FINANCE: Fosun Chairman Guo Disappears, Who’s Next?

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Bottom line: The detention of Fosun Chairman Guo Guangchang could signal a move into the private sector for Beijing’s anti-corruption drive, a move that would put top executives in traditional sectors like finance and real estate most at risk.

Questions hover over disappearance of Guo Guangchang

Beijing’s 2-year-old anti-corruption drive has taken an unexpected twist into the private sector, with word that one of the country’s richest men and head of the high-profile Fosun Group was taken away by police. There’s very little detail on reasons behind the disappearance of Guo Guangchang, sometimes called the Warren Buffett of China for his investing acumen. But speculation centers on his potential involvement in corruption investigations involving a major figure in his home base of Shanghai.

Up until now, nearly all of the dozens of company executives being investigated for corruption have come from the state-run sector, where officials are much more likely to use their position for personal gain. But corrupt practices like lavish gift giving and bribery are a fundamental part of doing business in China, and there’s little doubt that such practices also occur in the country’s vibrant private sector.

That raises the question of whether Guo’s case is an isolated one, or whether it could mark the start of a new chapter in China’s anti-corruption campaign that could ultimately target top executives at some of the nation’s biggest private companies. We’ll return to that part of the story at the end of this post, but first let’s look at some of what’s known about Guo’s sudden and quite unexpected disappearance.

According to media reports, Guo, whose fortune was valued at nearly $7 billion on this year’s Forbes Rich List, was last seen on Thursday afternoon at a Shanghai airport, where he was being escorted away by police. (English article; Chinese article) His Fosun empire covers 12 listed companies in a wide range of industries, all of which were expected to be suspended from trading until the situation becomes clearer. The one I follow most closely is his Fosun International (HKEx: 656), a private equity firm that has made a number of high-profile investments in big name companies like resort operator Club Med (Paris CU).

Bright Food Connection?

Guo’s detention may be related to a corruption investigation disclosed in August against Wang Zongnan, former chairman of Shanghai-based Bright Food, a similarly high-profile state-owned company that has made a number of high-profile acquisitions over the last 2 years. In that investigation, a court said Wang had used his position to assist one of Fosun’s many units, Fosun High Technology (Group) Co.

At this point it’s not really clear if Guo’s disappearance is simply for questioning into Wang’s or another case, or if Guo himself is under investigation. The fact that the news is coming from one of China’s leading independent media, Caixin, could mean that Guo is simply being questioned. Formal reports that someone is being investigated for corruption usually come from the official Xinhua news agency, which so far has been mum on the case.

Guo’s case isn’t the first of such an investigation in the financial sector. Last month police detained Xu Xiang, head of Zexi Investment, a leading fund management company, in a move that also took many by surprise. (previous post) But that investigation was reportedly related to insider trading allegations, whereas this one involving Guo looks more related to general corrupt business practices like bribery.

All this brings us back to the question I raised earlier, namely whether Guo’s detention could auger a new push into the private sector for the anti-corruption campaign of President Xi Jinping, and who might be most at risk. We’ll have to wait and see if Guo is actually under investigation or if he’s later released to make a good guess. But if he is indeed put under investigation, top executives from traditional industries like finance, natural resources and real estate could be most at risk, since those are most reliant on government connections to do business in China.

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