Lex Newsletter: The Great Resignation of China’s Billionaires

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Dear Reader,

The “Great Resignation” is spreading to the highest levels of Chinese business. Billionaire founders and CEOs call it a resignation.

The latest is Wu Yajun. Just months ago, the former journalist was named the world’s richest self-made woman. On Monday, she stepped down as CEO and chairperson of Chinese development group Longfor Group.

Wu blamed her departure on health concerns. But anyone who seeks to debunk a conspiracy theory has plenty of material to work with. Her counterpart Pan Shii resigned as president of Sohu China in September.

It is not new for the heads of highly influential and unlucky ownership groups to disappear from view. The difference with Wu and Pan is that they ran their businesses relatively conservatively.

Soho’s sound financial data for China includes very low debt ratios. For its part, Longfor has the highest credit rating among Chinese private developers. No debt owed for the rest of the year.

The company even paid off a syndicated loan early to show strength. It’s one of the few developers to report net income growth this year and continue to pay dividends.

Longfor’s stock has fallen by more than a third in the past week, bringing the drop to 70 percent over the past year. Shares in Soho China have fallen to a record low since Pan left the company to focus on charitable projects.

Departures are calling for comparisons to the tech sector, where a string of top bosses have resigned in recent years amid an official campaign. Jack Ma led the trend in 2019, retiring from the presidency of Alibaba after a poorly judged speech criticizing the country’s regulators. In 2020, ByteDance founder Zhang Yiming resigned as CEO and President. In 2021, Colin Huang, the man behind e-commerce platform Pinduoduo, left the position of CEO.

Shares of Chinese developers have been falling to new lows. Their collective problems are placing an increasing burden on the lending banks. It is reasonable to speculate that Beijing may be clearing a general tip for heads at the top of a sector found in the bad official books.

The experience of the technology sector suggests that the worst is yet to come. The departure of the tech group chiefs marked the beginning of a long-running underperformance of stock prices.

For example, Alibaba shares have fallen 80 percent since October 2020. That was when what finally came to the fore at a conference in Shanghai.

The decline in the shares of these companies that have lost their leaders is not just a sudden reaction. For technology groups, the decline reflects the value investors place on innovative ideas for business leaders.

In the real estate sector, the personal capital of billionaire entrepreneurs includes extensive networks of contacts – and the piles of cash they have sometimes used to prop up troubled stocks.

But the obvious fortunes are another reason why real estate developers now find themselves in the crossfire of Beijing. It is cracking down on “excessive wealth”.

Chinese President Xi Jinping now has more firepower to campaign for reforming social values. He consolidated his personal power by winning an unprecedented third term as China’s supreme leader at the 20th Communist Party Congress last month. At the same time, an important Governing Council mobilized hardliners in the party. The challenge facing Chinese billionaires was a major theme of the event.

Defaults in the real estate sector is on the rise. But the central government is unlikely to bail out troubled developers. This reflects the sheer size of the sector’s debt. The developers have $120 billion of debt maturing this year alone. Public revenue is declining, in part due to lower land sales. Disappointing economic data Indicates cold macroeconomic headwinds.

Technology sales in China are now entering their third year. The path of real estate developers started recently. Other drops should be expected. Any foreign investors still exposed to Chinese property groups should follow their leaders out the door.

Enjoy the rest of the week!

jun yun
Lex Asia Editor

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