Business leaders in China face an intensified crackdown: Detained, missing or under investigation

Sign up for CNN's Meanwhile in China newsletter to keep up with the latest developments in the country's rapid growth and its global impact. Chinese business leaders are currently facing significant challenges due to President Xi Jinping's increased regulatory oversight and efforts to consolidate control over the economy.

In the world's second largest economy, over a dozen prominent executives from various industries such as technology, finance, and real estate have either disappeared, faced detention, or are under investigation for corruption. Even well-known international consulting firms are not exempt from these risks and may potentially face police raids and the detainment of their employees.

Driven by the Communist Party's need for control and growing concerns about national security, the crackdown persists despite the wavering state of the Chinese economy, marked by a significant decline in private investments since June. Despite Beijing's attempts to assuage entrepreneurs and foreign investors that China remains open for business, the unsettling effect on executives continues due to the ongoing stream of investigations, which have even resulted in cases of detention.

Doug Guthrie, a professor and the director of China Initiatives at Arizona State University's Thunderbird School of Global Management, stated that in the past ten years, China has implemented stricter regulations for the private sector and foreign investors. He emphasized that the Chinese government expects Chinese companies to prioritize working with them, regardless of their global financial standing, and failure to do so will result in severe consequences.

A Chinese clerk counts US dollar notes at a bank in Hai'an city, Nantong city, east China's Jiangsu province, 6 August 2019.

Xu jingbai/ICHPL Imaginechina/AP

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A sudden disappearance

This week, there were reports from the Cover News, a state-owned media outlet, suggesting that the founder and CEO of DouYu, a Chinese live-streaming service supported by Tencent, could not be reached in the past few days. These reports mentioned unconfirmed investigations being carried out on him.

It didnt say which authorities were behind the possible investigation.

Another state-owned outlet, the Paper, reported that Chen had been missing since October.

A DouYu representative informed CNN that the company's operations are running smoothly. They also mentioned that any important news or significant activities will be promptly announced. Chens sudden absence occurred after the Cyberspace Administration of China conducted an onsite investigation at DouYu, which was initiated to address what they classified as "serious" issues concerning the platform. These problems included the alleged presence of explicit and offensive content, as stated in a May announcement by the internet watchdog.

Another executive, Zhao Bingxian, known as "China's Warren Buffett" due to his track record of profitable investments, has been taken into custody by authorities, according to Wohua Pharmaceutical, his company. The company stated in a filed exchange statement on Monday that Zhao is cooperating with supervisory and anti-corruption agencies in an ongoing investigation, although no further details were provided. The company clarified that the investigation does not involve Wohua Pharmaceutical.

Zhao, the chairman of Wohua Pharmaceutical and multiple other listed companies, is a former banker who, since 2000, has been investing in various Chinese companies and successfully taking them public on the stock markets in mainland China and Hong Kong.

At the beginning of this year, Chinese officials indicated a shift in their policy, expressing their intention to reduce their crackdown on technology and financial companies, aiming instead to prioritize economic growth.

Guthrie stated that the ongoing trend of "aggressive corporate governance" would persist in the future. He added that Beijing would strategically use specific cases, such as DouYu and Shandong Wohua, to convey the message that behaviors and practices not aligned with the central government's objectives would not be accepted.

On May 9, 2023, DouYu, a platform based in Suqian City, Jiangsu Province, China, was highlighted for its significant ecological problems, particularly concerning pornography and vulgarity. In response, the Cyberspace Administration of China directed the Hubei Internet Information Office to establish a dedicated team to supervise and rectify these issues on the DouYu platform for a duration of one month. (Photo credit should read CFOTO/Future Publishing via Getty Images)

CFOTO/Future Publishing/Getty Images

Yet another CEO goes AWOL in China

Zhou Zheng, former deputy general manager of COFCO Group, China's largest state-owned food manufacturer and processor, is under investigation, as announced by the Central Commission for Discipline Inspection (CCDI) and the National Supervisory Commission in a brief statement on Wednesday. This investigation adds to the growing scrutiny faced by other prominent business leaders.

Zhou is under suspicion of committing serious violations of rules and laws, as stated by the two anti-corruption watchdogs, who refrained from providing additional information.

The CCDI reported that Zhang Hongli, former senior executive at the Industrial and Commercial Bank of China, one of China's "Big Four" lenders, was also investigated in a similar case.

Bao Fan, a renowned investment banker and tech dealmaker, was also implicated in the crackdown. Chinese state media reported in May that Bao had been under the custody of the anti-graft agency ever since he went missing in February.

According to a previous analysis by CNN, the commission has already probed over a dozen top executives from the nation's most significant financial institutions this year, as stated on the CCDI's website.

No end in sight

The business community in China has been rattled by the crackdown this year, although it is not unprecedented. In 2020, Xi initiated a comprehensive regulatory crackdown on the private sector, resulting in a significant decline in the market value of Chinese companies worldwide. Additionally, there was a period five years ago when several high-ranking executives mysteriously disappeared.

Business sentiment is clearly declining. According to recent official data, private sector investment in the first nine months of this year has dropped by 0.6%, contrasting with a 7.2% growth in the state sector.

During the third quarter, foreign direct investment experienced a negative trend for the first time since 1998, highlighting the capital outflow.

Beijing has implemented several measures in an effort to rebuild trust, including a comprehensive 31-point plan released in July to enhance the business environment. However, experts suggest that these actions may not suffice to fully reverse the negative impact.

People wear protective masks as they walk across a bridge over the Liangma River on May 24 in Beijing.

Kevin Frayer/Getty Images

The recent instances of executives going missing or being detained will not improve investors' confidence.

According to Mauro Guillen, a multinational management professor at the Wharton School of the University of Pennsylvania, China's investment outlook will be further negatively impacted. Rising tensions between China and the West, along with slow economic growth and significant corporate debt, have already caused global investors to be cautious.

According to Guillen, President Xi should focus on fostering a robust economy rather than prioritizing geopolitical influence. Guillen suggests that a strong economy is crucial for attaining global influence and advises President Xi to dedicate a few more decades to focusing on economic growth.