When the investment bank China Renaissance Holdings said it had lost touch with Bao Fan, its prominent founder, it sent shudders through the investment community. Many feared it is a sign another clampdown on the country’s financial industry may be in the works, with new banking and securities watchdogs coming this year. It’s not uncommon for executives to go “missing” in China, a country with a murky legal system. Sometimes they return to work, sometimes they go to prison. According to Financial Times, Bao was in the midst of setting up his own family office in Singapore. Here’s what’s known about Bao:
1. Who is Bao Fan and what do we know about his absence?
Bao, 52, is one of China’s most prolific dealmakers. He is known for being able to broker difficult M&A cases, such as ones that led to the formation of Didi Global and Meituan. A former Morgan Stanley and Credit Suisse banker, Bao is well known in China’s business circles for his sprawling connections across industries. Although Beijing-based China Renaissance, which is listed in Hong Kong, said on Feb 16 that its operations remain unaffected by Bao’s absence, the news sent its stock down as much as 50% the following morning. Bao’s family has been told he was assisting with an investigation — likely related to former China Renaissance President Cong Lin, a person familiar with the matter told Bloomberg News.
2. What does a missing boss mean in China?
Increasingly in China, a suddenly absent boss has come to signal a crackdown or investigation by authorities. In many cases, the person is said to be “assisting” graft probes, or becomes the subject of an investigation into corruption or financial crimes in China. Often times, the companies themselves report they have lost contact with the boss and need to make their own inquiries into what happened within China, a country that has opaque disciplinary procedures.
3. What happened in the past?
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It is not uncommon for executives in China to become unreachable when they are involved in a government probe. Some were later found to have been detained by authorities, while others eventually returned to their jobs. In 2015, Fosun chairman Guo Guangchang briefly disappeared, to help with a government investigation. He later re-emerged, vowing to ensure the business was not reliant on any one individual. Financier Xiao Jianhua, who ran China’s Tomorrow Holding Co empire, was taken away from Hong Kong by Chinese authorities in January 2017, South China Morning Post reported at the time. In August 2022, Xiao was sentenced to 13 years in prison after the Chinese authorities found him guilty of illegally obtaining public deposits, breach of trust, bribery and the illegal use of funds.
In August 2018, casino operator Landing International Development reported its then-chairman Yang Zhihui had disappeared. But he then returned to the job three months later with the explanation that he was assisting authorities with an investigation. In November 2022, however, Landing said it had suspended Yang after the Securities and Futures Commission of Hong Kong started legal proceedings against him alleging he had breached fiduciary duties related to other business dealings.
4. What does this mean for investors?
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Bosses that go missing underscore a big challenge for China investors: key man risk. When Chinese executives synonymous with their companies come under fire, it typically sparks a tumble in the stock market valuation and investors pay the price. While key man risk is an issue around the world, it can be particularly acute in China because the nation’s corporate founders play outsized roles. Take the prolonged absence of Alibaba Group Holding’s founder Jack Ma. Although Ma was never reported “missing,” Alibaba shares took a beating after he disappeared from the spotlight in November 2020, after authorities torpedoed an initial public offering for affiliate Ant Group Co. It also heralded the coming crackdown on China’s entire tech sector. Ant said this year that Ma, who has kept a relatively low profile ever since, was ceding control of the company.
5. Is another financial industry crackdown coming?
It is not clear, but Bao’s disappearance has certainly fuelled investor jitters. In late 2021, Chinese President Xi Jinping launched a broad anti-corruption probe targeting the nation’s US$60 trillion ($80.44 trillion) financial sector, which has brought down dozens of officials. The probe also implicated the investment banking community, ensnaring bankers from brokerages including Everbright Securities Co and Guotai Junan Securities Co. This year, China is poised to name regulatory veterans known for their strict campaigns against financial wrongdoing as new chiefs of the country’s banking and securities watchdogs, Bloomberg News reported Feb 17. — Bloomberg Quicktake
