ANBANG AND THE FINANCIALIZATION OF CHINA´S ECONOMY / THE WALL STREET JOURNAL

Anbang and the Financialization of China’s Economy

The trickier part of China’s war on debt is just getting started

By Nathaniel Taplin

     The headquarters of Anbang Insurance Group in Beijing. Photo: jason lee/Reuters 


China’s Anbang Insurance went from zero to too-big-to-fail in the blink of an eye. It is a lesson in how quickly China’s financial problems grow—and how much is left to clean up.

Beijing said Friday that the state is taking direct control of Anbang Insurance Group, the acquisitive purveyor of unusual investment products whose high-flying chairman Wu Xiaohui was detained last summer amid a broader crackdown on debt.


STEEP SLOPE
Debt and equity financing by non-financialfirms & households, change from a year earlier

Source: CEIC*Including trust loans, entrusted loans andundiscounted bankers' acceptances.


A capital raising, including a possible government capital injection seems likely. The total cost of cleaning up the mess, including whatever losses sit on Anbang’s gargantuan balance sheet—put at close to 2 trillion yuan ($300 billion) in April by financial magazine Caixin—is an unknown.

This yearlong “management” of Anbang announced by regulators could be misinterpreted as a positive for China: financial shares rose. But investors celebrating China’s apparent success at containing financial risks without damaging the broader economy shouldn’t be so sanguine.

Anbang fueled its international shopping spree, including a top-dollar price for the Waldorf Astoria Hotel in New York, on the back of high-yielding, often highly leveraged investment products sold to retail investors. Some of these, known as wealth-management products, or WMPs, became the target in 2017 of government efforts to clean up China’s highly leveraged financial system. That essentially cut off one the biggest sources of Anbang’s funding.

Anbang and WMPs are not, however, the end of China’s debt crackdown story. While WMPs and the bonds they invested in withered, companies have returned to previously popular forms of non-bank finance including trust loans, off-balance sheet company-to-company loans and bankers’ acceptances.

These grew 15% last year after just 4% growth in both 2015 and 2016. Overall debt and equity issuance stayed robust despite the crackdown.

But having successfully clipped the wings of the likes of Anbang and the WMP industry, regulators are again turning their attention to these other forms of credit creation.

Growth in company-to-company loans fell to its weakest level since at least 2012 in January, following an announcement of tighter supervision of such lending by banking regulators. Overall credit growth is now slowing sharply. In this credit-reliant economy, slower credit means slower growth ahead.

Anbang may be wrapped up. But the cost of letting finance take such a big chunk of China’s economy is far from being resolved.