If you thought being taken hostage by angry employees was the worst thing that could happen to you, welcome to China!
Stresses are clearly building as defaults mount in the financial system in China. In one sign of the times, the CEO of Global Wealth Investment (Beijing), a major China-based asset management firm, was stabbed during a meeting on Sunday. Although it was a life-threatening injury, CEO Wang Jie is expected to recover from the assault, according to financial news outlet Caixin.
The attacker had apparently invested Rmb300,000 ($47,300) in a wealth management product that failed and led to substantial losses.
According to knowledgeable sources, the stabbing of the Chinese asset manager was related to the collapse of Hebei Financing Investment Guarantee Group, a large Chinese government-backed guarantor. Global Wealth and other financial groups packaged and sold a variety investment products backed by loans guaranteed by defunct Hebei Financing.
More on stabbing of Chinese asset manager
Earlier this summer, a group of 11 non-bank lenders wrote a letter to Communist party officials in Hebei province saying there could be “unnecessary social influence” if the government did not quickly bail out Hebei Financing and make it possible for the guarantor to honor its obligations.
CEO Wang also wrote his own letter to Hebei officials, pointing out that Hebei Financing had not paid off on guarantees on loan defaults by five companies worth Rmb227m, and that this had impacted 660 investors in Global Wealth products. According to the Caixin report, the amount owed to Global Wealth by the guarantor is now more than Rmb620m.
Keep in mind that high-yielding wealth management products have become extremely popular in China over the last few years as investors were looking for investment options besides real estate, the volatile stock market and bank deposits on which interest rates are capped. Analysts note that these products are frequently used to raise funds for higher-risk borrowers who can’t get bank loans or issue bonds.
Part of the problem is that the great demand for high-yield products and minimal regulation of the sector has led to a good bit of fraud, which has led to widespread protests by investors in China who have been fleeced.
Of note, Global Wealth is not accused of any crimes, however, phone calls and emails to the firm were not answered on Tuesday. Furthermore, the company’s office in Beijing was closed with a note on the door saying a “criminal incident” had occurred on Sunday.