The case of China’s vanishing chairmen

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“Wwe have lost contact with our chairman,” is an embarrassing revelation from the board of directors of a listed company to its investors. This can lead to a collapse in the stock price. In China, the resulting confusion can persist for months, casting a shadow over the company's future. Such announcements have become so common this year that a public newspaper, Securities Hours, offered his advice to directors faced with a disappearance. “Don't be shy about disclosing this information,” the newspaper said in November. He reminded companies that they have a responsibility to keep investors informed of any major incidents affecting their operations. This includes a president or CEO who is inexplicably unreachable.

Two publicly traded Chinese companies – a children's fitness company and an agricultural company – warned investors on November 29 that their presidents had disappeared without a trace. Fitness company My Gym Education said it “tried to communicate by phone and WeChat messaging, but was unable to reach Wang Hongying,” its president. “After contacting her family, the company was unable to determine the reason for the loss of contact with her.”

These latest incidents follow two other freak disappearances at a live-streaming company and a drug manufacturer earlier this month. In total, at least 11 Chinese listed companies have been forced to publish information this year, alerting investors to the disappearance of executives or board members. A review of Chinese company and media statements indicates that this strange phenomenon has become more common in 2023.

When a company reports the disappearance of a boss, it is generally assumed that he has been arrested by the police. A review of this year's cases suggests so. In rare cases, the police issue statements. In November, about two weeks after the chief executive of DouYu, the live streamer, disappeared, police in the southwestern city of Chengdu confirmed he had been arrested. He is accused of operating a casino. Most often, the authorities remain silent. China has never publicly acknowledged the detention of Xiao Jianhua, a businessman kidnapped by Chinese agents in Hong Kong in 2017 and imprisoned in 2022 – facts confirmed by authorities in Canada, of which Mr. Xiao is also a citizen .

It is more common for companies themselves to notify their investors of holdings. In February, China Renaissance said its president, Bao Fan, was “cooperating with an investigation by certain authorities of the People's Republic of China.” The revelation came ten days after the boutique investment bank reported the mysterious absence. (Mr. Bao remains missing and authorities have never confirmed his whereabouts.) One real estate developer, China Fortune Land Development, noted that its co-chairman had “left the board” after the company confirmed his detention.

Regardless of how they find out, investors naturally get nervous. Stock prices of affected companies typically fall on the news. The price of China Renaissance's Hong Kong-listed shares fell about 30% in February as rumors of Mr. Bao's disappearance began to spread. Since then, it has remained around this level. When the chairman of a successful hedge fund, Greenwoods Asset Management, was arrested this year, wealthy Chinese worried about a broader crackdown on the asset managers who manage their wealth.

Managers most often disappear in highly indebted companies. This year, the most common profile was that of president of a real estate developer. This sector has experienced numerous defaults over the past two years. The two most recent cases in November are both linked to Zhongzhi, a wealth manager who recently reported having $36 billion in unpayable debts. Zhongzhi has significant stakes in fitness and agricultural companies, but also in dozens of other major listed companies. As China's economy slows, more companies risk going bankrupt and their bosses disappearing.

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