Beijing takes over Anbang Insurance Group in unprecedented move

This article is more than 12 months old

SHANGHAI Beijing's unprecedented takeover of private insurer Anbang confirms that toxic risks lurk in the world's second-largest economy while signalling the state's tightening grip on China Inc despite reform rhetoric, analysts said.

Government regulators seized control of Anbang Insurance Group on Friday, saying its debt-fuelled foreign acquisition binge left the company in financial peril and that high-flying founder Wu Xiaohui would be prosecuted for fraud.

The takeover, to last at least a year, was the most striking step yet by regulators to rein in dizzying debt levels and a sign that the government saw something frightening in Anbang's books.

China has moved aggressively over the past year to slam the brakes on companies such as Anbang, which ran up gargantuan debts to fund pricey overseas acquisitions.

Such companies have become known as "grey rhinos" - financial beasts that could charge quickly, with damaging results.

Despite warnings that China's spiralling debt could spark a meltdown, the regime has insisted that any risks remain controllable.

Anbang raked in cash largely by selling short-term policies promising some of the highest returns in the market.

With the proceeds, the company spent billions overseas. But Beijing's clampdown on risky financial practices since 2016 crippled its fund-raising.

"It is a serious problem. There may now be a flood of redemptions coming through," said Peking University economics professor Christopher Balding.