The Blackstone collapse indicates that ‘everything is political’ in China

At 8:30 a.m. Thursday, from his New York office, Stephen Schwarzman, the world’s largest $ 684bn Black business giant, joined Fang Xinghai, Beijing’s chief financial officer.

During the “China-US Financial Roundtable”, an annual meeting among a handful of former Wall Street freedom fighters elected to speak to a small group of Chinese officials, it was difficult.

The world does not simply consider the risks involved in the transformation of goods Evergrande, but less than a week later, Blackstone’s biggest potential for the Chinese real estate market – part of the engine of its Asian plans – was thwarted by regulators in Beijing without warning.

The buying group was forced to suspend the $ 3bn deal buy real estate agent Soho China, whose skylines live in long queues in Shanghai and Beijing, after the founders – the husband and wife of billionaire Pan Shiyi and Zhang Xin – are accused of trying to raise money for their business and “fled” to the US.

“Steve is a great communicator, who has always done well in China by doing and saying the right things,” one person summed up the song.

It would be a mistake to “hit the table”, said the same person while someone explained about the call that Schwarzman did not mention Soho China. Blackstone denied that the “meeting that took place” had anything to do with the deal.

But a broken alliance left the elephants in the room and the most recent part to leave the financial sector, which oversees the movement of billions of dollars globally, a reflection on how to invest in the second largest economy in the world.

Blackstone has rejected Soho China’s bid after Beijing accused owners of Zhang Xin and Pan Shiyi of wanting to flee to the US © Anthony Kwan / Bloomberg

It also notes that even the most connected can withstand the political turmoil of China.

Schwarzman is “one of the largest U.S. arms manufacturers in China, and although he has not been able to obtain a license to buy the property,” said Brock Silvers, chief financial officer at Hong Kong Kaiyuan Capital.

Blackstone is not alone in resisting pressure. China’s foreign company list – Wall Street finance executives – has been destroyed following a series of public misconduct on the rise. Didi, while the dollar-bond market appears to be on the verge of recurrence due to what is happening to Evergrande.

“Now, foreign investment needs to look at China more carefully,” Silvers said.

The collapse of the agreement has been a “problem” for rival companies in the process of formulating a major alliance on the border of what appears to be “smart” for China’s economy, says a Hong Kong-based attorney general who has done some of China’s biggest jobs. Some wonder which industries the government will continue, and try to destroy.

The China State Administration’s Market Regulation decision to suspend Blackstone’s seizure has sparked rumors of a move by Chinese officials.

A Wall Street bank consultant who advised on the deal said that only a handful of people were informed by the government: “What do you think the real goals were. There was no indication that a person who wants to govern himself is at risk.”

“We know that tycoons are being tested. The government says you are selling, when you are in New York and moving your assets to the sea. There is no chance.”

Soho shopping mall in Beijing
Soho shopping mall in Beijing, set up by billionaire Pan Shiyi and Zhang Xin, a Chinese factory photo © Sheldon Cooper / SOPA Images / Getty

The deal in Blackstone would have brought the couple a hurricane behind Soho China, which owns more than 60% of the shares through Zhang’s companies, and would have helped them not to reduce their Chinese opportunities at the time when Beijing ordered the wealthy to share wealth. their.

The chief executive of a $ 10bn-paid company in Hong Kong said this meant that many now had “serious doubts about legitimacy.

Some Chinese retailers, who are already failing due to illegal regulation and restrictions on foreign exchanges, have begun to reconsider the listing of plans or businesses, according to bankers.

The head of M&A at a major bank in Hong Kong said: “The truth is that if you have done business in China worth billions, you have done so with the blessing of the government, then it is the wrong time to invest in it.”

The failed deal in Blackstone follows a major overhaul of foreign businesses while Chinese officials are directing what they see as a unique business.

The deterioration of technology, education, sports and cosmetic surgery under the leadership of President Xi Jinping “known development”, and restrictions on the external list, have made foreign investors unscathed, who have rushed to sell Chinese currency.

In August, the owners of Chinese training companies suffered billions of dollars when regulators criticized the profit-making sector. Shares in companies have lost about 90% of their value, while other partners are trying to make more money.

“Is China a dangerous place to plant? Yes. “Anyone who distributes money in China is asking, can you buy anything that the government can affect?”

“Whether it is tech, consumer or data-related, the government has shown a willingness to participate, then it is bad. At the moment we are doing little, and China will be a small part of us.”

Economic groups have agreed on a $ 26bn price target in China since the beginning of this year, surpassing $ 10bn in sales throughout 2019, figures of the Dealogic show.

A chart that shows China's secret cooperation agreement from 2016 to 2021 (year to date) with trade prices in billions of dollars and the number of deals

$ 11.3bn worth of transactions related to Chinese companies has been approved but not finalized, Dealogic figures show. This includes a merger of Canadian business Tim Hortons of China and Spac listed in the US with the support of Ascendent Capital Partners.

However, in the light of growing monthly, foreign investors are paying close attention to the signs that Beijing is competing with another segment such as private education or online games.

The annual bar chart for annual growth in the M&A value alliance with a country whose target by 2021 (%) shows that China has been left behind due to global inflation

An independent Hong Kong-based company Primavera Capital Group bought Mead Johnson, China’s Reckitt baby manufacturing business, for $ 2.2bn in June.

But “the agreement was reached on time,” said an M&A executive at a European bank in Hong Kong. “Anyone who wants to buy or sell companies on the site should think twice. China is looking closely at anything that adds value to family planning. ”

Developers had already been affected by the tightening of laws before the arrest in Soho China as Beijing vowed since 2017 to eradicate substandard housing.

Despite this, investors around the world have continued to bet on sales and lending in China. Last year, Blackstone acquired a large share of the largest park in the Greater Bay Area for $ 1.1bn and bought Westlink, an office and export center in Shanghai, $ 1.25bn.

A senior friend of a large US company with offices in China said the country “is very important not to leave”.

The trick is to find events that are not politically motivated.

“If foreign currency is helping the people in the country, or it is not going well, I think you are right,” said one private money maker, adding that they have “deviated from any of the things that make a lot of money” in a way that would seem profitable “from the people”.

A chief executive of a bank in Wall Street in Asia has warned that the flow of money to China is always causing problems.

“But everything that has happened in the last six months will tell the whole seller that now everything is political.”

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