David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Most of China's acquisitive corporate giants were battening down the hatches last week, fearing a storm blowing from Beijing could wreck their sources of finance. One of their number was up on deck, though, filling its lungs with a gentle sea breeze.

China Evergrande Group, which has carried out some $15 billion of takeovers over the past two years, was a notable omission from the list of companies targeted by the China Banking Regulatory Commission. They included Dalian Wanda Group Co., Anbang Insurance Group Co., HNA Group Co., Fosun International Ltd. and the owner of Italian soccer team AC Milan, people familiar with the matter told Bloomberg NewsNumerous reports elsewhere named the same four, and none included Evergrande.

Indeed, far from cowering in the face of Beijing's crackdown, the developer was dancing along the battlements last week, raising $6.6 billion of debt in the biggest dollar-denominated junk-bond sale in China's history. If Chinese regulators were so worried about overseas loans to domestic companies -- the reason behind last week's crackdown, according to people familiar with the matter -- how did they let that massive international advance slip through?

Evergrande joined the share price declines of acquisitive Chinese companies since June 21
Source: Bloomberg
Note: All figures are for Hong Kong listings except Wanda Film. Only Evergrande and Fosun are the main company of the relevant group -- HNA Holding and Wanda Film are associates. Anbang has no significant listed entities.

One explanation offered is that it's all about guanxi -- connections. Many of the companies targeted built their fortunes before Xi Jinping became president in 2012, Minxin Pei, a political analyst, wrote in the Financial Times this week. So the ulterior motive behind the financial crackdown could be a purge of "tycoons with dubious political loyalties." An old proverb holds that, like ducks, companies and officials can grow fat pecking at the grain scattered by Beijing -- but sooner or later the government will sharpen its knives for the slaughter.

There's something to be said for that theory. Evergrande is clearly a creature of the Xi era: Its assets have grown almost six-fold since 2012. But the same could be said of some of the companies that have been targeted, particularly Anbang and HNA. While Gadfly enjoys Beijing Kremlinology -- Zhongnanhology? -- as much as the next pundit, it's possible that there's a simpler explanation.

Evergrande's asset growth since Xi Jinping took power in 2012 outstrips other Chinese real estate businesses
Source: Bloomberg

The area in which Evergrande stands out dramatically from the other four businesses is not so much guanxi, as where it's deploying its cash.

The companies targeted have become notorious for their splashy overseas M&A deals -- for the world's biggest cinema operator and the studio behind Inception and Godzilla (Dalian Wanda); 10 percent of Deutsche Bank and the third-biggest aircraft-leasing business (HNA); Washington's Four Seasons Hotel and New York's Waldorf-Astoria (Anbang); Club Med and Cirque du Soleil (Fosun). Evergrande, by contrast, has barely ventured beyond what Beijing considers to be its borders, according to data compiled by Bloomberg.

Home Front
You have to squint to see the times Evergrande bought an asset outside China and Hong Kong
Source: Bloomberg

There have been $3.42 billion of acquisitions in Hong Kong, including the purchase of a building in Wan Chai that was reported at the time to be the highest price ever paid for an office property in the city. But that's more or less it, the data show. The only other overseas purchase was a $44 million minority stake in a U.S. solar-power company back in 2014 -- an amount that would barely buy one of the better condos Anbang plans to build atop the Waldorf-Astoria, and which was immediately recycled to buy shares in a Hong Kong-based hotel company.

It's always hard to completely rule out political machinations, but Evergrande's apparent Teflon coating suggests the simplest explanation is closest to the truth. Beijing's problem isn't so much with domestic tycoons, but with domestic tycoons who are placing their wealth beyond the government's reach.

That's probably bearish for companies outside Greater China primping their assets for a takeover -- but owners of attractive businesses in Hong Kong, Macau, and perhaps even Taiwan can take heart. If you're within Beijing's tidal pull, the flow of money might not have been dammed just yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. One report in the Chinese-language Caixin mentioned Evergrande (in its old branding of Hengda) in the sub-headline to the article, but the company wasn't mentioned in the main body of the piece.

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