Seized Anbang continues to sell its products - and investors to buy them

Beijing

LESS Than a month after it was seized by the Chinese government, Anbang Insurance Group, the giant conglomerate, is once again offering small investors "you snooze, you lose" investment opportunities - your money back, guaranteed.

Sold like stocks or bonds in bank branches around China, the products carry names like Anbang Abundant Stability No 10, suggesting the investments are conservative. They are anything but.

In the past, Anbang has used the money it raised from those products to help pay for risky deals like the purchase of the Waldorf Astoria hotel in New York and other flashy properties around the world. The approach saddled the company with big debts at a time when authorities were trying to stamp out financial troubles.

Still, Anbang and other companies keep selling them - and Chinese investors keep buying them. When China took over Anbang, it only underlined the widely held - and potentially dangerous - belief that the Chinese government will always be there to bail them out.

"The government wants to maintain stability," said Nancy Cheng, a 35-year-old employee in a financial firm who has invested thousands of dollars with Anbang and another insurer. News of the government's Anbang seizure, she said, did not shake her confidence.

The government "would think of solutions", Ms Cheng said. "Since they allowed this indulgence, they should be there to clean up the mess."

China has a problem with debt. Shadowy, underground lenders have flooded the country with a staggering US$15 trillion in credit, which threatens to hobble its economy.

Beijing now appears to be taking a harder stance with the companies in need of a bailout. On Wednesday, Chinese authorities accused a founder of Anbang, who was the dealmaker who bought the Waldorf Astoria, of bilking investors of more than US$10 billion. In a country where courts tend to convict, the accusations raised the likelihood that the executive, Wu Xiaohui, could face life in prison.

Officials have also spent the past two years trying to contain the risk. Earlier this month, the Chinese government said it would merge the country's banking and insurance regulators in an effort to close regulatory loopholes.

Central to that effort is keeping a tighter rein on products like Anbang's Abundant Stability No 10. Many small investors believe that means the government backs them. Anbang also calls them "universal insurance products", making them sound conservative.

Abundant Stability No 10 is closer to what in China is called a wealth management product. Wealth management products on paper are not backed by the government, but state-run banks act as middlemen and sell them to small investors, giving many people the perception that they are. The salespeople often know little about what is backing them - or how the people ultimately behind them will pay the money back.

Abundant Stability No 10, for example, requires only a US$4,600 investment over three years. In return, investors are promised a payout that is triple what Chinese savers might get by parking their money in a savings account. On the phone, salespeople at one state-run Chinese bank, China Merchants, said the payout could be even higher, perhaps 10 times what a savings account pays out.

Shen Gang, a company spokesman, said that banks were an important channel for the company's insurance products and that the government takeover had not changed the operations of Anbang at all.

"Anbang has always been very stable on the financial front," he said. "As such, the selling of our products is a normal business activity."

Li Yan, 48, a founder of a technology company, bought a universal insurance product from Taikang Insurance, an Anbang rival.

She said she was a "teeny bit" concerned about the government takeover of Anbang but "didn't think it's a huge problem", citing the two insurers' political connections. "Aren't insurance companies not allowed to go bankrupt?"

Chinese authorities have pressured big issuers to slow down. In November, they said they would set stricter rules on disclosure and stop firms from guaranteeing payments to investors, among other steps.

Data suggests China is making some headway. The total outstanding balance of wealth management products issued by Chinese banks was about US$4.7 trillion in 2017, up just 1.7 per cent from a year before, according to China Wealth, a state-backed company that tracks China's wealth management products. Two years ago, sales were growing at roughly 50 per cent.

"I would say that the risk of the debt crisis has come down because of what the government has done," said Wang Tao, head of Asia economics for UBS Investment Bank. "The problem is not entirely resolved but it's moving in the right direction."

Still, the government has a lot of work to do before investors shake the notion that the government amounts to an eternal safety net.

In his last news conference as China's central bank governor, Zhou Xiaochuan, long a proponent of Chinese financial overhauls, said on March 9 that the country had to strengthen investor education.

He said investors had to "fully learn" about new financial products before they bought them. "If you want to use them, you have to take your own risks and find out for yourselves. "You can't leave it entirely to the regulators to manage them."

Zhu Ning, a Tsinghua University economist, said the only way the government can prevent investors from taking on more risk than they can handle is to allow for "some real failures". The real test, according to Mr Zhu, could come later this year, when wealth management products issued years earlier have to be paid back.

"Non-performing loans are going to be so severe that some of the weaker banks will be forced to face their Judgement Day - whether they are going to be bailed out or whether they are going to die," he said. NYTIMES