression by invoking the “barbarians at the gate” image, which spreads across newspaper headlines in the following days. The narrative was also enhanced by Wang’s influential admirers, the most excessive of which declares that “Vanke can lose Wang Shi. But China can’t lose him.” As a former chief editor of one of China’s most popular business newspapers puts it, Wang’s Vanke represents the “truthfulness, goodness and beauty” in the Chinese business community for its uphold of basic business ethics and rationality. The editor “shed tears” after learning about Wang’s current difficulties.

Whereas 30 years of relatively robust business does speak to the strength of Vanke’s business model and Wang’s leadership, whether it is a sign of its moral superiority is debatable. Actually many people were put off by Wang’s overtly ethical criticism of Baoneng, seeing it rather as a kind of biased arrogance. For Wang Shi, introducing the ethical argument into a corporate deal cuts both ways. While he can once again brand Vanke’s cleaner-than-thou business culture, some questions Wang’s fundamental business ethics of openly rejecting a perfectly legitimate major shareholder who may actually improve Vanke’s performance in the stock market. Interestingly, Baoneng issued a public statement on Dec 18 confronting Wang on the ethical question head on: “Where is the conflict between the pursuit of optimal, efficient capital deployment and an open, transparent social order?” In his speech, Wang speaks highly of Vanke’s regard for its hundreds of thousands of small shareholders. However, people also point out the contradiction that the management never did anything to boost the company’s stock performance, even when they had the chance to do so through a stock buyback in 2014. It turns out to be a fateful decision not to do so, as it hands Baoneng an opening (80% of Vanke’s shares were outstanding in the stock market at that time).

As financial observers are debating the wisdom of Vanke’s business decisions, and more importantly, the disturbing trend of insurance money flooding the securities market shopping for real estate equities, wider discussions about the deal are turning decisively “Olympian”. The dramatic clash between business titans teases out a deep-seated suspicion that big capitals are but proxies of more powerful interests behind them, and therefore their conflict must represent power struggles on a much higher level. In other words, this is modern China’s financial Trojan War, where the Greeks and Trojans are fighting on behalf of their rivaling Gods.

The theory goes that both Wang Shi and Yao Zhenhua are front-men of their respective political patrons, who belong to adversarial cliques of the Party. Wang’s unspecified patron controls the China Resources conglomerate (Vanke’s biggest shareholder before Baoneng’s bid), which has recently been disciplined under the anti-corruption campaign (its chairman was arrested last year). Baoneng’s attempt to seize control of Vanke is another assault on the big boss behind Wang Shi from its political rivals. The intriguing participation of Anbang Insurance in this financial drama further fuels this line of speculation. As Baoneng was making strides in the stock market, Anbang, a company widely associated with prominent “princelings,” quietly increased its stake in Vanke to over 6%, making itself the “swing vote” between the two fighting camps. If Anbang represents the will of another God which may decide the fate of Troy, is it Athena or Apollo?

A cautious mind would notice that this political reading of the Vanke-Baoneng deal shows signs of stretching reality to fit an imagination about the politics of Chinese elites. It assumes that the supposed political enmity among powerful party figures extends naturally from the political arena to the corporate realm through “proxies”, and that large Chinese corporations, no matter how complicated their financing is, can be neatly assigned to particular political figures who are involved in a zero-sum power game.

But this kind of alternative narrative does broaden the base of the story’s audience, as it proves to be something more “entertaining” than cold financial details. The abundance of conjectures and the shortage of ascertainable facts also make the story much more social-media-friendly, leaving most serious media outlets high and dry. One observer senses the irony in the popularity of the story: as something fundamentally non-relatable to most Chinese watchers, it manages to create an almost magnetic theatrical effect.

The vulgarization of the story does not stop at political gossips. Both Wang and Yao’s personal lives were added into the recipe to make it more flavory. In particular, Wang’s once high profile love affair with a young actress was held against him as indication of his sluggishness in recent years, which supposedly led to his unpreparedness in response to Baoneng’s ambush. It fits well into a misogynist tradition of Chinese classic stories, where the fall of a male hero is often blamed upon a seductive female partner. “All of a sudden many people jump out to teach Wang Shi, and everybody, a lesson: how women cost ambitious men their world.”

On Dec 21, Vanke applied for the suspension of trading in its stocks for as long as three months, citing “significant asset restructuring” as a reason. The move was widely read as a way to strike back at Baoneng, which faces liquidity pressure on its leveraged debts. A recent Caixin report reveals that Wang has been busy approaching potential equity investors to improve Vanke’s shareholding structure. But given the fact that very few shares outstanding remain on the market, it will not be an easy job.

Two days later, the mysterious Anbang Insurance issued a statement publicly supporting “the stability of Vanke’s senior management”, essentially busting the conspiracy theory that Anbang, and the political forces behind it, are set to overthrow Wang Shi’s real estate empire. With Anbang’s more than 6% share on Wang’s side, the situation improves almost overnight for Wang’s team. But Anbang’s real intention with Vanke remains unclear.

The general public probably will never know what actually happened behind the scene during these hectic days and nights of December 2015. No one is there to write the Chinese version of “The Barbarians at the Gate”, which is a lamentable fact for long-time observers of the country’s finance reporting scene. (Only Caixin’s detailed investigative report on the case is probably an exception.) No matter who emerges in the end as the winner of this bid for the control of China’s largest home developer, the loser is already visible: it’s the idea of “philosopher-king capitalists” as the progressive force to change China. The Vanke drama has revealed the fragility of the public image that Wang Shi and an entire class of so-called progressive Chinese capitalists have built for themselves. To the Chinese public, not only are their moral positions dubious, their independent agency is also under question. The widespread public perception that they are just puppets of much more powerful masters provides a real valuation of their moral capital in this country and how shaky their moral high ground really is. Expecting entrepreneurs like Wang Shi to provide the kind of moral leadership that can lift the society out of its value vacuum is almost like betting on Hector to win the Trojan War.


Li Ka-shing’s Indignation


What on earth can agitate the steely Superman? It turns out all it takes is an article written by some dubious “researcher” from a Chinese institute.

On Sept 29, the 87-year-old Hong Kong billionaire Li Ka-shing, nicknamed “Superman Li”, broke his cool by releasing to the Chinese media a statement in response to a controversy that had been raising eyebrows all over the country in the past two weeks. It started with an article titled “Don’t Let Li Ka-shing Run Away” that appeared on the WeChat platform of a major think tank run by the state-owned news agency Xinhua. In that article, author Luo Tianhao accused Li of being ungrateful and opportunistic by cashing out his real estate properties in mainland China and moving investments to Europe. It then moved on to instruct Li to do three things, with a tone at once condescending and menacing: invest in lower profit industries in mainland China; hold on to “symbolic” properties in the mainland and Hong Kong as a token of his loyalty and confidence; do more philanthropy. The author also spent a good portion of the article belittling Hong Kong’s business tycoons and highlighting their relative “dispensability” compared to the early days of China’s reform and opening.

As many Chinese observers have pointed out, the significance of that particular article is probably overblown by its somewhat unfortunate pick-up by the Xinhua-affiliated think tank. Likely what happened was that some inexperienced editor in charge of its WeChat account innocently carried it without realizing the potential explosiveness of its content. Commentators also dug out the bogus nature of the author’s numerous self-claimed titles, revealing that he was nothing but an aggressive self-promoter.

In a society where the ruling elites are accustomed to communicate in codes and hide political intentions behind cryptography, the probability of the signal-hungry public to misread or over-interpret things runs high. But even if this is a classic example of overreaction to an essentially trivial piece of opinion, the waves it stirred up and the fact that people so naturally associated it with some sort of high-level intention speaks to a deep-rooted concern that had been fermenting over this past summer.

Economists were among the first to cry foul of the mentality embodied in the article. They dubbed it “anti-market” and maintained that Li Ka-shing’ accumulation of wealth in the mainland was essentially a market phenomenon and should be encouraged. Applying moral judgments on market transactions (including cashing out) is going to affect the business community’s confidence in the system itself. The same sentiment also defines the reaction to the government’s botched effort to rescue a sliding stock market in the summer. Instead of “letting the market play a decisive role”, the authority displayed an assortment of administrative weaponry: suspension of IPOs, banning short selling and arresting a journalist whose exclusive report about the possible wrapping-up of governmental rescue efforts sent the market downward again. In both the Li Ka-shing and the stock market cases, observers sense the ominous encroachment of the logic of power into the sanctity of the marketplace, the former features demagogy, mass mobilization and coercion, while the latter run under the principles of contractual spirit, mutual consent and free will.  People satirically refer to the authority’s stop-running-away mindset as “the foundation of this strong nation” and a “panacea” to every conceivable problem the country faces.

But as business writer Wu Xiaobo writes, in the case of Li Ka-shing, as in many Hong Kong tycoons of his generation, the line between politics and market is never that clear-cut. He even considers Li the symbol of a business philosophy that treasures and embraces the partnership with an ascending power. By supplying the power with much needed capital and support, Li got handsome returns from his investment and therefore became the “biggest winner of China’s transition.”

That ambivalent relationship with power becomes an original sin that Li’s critics exploit. The author of the original article argues that since real estate development in China is almost impossible without some forms of governmental “benevolence”, Li’s cashing out is no less than an equivalence of betrayal. His status as the richest Chinese man on earth (only recently taken over by Wanda Group’s Wang Jianlin) also means that every move he takes carries a symbolic meaning beyond the transaction itself. As early as 2013, when Li’s initial shift of his portfolio to outside mainland China and Hong Kong drew public attention, Wang Shi, president of one of China’s largest real estate developers, sent out a Weibo post reminding everyone: “The very shrewd Mr. Li Ka-shing is selling properties in Beijing and Shanghai. This is a signal. Be careful!” And when China’s economic troubles make business transactions, be it stocks or real estate properties, an issue of allegiance, Li finds himself caught in a spot utterly uncomfortable.

It is particularly unfortunate that Li, a man who builds his life time of business career on optimally timed transactions on a global scale and an extreme prudence in cash flow management, would have to respond to morally charged allegations of ingratitude and disloyalty. Li’s Chinese biographer, Xu Zhiyuan, once compared Li with the likes of John D. Rockefeller, Henry Ford, Bill Gates and Akio Morita, all of whom were short-listed for the London Times’s 1999 award of the “Entrepreneur of the Millennium.” Unlike his great peers who had either enjoyed large home markets or generous government support, Li launched his business from a tiny free port city. From the very beginning he had to face the global market or perish, and up until this point his global portfolio still stands out among Chinese businesses.

His relationship with mainland China has also been complicated. Originally coming from Guangdong province, he spent a good part of his adolescent years sending back money to his mother and siblings who remained in the mainland while he struggled to make ends meet in Hong Kong, where his father died abruptly of tuberculosis and he himself almost died of the same disease. It was this attachment to his hometown that brought him back in the 1980s to set up the first university in the region of Chaoshan, so that kids from the same modest roots as his could receive first-class education. A 2013 profile of Li in a Chinese magazine also took note of his interactions with then Chinese leader Deng Xiaoping. Even though Deng individually received Li twice in 1986 and 1990, an absolute privilege, it was until after Deng’s 1992 speech in Guangdong that finally inject confidence in Li of China’s future. As a perfect example of his signature prudence, Li only started large scale investment in the mainland after that point, which sets him apart from Hong Kong’s other pro-Beijing tycoons who got into the game much earlier.

Xu, his biographer, noticed a sort of “unsophisticated patriotism” in Li. “His generation has experienced violent turbulence (in modern Chinese history). They have a special craving for a wealthy and strong China, and a deep affection for its traditional culture. For them, China is not only just a market. It’s an identity and a place where they can help change.”

This probably explains the tone of Li’s response to the article which sounds hurt and indignant. It is already quite unusual for the old man, who largely stays out of the spotlight, to make such a statement to begin with. The brief press release to the Chinese media contains a distinct personal touch of Li Ka-shing. In response to allegations of him being “unpatriotic”, he listed contributions to the mainland through his multi-billion dollar foundation, in particular the Shantou University endeavor which he dedicated more than a quarter of a century of his time. He quoted Su Shi, the poet from a thousand years ago, to describe his own sense of belonging: “Where my heart finds its inner peace, I call it my homeland.”

He strikes back at the article as “chilling” and representing a “cultural revolution mindset.” Yet while he defends his business decisions as based on a sound and common-sensical logic detached from political considerations, he also makes a gesture that shows his acute sense of his place: “We should not let this meaningless fight over words to become the focus and a distraction from the important message that President Xi tries to send through his state visit to the United States.” The old man, the second richest Chinese on this planet and a self-described “compassionate lion”, is following the thousand-year-old tradition of the Chinese merchant class: showing his subordination to his King.

The Master


The women were screaming with excitement. The half-naked man was teasing them with a snake, trying to hang it on one woman’s neck. After being prodded by her companions, the woman obliged and happily took a photo together with the man. The snakes were magically summoned by the man from under an enamel basin that was supposed to be empty inside. Before he did that, he stripped off his tie and shirt just to prove that he did not hide anything underneath his clothing. In another scene, the camera shows him feeding liquor to the same group of well-dressed men and women. The liquor came out of nowhere into the cups that he was holding in his hands. It appears that he was able to fill the cups endlessly. A few faces cringed when fed the alcohol but played along obediently. Everybody was laughing and clapping hands profusely.

This is a home party from the 1990s captured on a video. It looks like the video was prepared for the eyes of Communist Party cadres only (with the words “internal reference” at the beginning). The purpose, according to the preamble to the video, was to open their eyes to “human body science” and its mysterious wonders. The half-naked man is called Wang Lin (“the Master”), at that time a lecturer at a Jiangxi province cadre training school. For the past two years, his story has provided the Chinese public a rare chance to peep into the secret social lives of China’s ruling elites.

The latest public interest in Wang has been triggered by a murder case. On Jul 16, news broke out that a Jiangxi province businessman called Zou Yong was kidnapped and murdered, his body thrown into the Poyang Lake. Zou used to be Wang Lin’s “apprentice” but fell disillusioned with the Master after two years of “practicing”. The break-up of the apprenticeship turned out to be nasty, with both suing each other for embezzlement. The cases are still pending final ruling from the court. Yet Zou will not have the chance to see them through. On the night of Jul 15, Wang was arrested by police along with several others who accompanied him. He was suspected to be involved in Zou’s death.

Murder. That is the latest charge against the Master after he was brought into national spotlight in 2013. Illegal medication and owning guns are two of the others. Many of these charges exist because of Zou’s relentless reporting to the police and press. But the authority has never been able to pin down any real evidence of Wang involved in such activities. He proved too elusive and mysterious for investigators. More importantly, he seemed to be “protected” somehow by a web of benefactors that he has cultivated over the years. His admirers and acquaintances include central government Ministers, chairmen of powerful political bodies and top notch celebrities. It was the 2013 visit by Jack Ma, Jet Lee and A-list actress Zhao Wei to his “castle” in Jiangxi province that aroused tremendous interest from the public in this previously unheard of Master, which unleashed a wave of probing media attention that ultimately proved damaging for Wang.

The latest murder charge transforms those elites’ entanglement with Wang Lin from a mere embarrassment to something much darker. One commentator calls the Wang Lin phenomenon “the darkest metaphor of the Chinese elite circles.” Through him, “we can see how stupid and decadent this country’s 1% really are.” In another widely circulated commentary that is said to be from novelist Wang Shuo, those elites are described as “low IQ, insecure, lack of scientific common sense, and have no sense of responsibility”. For those ordinary Chinese who can feel inequality and unfairness at every turn of their daily life, seeing the country’s richest and most powerful flocking to pay tribute to someone who is so apparently a hoax gives them an outlet to vent their despise. “For most middle class Chinese, a doctoral mortarboard and a decent downtown apartment means a life time’s achievement. Yet for the power wielding elites, the middle class is just a bunch of boring monkeys. Only an ‘interesting’ person like Wang Lin can raise their heavy eye lids.”

The celebrities in show business took the heaviest hits, as they often embody quick money and brainless ignorance. Star singer Faye Wong was particularly picked at, not only because she and her (former) husband seem to have paid the Master more than one visits, but also for the fact that she has been spearheading a kind of life style that glamorizes “alternative” spiritual experiences. With a public image of being ultra-cool and aloof, she was often seen kowtowing to Buddhist monks and frequenting Taoist temples. Some of the “Masters” she visited were later found to be nothing more than swindlers and were sent to jail. Commentators blame Faye Wong for helping popularize a kind of hypocritically self-contradictory personality within the society that becomes a fertile ground for the Wang Lins:  “On the one hand, they worship religious creeds that advocate detachment from secular, materialistic pursuits, while on the other hand they closely monitor their assets in the stock market.”

The elites are not without their defenders. Apparently disturbed by the above attacks, established business writer Wu Xiaobo wrote a piece arguing that those who paid tribute to Wang Lin do not deserve such searing criticism. They are probably “just curious about the secrets of life”, as Albert Einstein said “the best thing we can experience is mystery, as it’s the source of all arts and sciences.” Comparing Chinese billionaires’ visit to a magician and murder suspect to Albert Einstein’s pursuit of the ultimate truth of the universe is more than the Chinese society could stomach. As expected the article met with unforgiving ridicule on-line, and Wu’s reputation as a respected business writer is likely to be irrevocably tarnished. But in his article he also points the “Wang Lin phenomenon” to its historical origin, which helps shed light on the deep currents that propelled Wang’s emergence in the first place. In the late 1980s, a “Chi-gong Fever” swept across the country, largely thanks to the sudden interest in “paranormal phenomena ” from a few high level leaders and established scientists such as Qian Xuesen, the father of Chinese rocket science. Their support and patronization produced all kinds of government sponsored “research” and absorption of magician-type drifters such as Wang Lin into the official system. In bringing up this history, Wu tries to argue that the elites’ curiosity in Wang Lin has certain legitimacy. But inadvertently, he reminds people of the deep-rooted irrationality of the Chinese political elites.

For some observers, the debate about whether those elites are stupid completely misses the point. Of course they know these are just magic tricks, the argument goes. They just play along because what they treasure is not the SUPERNATURAL power of Wang Lin but the NATURAL power that he is able to bring them. It refers to his other identity as one of China’s first-class power broker. The “home parties” at which he performs his “repertoire” are just excuses to hold low-profile, exclusive gatherings for those who use such occasions to exchange resources. It is reported that he introduced Zou Yong (his now dead apprentice) to China’s then Railway Minister Liu Zhijun (who was later sentenced to life in prison on corruption charges) and secured Zou a deal worth a billion RMB. He also used his network to help a high level Guangdong official to get pass “turbulences” caused by damaging corruption allegations, which won the unwavering allegiance of that official (who kneeled in front of Wang to thank him, but later fell victim to the new administration’s anti-corruption campaign).

If the likes of Jack Ma are truly just knowingly “playing along”, which seems to be a more plausible  explanation of their behavior, then what the Wang Lin saga demonstrates is not the elites’ stupidity and ignorance but rather their spectacular cynicism. These are the smartest guys in our room. Their readiness to entertain and bow their heads to a snake magician is an allegory of power’s erosive effect on reason and human dignity.