Crackdown on corruption causes tremors

When Guo Guangchang, co-founder and chairman of China's biggest private investment conglomerate Fosun, disappeared for a day and a half earlier this month and then reappeared after helping police with their inquiries into corruption, the jitters in the financial services sector were palpable.

Nerves were already on edge in the financial services sector, and these are torrid times for senior executives in the industry. Anti-corruption investigators have taken aim at the investment industry after the stock market crash that started in June and wiped more than €4.5 trillion off the value of the markets.

The authorities said one reason for the collapse was “malicious short-selling” and have gone on a manhunt to clean up the market.

Guo, a tycoon inspired by Warren Buffett whose company has interests in everything from movies to coalmines to property, as well as in the Club Med holiday group, was only the latest in a series of senior business figures to fall foul of a widening dragnet into corruption and abuse of power in public life in the country.

The investigation was linked to an investigation into former Shanghai vice-mayor Ai Baojun and Fosun insists the investigation relates to Guo's personal affairs, rather than to his company business.

Insider trading

One of the biggest casualties in the banking sector has been the country’s largest brokerage and investment bank,

Citic

Securities. It has had its chairman replaced and had a root-and-branch review of its top leadership. At least nine of its senior executives have gone missing, become unreachable or have been investigated on charges of insider trading.

Citic has been, to a certain extent, a victim of its own success. The Chinese government was keen for domestic firms to come up with the kind of financial products common in the global industry: stock index futures, cross-border return swaps and the rest.

Cross-border products offered by Citic, often referred to as China's Goldman Sachs although the comparison isn't entirely accurate, were a particular source of irritation to the authorities as the markets fell in the summer, according to a report by Bloomberg.

At least seven Citic executives are being investigated for alleged insider trading, including its president Cheng Boming, the official Xinhua news agency reported, while Citic has been unable to reach two other top company officials. That news came from a stock market filing.

Lurid revelations

Earlier this month, Xu Ming, a former business ally of

Bo Xilai

and a key witness in the disgraced

Communist Party

official’s trial, died of heart problems at a prison in Wuhan in the central

Hubei

province, although his family told local media he had no history of issues in this area before.

Xu had been at the centre of the most lurid revelations during Bo's trial, as the former rising star in China's Communist Party firmament detailed the illicit financial relationship between his friend and his wife, Gu Kailai, who was jailed for the murder of British businessman Neil Heywood.

Then Xu Xiang, who is seen as China's most successful private fund manager and who is often compared to George Soros, was arrested last month for alleged insider trading.

President Xi Jinping said his corruption crackdown would target the tigers and the flies. These are definitely the tigers, although it is being felt across the board. Among government officials, the crackdown is coinciding with a rise in the number of suicides, with four of them jumping off buildings in four days earlier this year.

Xue Rongnian, who was head of Ping An Securities, one of China’s top investment banks, from 2008-2011 is being investigated for suspected insider trading and market manipulation linked to two cement businesses.

Former Bank of China governor Dai Xianglong's family was said to have bought shares in Ping An, while a New York Times report revealed that a company controlled in part by relatives of former premier Wen Jiabao also benefited from buying Ping An stock.

Now we wait to see who will be the big fish caught in 2016.