Bao Fan: The disappearance of Rainmaker bodes badly for the entire sector

The disappearance of China’s star banker Bao Huang deserves a thought experiment. Imagine a Western top his peers like JPMorgan’s Jamie Dimon or his BNP Paribas’ Jean-Laurent Bonnafé disappearing without explanation or police investigation.

This highlights how arbitrary detention has undermined the trust of Chinese companies. That’s the presumed fate of the billionaire founder of investment bank China Renaissance.

Bao was getting ready move donated part of his fortune to Singapore, as some of his peers have done. Investors should ask if the government is preparing a broader crackdown on banks and bankers. As history shows, lockdowns often portend sectoral stock market declines.

At the end of June, China Renaissance had outstanding loans of only RMB 2.3 billion ($336 million) and a line of credit of RMB 5 billion. A bank’s small size means that counterparty risk is limited.

Contagion is more likely to occur through political channels. In 2020, when Alibaba founder Jack Ma disappeared, it was a harbinger of a crackdown on the tech sector. Ren Zhiqiang, former chairman of Huayuan Real Estate Group, a property developer, went missing in the same year, putting pressure on the property group.

In 2015, the disappearances of Guo Guangchang, chairman of highly armed conglomerate Fosun, and Yim Fung, boss of brokerage firm Guotai Junan, showed similar signs. The Chinese government sought to stem foreign investment and question financial services practices.

China Renaissance shares have fallen 28% in five days. This is consistent with previous boss disappearances. Such declines usually have momentum. Shares of Guotai Junan Securities and Fosun Securities fell about 50% combined.

But investment bankers will become a new target for civil servants. China Renaissance is best known for high-profile technology sector deals such as the listing of New York ride-hailing company Didi and Hong Kong e-commerce group

Bao’s disappearance may therefore reflect continued government animosity towards technology, as well as animosity towards finance and offshore asset transfers.

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