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Private Chinese insurer follows failed Vanke takeover bid with plan to set up Communist Party committee

Baoneng Group’s Foresea Life Insurance unit will set up a party committee to ‘improve corporate development capabilities’ in wake of failed takeover effort

PUBLISHED : Thursday, 20 July, 2017, 12:31pm
UPDATED : Thursday, 20 July, 2017, 11:12pm

A Chinese private insurance firm which lost a high-profile takeover bid for China’s second biggest property developer and invited regulatory scrutiny about its own businesses, now plans to set up a Communist Party committee.

Shenzhen-based Foresea Life Insurance, the financial arm of Baoneng Group, is setting up a party committee to “improve corporate development capabilities”, the insurer’s vice chairman, Zhang Jinshun, was quoted in a company statement.

According to the statement, the decision to add an in-house party committee follows on instructions from last weekend’s national financial work conference at which President Xi Jinping urged the enhancing of the party’s leadership in “financial works”.

Xi has been trying to give the Leninist Communist Party, which has 89 million members, a more prominent role in China’s political and economic life since taking power five years ago.

At a conference last October, Xi said Communist Party organs must be the ultimate boss of the country’s state-owned enterprises, and he urged all businesses with state-owned stakes to set up party committees.

The party’s presence in China’s private sector has been growing rapidly. Official statistics show that 67.9 per cent of China’s private businesses had set up party committees by the end of 2016. Two years earlier, only 53.1 per cent of private enterprises had party organs.

In theory, enterprises with a Communist Party organ are more trustworthy for the Chinese state, and gain easier access to subsidies, favours and internal information that can matter a lot in business.

The driving force behind Baoneng’s assault on Vanke

Foresea Life’s parent, Baoneng, was involved in the highest-profile bid for property developer China Vanke since the end of 2015. It became Vanke’s biggest shareholder in late 2015 by buying shares in the secondary market, but Baoneng’s plan to take full control of the real estate firm met strong resistance from Vanke executives, led by founder Wang Shi.

Baoneng’s practice of raising funds through selling a wealth management-style insurance policy came under scrutiny in late 2016 when the company and its chairman, Yao Zhenhua, were publicly denounced by Beijing regulators. Yao was banned from the insurance industry for 10 years by China’s insurance watchdog in February for falsifying financial information.

Shenzhen Metro Group, a company controlled by the Shenzhen government, stepped in to become Vanke’s largest shareholder. Baoneng failed to obtain a single seat on the new board of directors formed last month, although it remained Vanke’s second biggest shareholder.

The five things you need to know about the battle of Vanke

Many private Chinese businesses are highlighting their Communist Party-building endeavours to demonstrate loyalty to the country’s ruling political party.

For instance, Xu Jiayin, or Hui Ka Yan in Cantonese, is the chairman of Evergrande Group, China’s biggest property developer; but Xu often includes his other title in corporate statements: general secretary of the Communist Party committee at Evergrande.

In the bidding war for Vanke, Evergrande decided to sell its stake to Shenzhen Metro, a move that shifted the balance and dislodged Baoneng from the biggest shareholder position.

After being outplayed in its Vanke bid, Foresea’s first-quarter premium income plunged by nearly half compared with a year earlier and the insurer was downgraded by China Bond Rating Co, a government-backed rating agency, at the end of last month.

Communist Party the top boss of China’s state firms, Xi Jinping asserts in rare meeting

Baoneng has done a lot of charity work. At the end of June, it donated 22 million yuan (HK$25.4 million) to help local governments in Guangdong eradicate poverty, another domestic policy focus for Xi. In June, Baoneng also signed an agreement with Guizhou province to cooperate in tourism and infrastructure construction. In July, Baoneng inked a deal to invest 80 billion yuan in Xi’an, the capital of Shaanxi province, to develop logistics and high-end manufacturing.