Anbang is a test of China’s non-market market. Officials announced on Friday that they would take control of the embattled insurer. A sudden seizure of a large private company by a government would cause chaos in some countries — but in China, it probably won’t. The real impact will be subtle, as investors and foreign regulators weigh up this new hands-on approach.
China’s regulators emphasised that it would be business as usual at the insurer, which claims around $310 billion in assets. Several listed companies in which Anbang holds sizeable stakes, such as China Minsheng Banking Corp. and China Merchants Bank, said they had received notice that the insurer was in sound financial health and did not intend to reduce its stakes, a measure seemingly designed to calm investors. Those efforts seem to be working. The benchmark Shanghai Composite Index and CSI300 index closed up modestly on Friday. Several Anbang-invested firms posted gains. In part, market participants may be nonplussed because the company’s downward trajectory has been clear for months.
The next question is what happens to any companies or investors who had lent to Anbang. The answer is important: hang them out to dry, and China will have taken a bold step away from the notion that all-out failure is taboo. Make them whole, and moral hazard will basically be reinforced.
Cloud over Chinese firms
Outside of China, the takeover seems set to have subtle but real repercussions. Anbang’s seizure comes at a time when many governments are questioning just how independent some of China’s biggest private companies really are. Beijing’s official line on Anbang that it will take command while leaving its private nature unchanged makes sense at a certain level, but seems to feed into such concerns. It’s also reasonable to ask whether officials had been quietly exerting influence on the company’s management well before the announcement.
The Chinese government’s takeover of the owner of the Waldorf Astoria and several other pieces of Western real estate might nudge politicians to adopt even greater scrutiny of would-be Chinese dealmakers. Beijing seems to be making its takeover largely consequence-free in markets, but from this point on, protectionist voices overseas can argue that every Chinese company is a potential state-owned company in waiting.
( The author is a Reuters Breakingviews columnist. The opinions are his own )
