The Trudeau government's point man on foreign takeovers said he's disturbed by news that the chair of Chinese conglomerate Anbang has been arrested by Beijing, but he will not reconsider Ottawa's decision to allow the insurance titan to buy a stake in British Columbia's health-care sector.
Earlier this year, Innovation, Science and Economic Development Minister Navdeep Bains green-lighted the sale of one of British Columbia's biggest retirement-home chains to Anbang, an insurance-holding company with a murky ownership structure, in a deal that gave China a foothold in Canada's health-care sector.
The deal – believed to be worth in excess of $1-billion – gave Anbang control of Vancouver-based Retirement Concepts, which is B.C.'s highest-billing provider of assisted-living and residential-care services. The B.C. government paid Retirement Concepts $86.5-million in the 2015-16 fiscal year, more than any other of the 130 similar providers.
On Tuesday, Anbang confirmed what Chinese media had been reporting for some time: that Anbang's chairman Wu Xiaohui has been detained by authorities and is "unable to perform his duties" with the company.
Mr. Wu was taken away for investigation, with regulators informing the company on Saturday, according to a Tuesday evening report in China's Caijing Media, which was deleted within hours.
After "assisting relevant investigations" for some time, Mr. Wu disappeared near the end of last week, an unnamed source told the South China Morning Post, which is owned by tech tycoon Jack Ma's Alibaba Group.
The Anbang billionaire's arrest comes amid an anti-corruption campaign by Chinese President Xi Jinping, and in particular its high-flying insurers. Those companies' hunger for acquisitions had transformed them from "strangers at the gate to barbarians, and finally, to industry thieves," China Securities Regulatory Commission Chairman Liu Shiyu said in a pointed warning earlier this year.
Mr. Bains in Ottawa said he's worried by this development but doesn't see any need to revisit a controversial decision to allow Anbang to invest in a Canadian health-care provider.
"Obviously that is very concerning. There is no doubt about that," the Trudeau cabinet minister said.
"But, the decision we have made on Anbang – or any decision under the Investment Canada Act – follows a robust and thorough review process," he said.
Mr. Bains said Ottawa will nevertheless keep an eye on developments regarding Mr. Wu in China.
"Any relevant information going forward – we will keep that in mind," the Minister said.
In China, authorities have curtailed the insurance industry after local companies radically shifted their model in 2015, when a regulatory shift removed a cap on guaranteed returns, allowing insurers to fund acquisition sprees with short-term financial products.
"Anbang is just the most high-flying of these companies that are getting their wings clipped," said Nicholas Lardy, an expert on the Chinese economy at the Peterson Institute for International Economics.
Insurance companies have also been caught in China's attempts to keep foreign currency from fleeing. It's a shift with global ramifications, as a major source of overseas acquisition money dries up. Chinese foreign direct investment fell nearly in half in the first quarter of this year, compared to the same period in 2016.
"And I think it will fall further in the second quarter," Mr. Lardy said. "For the foreseeable future, the environment of outbound investment is going to be very tough."
Anbang emerged from relative obscurity in recent years to snap up acquisitions around the globe – a string of deals that in 2016 helped push Chinese purchases of overseas real estate to new heights. Mr. Wu developed a reputation as an aggressive overseas investor, buying the Waldorf Astoria hotel in New York.
The company's lack of transparency has become a problem for Anbang. Iowa-based Fidelity & Guaranty Life backed out of a deal to be purchased by Anbang after the Chinese company failed to obtain regulatory approval in the United States.
It didn't seem to bother the Trudeau government, however, which has made building a special relationship with China a cornerstone of its foreign policy. The Liberals, who are preparing for bilateral free-trade talks with Beijing, have taken a more laissez-faire attitude to Chinese investment in sensitive sectors than their predecessors.
Canadian officials never explained how they were able to get a clear picture of Anbang's ownership and corporate structure.
Anbang has faced repeated questions in the United States over who actually owns the giant firm and what ties it has to the Chinese state.
The New York Times last year reported that a majority of Anbang was held by firms fully or partly owned by relatives of Anbang's chairman. It found that 92 per cent of Anbang was held by firms fully or partly owned by relatives of Anbang's chairman, Wu Xiaohui; or his wife, Zhuo Ran, the granddaughter of former Chinese leader Deng Xiaoping; or Chen Xiaolu, son of a famous People's Liberation Army general.
Mr. Wu's disappearance should raise new cautions for foreign businesses eager to transact with Chinese counterparts, said Orville Schell, a foremost Western observer of China who is director of the Asia Society's Center on U.S.-China Relations in New York.
"I would think that every American company would have major issues about doing business with almost any Chinese company. Because they all exist at the sufferance of the Party, even the private ones," he said.
"Business talks a good game when it comes to shareholder interest and due diligence and this and that – but there are all too many instances of reckless behaviour."
But, he added, it's difficult to know exactly what has happened to Anbang's Mr. Wu, given the extraordinary opacity of Chinese elite politics.
"It's like we're living in the pre-X-ray world here," he said.
Earlier this year, Prime Minister Justin Trudeau defended letting Anbang buy Retirement Concepts in B.C., saying foreign investment is part of his mandate to "create middle-class jobs, economic growth and long-term prosperity for Canadians."
But the undertaking Anbang gave the federal government has no specific promises of new Canadian jobs, even though elder care is booming in Canada. All the Chinese company has agreed to do is "maintain at least the current levels of full-time and part-time employees at facilities" operated by Retirement Concepts, according to information provided to The Globe and Mail by the federal Department of Innovation, Science and Economic Development.