Guo Guangchang: how China’s Icarus fell to Earth
Guo Guangchang dodged the fate of many of his fellow business tycoons when the Chinese government cracked down on them. But his debt-laden empire is now facing a liquidity crunch.
Guo Guangchang, dubbed one of “the last men standing” in China by the Financial Times, seems to have survived the government crackdown that has felled so many of his fellow tycoons.
Guo, who describes himself as a student of Warren Buffett, is a household name in the country. And in the outside world, his conglomerate, Fosun, has gained renown as one of China’s most acquisitive companies, says the FT. Guo’s roving eye has lighted on everything from a Hollywood studio to New York’s One Chase Manhattan Plaza, taking in the Lanvin fashion group, circus operator Cirque du Soleil and Club Med. In 2016, he bought Wolverhampton Wanderers where, as the Birmingham Mail notes, “he wasted little time splashing the cash”.
Grey rhinos get restless
This tinselly empire, whose more eclectic investments are underpinned by heavy-duty investments in insurance, steel, property, mining, tech and pharma, is now in jeopardy.
Although Fosun has so far shrugged off comparisons with China’s other “grey rhinos” – so called because of “the unseen but potentially immense risk” these heavily leveraged groups pose to China’s financial stability – lingering questions have hung over its “lack of transparency and complicated structure”, says the FT. They’ve now come to a head. “A sudden sell-off” in the company’s Hong Kong-listed property bonds last month has highlighted “a liquidity crunch” and a heavy $40bn debt burden. While this pales in comparison to the $300bn liabilities of the collapsed Chinese property group Evergrande, Moody’s is taking the matter seriously enough to launch a review into the “contagion” risk posed by the portfolio.
Adding to the qualms is an element of “difficult-to-predict political risk”, says Victor Shih, professor of Chinese political economy at the University of California. No private entrepreneur, Guo included, “knows if they’re going to run afoul of the authorities”. Guo has been there before. His sudden disappearance in late 2015 briefly prompted the suspension of Fosun’s Hong Kong shares on fears of an Icarus-like fall, says The Times. When he reappeared four days later at the annual shareholders meeting in Shanghai, Guo claimed he had been assisting “certain investigations”. But he was more rattled than he let on. He later told fellow tycoons that his release was “the most special day of his life”.
Guo’s financial difficulties mark “the latest twist in an operatic life” that belies his “dispassionate” demeanour, says the FT. Born in 1967, in the rural province of Zhejiang during the chaos of Mao’s Cultural Revolution, he won a place to study philosophy at Shanghai’s elite Fudan University. There, says Forbes, he met the three other classmates who, in 1992, joined forces to form the company that would become Fosun. At first, the outfit majored on tech. But by 1994, the group had branched into finance and property. Guo viewed insurance premiums as funds that could be deployed elsewhere (he called it “the insurance + investment strategy”) and the group grew strongly in China. Following flotation in 2007, there was an aggressive expansion abroad.
A can-do spirit
Guo is “understated, spiritual” and exudes a “can-do spirit”, says Variety. He claims tai chi has had an important influence on him. But no amount of chi can disguise the fact that his personal fortune has already halved from $8bn at his peak to around $4bn. Guo has been forced to divest some $2bn of assets, including his trophy fashion house Lanvin and insurance group AmeriTrust. But the loss of their revenues could end up intensifying the crunch. An old Chinese saying goes that “the pupil can surpass the master”. As things stand, Warren Buffett looks pretty safe.