Chinese conglomerate HNA Group has stunned global markets by announcing it has quietly moved to raise its stake in one of the world’s largest investment banks, Germany’s Deutsche Bank, from 3% to 10%. Deutsche, of course, has long had considerable operations in Australia, but that is just the tip of the HNA investment iceberg.
It was just the latest move — many of them surprising, and some, like this one, stunning — from one of China’s most acquisitive companies offshore. Over the past 10 years HNA Group has shoveled out a whopping US$42.54 billion for assets. Australia, too, has been squarely in its sights, particularly over the past 12 months since it nabbed 13% of Virgin Australia. And there have been multiple property deals, including a proposed $1 billion property trust with Singapore group AEP with nary a peep.
Globally, HNA has made an eye-watering number of acquisitions at breakneck speed in a bewildering number of sectors including tourism, electronics, logistics, petroleum and finance. According to China’s groundbreaking business publication Caixin, the group “announced or completed more than $35 billion of deals … including the $6 billion acquisition of computer parts distributor Ingram Micro Inc. and the purchase of a 25% stake in hotel operator Hilton for $6.5 billion”.
As part of its portfolio, HNA also controls 19 airports in China, including the two major hubs in Hainan — the sprawling capital Haikou in the north of the island and the southern resorts on Sanya, home to dozens of glamorous waterfront five-star resorts — the playground of Chinese Communist Party’s senior officials.
Sanya’s heady rise in popularity has been due to CCP rules, which do not allow party cadres to holiday outside China with their families — for fear they will skedaddle, usually with suitcases full of cash or passwords to offshore bank accounts.
The questions being asked about HNA in both Chinese and international financial media publications is what the group is up to, on whose behalf this money is being invested, and where, indeed, all the money is coming from. They are questions that should be exercising the minds of the mandarins in Canberra who oversea foreign investment in Australia.
HNA began its spectacular trajectory as the owner of Grand China Airlines, otherwise known as Hainan Airlines, the provincial carrier of mainland China’s only island province that has morphed into the fourth largest (and arguably the best) airline in China, and the country’s only ostensibly private one. And here is the rub with HNA: no one knows who owns it, or funds it.
As other Chinese offshore deals slow dramatically, with some stalling, HNA is continuing apparently unchecked but it has not yet attracted, it would seem, any serious attention from Australia’s Foreign Investment Review Board (FIRB). The Financial Times’ Lex analysis column opined thus on May 3:
“HNA’s net debt of $34bn is a strained 15 times earnings before interest and tax, according to S&P CIQ. The biggest mystery is whether there is any logic to a buying spree that has seen HNA spend $42.5bn on 67 purchases since 2008. HNA purchases are presumed to have official permission, since Beijing blocks deals it fears are funded by flight capital.”
It’s a truism that few get very rich in China — as HNA chairman and founder Chen Feng has — without the deepest of party connections. Of the few that do, they have generally found that if, eventually, they won’t play ball with the party they end up in jail — as handful of billionaires have found in recent years. HNA is generally often described with the business media euphemism “closely held”, or opaque/secretive.
There are similarities that can be drawn with Chinese telecoms equipment behemoth Huawei Technologies, which was banned, on advice from Australian spy agencies, from tending for any work on the now $49 billion National Broadband Network. While working his way back to the top as opposition communications spokesperson, Malcolm Turnbull hinted he would review the ban — yet, once in power, Huawei remained in the cold.
While there are no suggestions that there are any security concerns over HNA Group — or whether it is, in fact, really a state-controlled company and therefore whose every deal must be vetted in Canberra — the simple fact is neither we nor the Australian government, have much way of knowing.
Canberra is continuing to tie itself into knots in an effort to elucidate a coherent, all-of-government policy towards China. One of the key elements of this for Australia is how to deal with the opacity of China’s private companies and the obvious links they have to the ruling Communist Party and it officials.
As the contortions in Australia’s rural capital continue, companies that we know little about, such as HNA, are continuing to gobble up assets with only sporadic resistance from the gatekeepers.
FIRB has a sorry history when it comes to Chinese investment in Australia. It is unknown just how many major purchases have been made by Chinese criminals or corrupt party cadres; the efforts by China under its so-called Operation Fox Hunt — a global search for wanted party cadres, to haul back probably scores (at least) of its citizens, to be subjected to a range of punishments that could potentially include death sentence by firing squad handed down by the country’s rigged, party-controlled courts — tells us that there are plenty.
This was behind the push for the China-Australia extradition treaty that Malcolm Turnbull tried so clumsily tried — and failed — to bulldoze through Parliament ahead of the visit of Chinese Premier Li Keqiang. Only two weeks ago, Turnbull promised, following a cyber security summit with China’s security tsar Meng Jianzhu, to make another push to have Parliament ratify the treaty.
The increasing focus on HNA and other Chinese offshore acquisitions comes at a time when the FIRB’s new chair David Irvine — a career diplomat and spymaster who was once ambassador to China and subsequently ran both the onshore spy agency ASIO and its offshore counterpart ASIS — begins his term. It’s an interesting appointment by Turnbull, no doubt on the advice of his chief bureaucrat Martin Parkinson, the former Treasury chief whose contract was terminated by Tony Abbott only to be rehabilitated by his loathed successor.
Canberra insiders say Parkinson is now the most powerful Secretary of the Department of Prime Minister and Cabinet in Australian history. His appointment of Irvine shows the growing concern in Canberra about China’s acquisitions spree in Australia — and follows the creation of the Critical Infrastructure Centre in January, and a long overdue determination to more effectively understand the operations of prospective buyers. HNA Group should be in the very top group of companies upon which Irvine pulls focus.