Updated on Jan. 1, 2021.
SinoInsight 1
Jan. 13
1. After his run-in with the authorities late last year, Alibaba and Ant Group founder Jack Ma “disappeared” from public view for several weeks, prompting speculation about his safety and whereabouts.
Wired Magazine, citing “sources close to Ma,” say he is currently in Hangzhou City “lying low, keeping himself out of the spotlight and making himself available to the authorities while the regulators decide what to do about Ant.”
Fred Hu Zuliu, the chairman of Chinese private equity firm Primavera Capital Group, told media outlets he believes Jack Ma is “safe and sound.” Hu is a non-executive director on Ant Group’s board, and holds about 178 million Ant shares.
2. Beijing Wantai Biological announced that Zhong Shanshan, the company’s director and chairman, resigned for “personal reasons.”
Zhong is Wantai’s actual controller, holding 75.15 percent of the company’s shares through direct and indirect means. He is also the current chairman and general manager of bottled water producer Nongfu Spring, holding 84.41 percent of the company’s shares through direct and indirect means, as well as chairman of pharmaceutical and health products company Yangshengtang Co. Ltd.
Affected by news of Zhong’s resignation, Wantai and Nongfu’s share prices fell the next day on mainland and Hong Kong stock exchanges respectively. Wantai shares fell 9.66 percent to 112.7 billion yuan and saw 12 billion yuan in market value evaporate, while Nongfu shares fell 2.3 percent to HK$670.3 billion and saw HK$15.6 billion in market value evaporate.
In December 2020, Zhong Shanshan’s net worth reached $77.8 billion, making him the eleventh wealthiest person in the world according to the Bloomberg Billionaires Index. On Jan. 8, Zhong Shanshan’s net worth reached $94.8 billion, surpassing Warren Buffett and elevating him to sixth position in the Bloomberg Billionaires Index. Per the Index, Zhong is also the richest man in Asia.
Jan. 15
Chen Yulu, vice governor at the People’s Bank of China, held a press conference to announce China’s financial statistics for 2020 and other matters. Chen said that a “rectification work group” had been established in Ant Group, and efforts have been made to formulate a “rectification timetable” while maintaining “business continuity and normal operations to provide quality financial services to the public.” Additionally, PRC financial regulators are closely supervising and communicating with Ant, and will announce “relevant work progress” in a timely fashion.
OUR TAKE
1. The CCP’s handling of the Ant Group/Jack Ma case thus far affirms our previous analysis, that Beijing is looking to curb the regime’s systemic financial risks, rein in the clout of big tech companies and their political backers, as well as shore up regime security amid domestic and geopolitical uncertainties.
Ma may have committed verbal transgressions with his remarks on Oct. 24, but it was always unlikely he would get in real trouble with the authorities or have his companies seized from him and “nationalized” as some observers have speculated (see the next point). The various reports about Jack Ma’s being “safe and sound” suggest he is merely keeping a low profile to avoid drama, and not get “vanished” like Chinese dissidents.
We believe the CCP merely intends to make an example of Ant Group and Jack Ma (“kill the chickens to scare the monkey”) to deter other tech giants and maverick CEOs from challenging the regime and compounding financial risks in the PRC. The absence of critical commentary about Ma in recent weeks, in contrast to the wave of bad press he received immediately after Ant suspended its record initial public offering in November, also indicates the CCP is not out to “defeat” him.
2. To resolve financial risks and maintain Party control over society, the CCP must curb the expansion of monopolistic private enterprises like Ant Group. Yet from an economic and operational standpoint, the CCP lacks personnel to directly take over and manage China’s tech giants. Hence, the CCP dares not fully nationalize Ant and other Chinese “Big Tech” firms.
Beijing, however, will likely endeavor to break up tech monopolies. According to a Jan. 8 mainland media report, a regime insider revealed that PRC financial regulators plan to split Ant Group into a financial holding entity and a technology entity. The first entity will handle standard financial services like payment, loans, insurance, wealth management, etc., while the second entity will focus on cloud computing, Big Data, intelligent risk control, etc. This plan is in line with the direction of the CCP’s financial supervision strengthening policies unveiled in the past six months.
In early September 2020, the PRC central government released two policies (“Decision of the State Council on Implementing Access Management of Financial Holding Companies” and “Trial Measures for the Supervision and Management of Financial Holding Companies”) to regulate internet companies that are also involved in the financial holding business. The policies, implemented on Nov. 1, 2o20, require internet companies to register their financial holding businesses and subject the latter to government supervision.
On Nov. 2, the China Banking and Insurance Regulatory Commission and the People’s Bank of China issued “Interim Measures for the Management of Small Online Loans (Draft Seeking Comments)” to regulate businesses, funds, and shareholders involved in the lending business. This draft policy directly resulted in Ant Group suspending its IPO and ongoing efforts to bring the company into compliance.
On Dec. 26, the PBoC and three other PRC regulators conducted a joint interview with Ant Group executives. The regulators listed five major rectification requirements for Ant, including establishing a financial holding company, strictly meeting regulatory requirements, and ensuring sufficient capital and regulatory compliance in handling transactions.
3. Chinese businessmen require reliable political backing to find success in the regime. The fortunes of these businessmen, however, often rise and fall depending on the state of the fierce factional struggles in the CCP elite. A review of the fates of China’s “richest man” over the past two decades per the annual Hurun Rich List shows that the wealthiest PRC entrepreneurs also shoulder substantial political risk.
Huang Guangyu, the former chairman of GOME Group and the “richest man” in China according to the Hurun Report in 2004, 2005, and 2008, was arrested in November 2008 and sentenced to 14 years in prison in May 2010. In June 2020, Huang was released on parole. Huang, a Jiang Zemin faction associate through his connections in the CCP’s political and legal affairs apparatus and the “Guangdong Gang,” was purged as part of the factional struggle between the Hu Jintao camp and the Jiang faction. The downfall of Huang and other Jiang faction officials during Hu’s second term gave Hu Jintao and Wen Jiabao more say over the key personnel reshuffle at the 18th Party Congress in 2012.
Huang Guangyu’s case also implicated Rong Zhijian, the former chairman of CITIC Pacific and son of powerful “red capitalist” Rong Yiren (ranked first on the Hurun Rich List in 1999 and 2000). Rong Zhijian was forced to resign from his company in 2008, ostensibly because senior executives of CITIC Pacific lost nearly HK$15 billion from speculating on foreign exchange, an incident that was investigated by the Hong Kong police and greatly impacted Hong Kong. Despite being an influential Party princeling, Rong Zhijian was unable to escape investigation due to the factional struggle at the time.
Wang Jianlin, the founder of Dalian Wanda Group, was reportedly restricted from leaving the country in 2017 and subsequently forced to sell his assets to repay his loans. However, Wang appeared to escape actual arrest due to political ties with the Xi Jinping family. Wang topped the Hurun Rich List in 2013, 2015, and 2016.
Finally, Jack Ma, who headed the Hurun Rich List in 2014, 2018, 2019, and 2020, is currently facing the wrath of the Party.
The fates of China’s former “richest men” likely inspired Zhong Shanshan to resign from one of his companies and lower his profile—a wise move in the current political climate. Zhong’s resignation indicates that the CCP’s intimidation tactic, making an example of select private enterprises and successful top executives, is taking effect.
SinoInsight 2
On Jan. 14, a World Health Organization team arrived in China to investigate the origins of the COVID-19 pandemic, almost a year after PRC leader Xi Jinping acknowledged the outbreak in Wuhan. The team of experts from the United States, Australia, Germany, Japan, Britain, Russia, the Netherlands, Qatar and Vietnam were placed on a two-week quarantine upon their arrival.
On Jan. 15, U.S. Secretary of State Mike Pompeo issued a statement urging a “transparent and thorough investigation” of the coronavirus origin. He noted that the United States government “has reason to believe that several researchers inside the WIV became sick in autumn 2019, before the first identified case of the outbreak, with symptoms consistent with both COVID-19 and common seasonal illnesses.” Also, the Wuhan Institute of Virology “has not been transparent nor consistent about its work with RaTG13 or other similar viruses, including possible ‘gain of function’ experiments to enhance transmissibility or lethality.” Finally, Pompeo noted that the Wuhan lab has “collaborated on publications and secret projects with China’s military,” as well as “engaged in classified research, including laboratory animal experiments, on behalf of the Chinese military since at least 2017.”
The State Department also released a fact sheet on the Wuhan Institute of Virology. Per the fact sheet, the coronavirus “could have emerged naturally from human contact with infected animals, spreading in a pattern consistent with a natural epidemic,” or “a laboratory accident could resemble a natural outbreak if the initial exposure included only a few individuals and was compounded by asymptomatic infection.”
According to a Jan. 4 report in The Times, then U.S. Deputy National Security Advisor Matt Pottinger told British lawmakers in a Zoom meeting that “there is a growing body of evidence that the lab is likely the most credible source of the virus.” Iain Duncan Smith, a former Tory Party leader who attended the meeting, said he was told that “the U.S. have an ex-scientist from the [Wuhan] laboratory in America at the moment,” and the U.S. is “doubling down on the theory that the virus came from a leak at the laboratory.”
After criticizing and shutting down the “lab leak hypothesis” for nearly a year, legacy media outlets recently began to embrace it. Most notably, a Jan. 4 New York Magazine piece titled, “The Lab-leak Hypothesis” brought up many points about COVID-19’s possible origins that were previously dismissed as “conspiracy theory” and censored on social media.
OUR TAKE
1. Secretary Pompeo’s statement on the COVID-19 origin investigation and the State Department fact sheet on the Wuhan lab affirm the key analyses and findings in our April 2020 special report, “Coronavirus Pushes CCP Factional Struggle to Inflection Point.”
In our report, we noted the Wuhan Institute of Virology P4-level biosafety lab’s civilian-military links; Pompeo points out that the lab had “collaborated on publications and secret projects with China’s military.”
We also wrote about the “likely emergence of the coronavirus around the September-October period in 2019,” which is in line with the U.S. government’s belief that some researchers at the Wuhan Institute of Virology had come down with “symptoms consistent with both COVID-19 and common seasonal illnesses” in the autumn of 2019. Per our report, “We have reason to suspect that the emergency ‘coronavirus disposal’ drills at the Wuhan Tianhe International Airport in September 2019 could have involved an actual spillage of coronavirus that was reported as a ‘drill.’” Also, we noted that the stock price of a then little-known Hong Kong-listed vaccine company, CanSino Biologics Inc., started shooting up in October 2019; CanSino would later work with the People’s Liberation Army to produce the first COVID vaccine to enter clinical trials.
2. In our April 2020 special report, we wrote that “it is irresponsible to completely discount the ‘escaped from lab’ origin for the coronavirus.” The recent U.S. government statements and “mainstreaming” of the “lab leak hypothesis” affirms our earlier assessment.
The “lab leak hypothesis” further strengthens our analysis about why Xi Jinping made curious remarks about biosecurity in the regime during a sensitive period and took responsibility for taking steps to curb the coronavirus before he publicly acknowledged its spread. In short, Xi either knew or strongly suspected that the coronavirus escaped from a lab by mid-February 2020, and wanted to clarify he had no involvement with its creation, while taking credit for issuing control measures in a timely fashion.
3. We believe that the COVID-19 outbreak in China is linked with factional struggle in the CCP. We noted in our special report that Xi Jinping likely suspects the hand of his factional rivals (Jiang Zemin faction, “anti-Xi coalition,” other Party interest groups, etc.) in the creation of the coronavirus and the outbreak of the epidemic.
Given the “perish together” state of the current factional struggle, Xi’s rivals could exploit the ongoing WHO investigation into the origin of COVID-19 to attack him, with the ultimate goal of securing his ouster. Xi is particularly vulnerable to challenges at this point as the CCP regime faces a “perfect storm” of domestic and external problems. Worse, the severity of the coronavirus spread in Hebei and many areas across China in recent weeks challenges the Xi leadership’s narrative of having won “victory” over the epidemic late last year, which leaves Xi Jinping exposed to intra-Party calls for accountability as he has assumed personal responsibility for overseeing epidemic control.
Major political Black Swans could emerge in China depending on how the CCP factional struggle unfolds. Xi or international investigators could make “shocking revelations” about the coronavirus, especially if Xi believes that pro-China U.S. elites are colluding with his factional rivals to unseat him.
