HK Billionaires Are Fleeing and Those in China Have Had Their Wealth Slashed by Tens of Billions of Dollars

An Air China plane prepares to land at Beijing Capital International airport on Sept. 4, 2012. WANG ZHAO/AFP/GettyImages

Following the 20th National Congress of the Communist Party, Chinese stocks immediately witnessed a round of plummeting in value. Together with this deep drop in stock prices is a similar depletion of the wealth of China’s richest. According to statistics, the wealth of China’s richest people was slashed by a staggering US$35 billion in one day. A columnist said this reflects the market’s concerns about the “regulatory wealth accumulation mechanism” proposed during the 20th National Congress of the Communist Party of China. A columnist said that as the idea of “state enterprises to grow and private businesses to retreat” is likely to persist, more and more billionaires will continue to flee China before it is too late.

Chinese Billionaires’ Worth Plummets with Stock Prices

After the change in the leadership team of the Communist Party of China was made clear, almost all financial instruments, including the Chinese and Hong Kong stock markets, the Chinese yuan, Chinese concept stocks, and the like, all plunged on Oct. 24. As a result, the wealth of Chinese billionaires has shrunk dramatically.

The Hang Seng Index of Hong Kong stocks fell 1,030 points on Oct. 24, with “ATM (at-the-moment)” options trade leading to the decline in Chinese stocks. Tencent (00700) plunged 11.4 percent to close at HK$206.2 (US$26.3); Alibaba (09988) also fell 11.4 percent to HK$61.65 (US$7.9); Meituan (03690) fell most, down 14.8 percent to HK$120.6 (US$15,4).

On Oct. 24, Pinduoduo (NASDAQ: PDD), a U.S.-listed Chinese concept stock, once plunged 34.2 percent during the trading session and 24.6 percent at the close of the trading day, evaporating US$18.35 billion (about HK$143.1 billion) in market value on one single day.

As the companies’ share prices fell, so did the wealth of the billionaires associated with them. According to the Bloomberg Billionaires Index, Huang Zheng, the founder of Pinduoduo, lost US$5.1 billion in a single day. Ma Huateng of Tencent Holdings and Zhong Suisui, the richest man in China, lost more than US$2 billion each. Jack Ma of Alibaba and Ding Lei of NetEase Inc. lost around US$2.8 billion in their personal wealth.

Overall, China’s top billionaires together lost more than US$35 billion in Oct. 24 stock market sell-off, according to Bloomberg.

In sharp contrast to the “full-blooded” decimation of Chinese private enterprises is Sinopec (00386), a state enterprise controlled by the Communist Party of China. Sinopec opened at HK$3.44 (US$0.44) on Oct. 24th; the lowest intraday price was HK$3.34 (US$0.43), and closed at HK$3.38 (US$0.43), with the largest intraday drop of only HK$0.1 (around US$0.01)

Congress’ Mention of “Regulatory Wealth Accumulation Mechanism” Raises Concerns

Regarding this round of slumping in Chinese stocks, Yahoo Finance reported concerns about “regulating the wealth accumulation mechanism” being mentioned during the Congress ended earlier.

During the 20th National Congress of the Chinese Communist Party, the CCP put forward a new entry on Oct. 19: “regulate the mechanism of wealth accumulation,” which is believed to be a continuation of the earlier idea of “common prosperity.”

In this regard, Alicia Garcia Herrero, chief economist for the Asia-Pacific region at Natixis, said at a press conference last week, “If I were a very rich person in China, I would be worried.” She thinks it will focus on the “redistribution of wealth.”

Alicia does not think the authorities will focus on the property market now; she thinks it is more about “regulating wealth. I don’t think China wants to be on the front pages of newspapers like it did with the tech industry before,” she said. But she thinks the authorities are sending an “under the rudder” message “You’re being watched. Better be careful.” Gary Ng added that he thinks it is about resource reallocation.

The Rich Flee as ‘State Enterprises Advance and Private Businesses Retreat’ Continues

Cai Zi, a columnist for Epoch Times’ “Talk About Stocks and Gold,” pointed out that the idea of “state enterprises advance and private businesses retreat” will continue.

His analysis is that, in the mainland, there is a lack of an independent legal system. When the authorities target private enterprises, it is difficult for entrepreneurs to protect themselves and their wealth. And companies like Tencent, Alibaba, Baidu, and the like, will be even worse because they have too much personal data from their normal daily operations. Things like WeChat (CCP social platform) recording all details on shopping, map usage records of senior party members or their family members, and the like make the CCP top echelon feel uneasy.

He then mentioned another possibility. “For example, Jack Ma, who has been ‘popular’ in China for a long time, might be targeted. Because all bookstores are selling books with his image on the cover, which can easily annoy some leaders of the CCP.”

Cai Zi continued, “When creativity is no longer welcome, China’s economy will be set back drastically, and the era of personal enrichment is disappearing. Look at the owners of private enterprise founders; a lot of them are falling. When the real estate market faces headwinds, they could hardly expect much support from the authorities.”

Finally, he pointed out, “The super-rich will continue to do everything they can to leave China, which is a very bad omen for China’s domestic consumption and the luxury goods market.”

For example, on the day that the CCP proposed a “regulatory wealth accumulation mechanism,” the share price of Maotai (Shanghai: 600519), which is considered a luxury brand in mainland China and a symbol of wealth, fell below 1,700 yuan (US$237), a drop of 3 percent on the day. In the five trading days from the 19th to Oct. 24, Maotai has fallen by more than 13 percent.

Cai Zi’s analysis is well echoed. The Financial Times quoted David Lesperance, a European lawyer who has worked with wealthy families in China and Hong Kong, pointing out that Xi Jinping’s extension of his rule to more than two terms was a turning point for China’s business elite. “I have received orders from multiple ultra-high net worth Chinese business families to execute their escape plans,” he said.

Investment Consultant: Sharp Fall a Good Time for State-Owned Assets to Profit from the Low

Under the concerns of the market, the evaporation or transfer of wealth caused by the stock market crash is also another way for wealth distribution.

On Oct. 24, as Tencent’s stock price tumbled, rumours abound that China Mobile, a state-owned enterprise, may take a stake in Tencent. However, Tencent responded on Oct. 25 to media inquiries, saying that the news was untrue.

Mike, a senior investment consultant, told the Epoch Times that judging from the market condition and news in the past two days, it may not be completely groundless.

His analysis is based on technology companies such as Tencent and Alibaba are not the industries favoured by the authorities now, but companies such as Tencent have mustered large amounts of data resources that the CCP does not have. At the same time, these companies themselves possess a huge amount of wealth under their names, which makes them quite attractive to the CCP.

“Tencent’s share price has been going downhill repeatedly. It is not surprising that when foreign capital is withdrawing, the state-owned enterprises will take the chance to gather funds and take advantage of the situation to buy shares.”

The share price of Tencent on the Hong Kong stock exchange fell below HK$200 (US$25.5) on Oct. 25, reaching a low of HK$198.6 (US$25.3), a new low in more than five years.

Mike added that in the future, only companies that comply with CCP policies would have room to grow. Under the goal of “common prosperity,” the CCP authorities will adopt a method similar to “public-private partnership” and move step-by-step to control high-quality private enterprises that have mustered resources in big data.

Oct. 25 Chinese technology stocks rebounded. Alibaba rose more than three percent; Meituan rose more than two percent; Tencent, on the other hand, rose just 0.1 percent.

Daiwa Capital released a China-Hong Kong market strategy report on the 25th, stating that it is expected specific measures to stimulate the economy will be launched after the 20th National Congress. It believes that the rectification of the Internet platform by the authorities has been largely completed and upgraded the ratings of the information technology sector of A shares and Hong Kong stocks from “neutral” to “overweight.”

Among Daiwa’s top picks in Hong Kong and China, Tencent and Meituan are listed, but Moutai and Alibaba are excluded.