Recently, the Chinese authorities have strengthened their tax supervision on offshore assets of wealthy individuals. Last week, Zhang Yong’s wife, Shu Ping, co-founder and chairman of Haidilao, suddenly sold 2.59 billion shares, cashing out 2.75 billion Hong Kong dollars (approximately 350 million US dollars), causing a decline in Haidilao’s stock price. Analysts pointed out that more Hong Kong-listed companies controlled by founders and holding a large number of shares through offshore trusts may face similar selling pressures.
According to Bloomberg’s report on Monday, offshore trusts are common in Hong Kong companies controlled by founders. Some investors believe that the Haidilao stock sale may be a sign of more similar cases in the future, including companies like Li Ning, Xiaomi, and Sunac China. The founders or families of these companies hold significant shares through different offshore trust structures.
For example, the Li Ning family holds about 19% of Li Ning company shares through Viva Goods controlled by the family trust. Guming Holdings founder Wang Yun’an holds Guming shares through Modern Leaves controlled by the family trust, with Modern Leaves holding about 40.3% of Guming shares at the time of listing. As for Xiaomi founder Lei Jun, he holds approximately 8.9% of Xiaomi shares through Smart Mobile Holdings controlled by the family trust.
However, the report also stated that there is currently no evidence showing that the above founders are planning to sell their shares. Holding shares through offshore trusts does not necessarily mean that founders will sell their shares.
Li Ning, Guming Holdings, and Xiaomi did not immediately respond to Bloomberg’s requests for comment.
Bloomberg’s report emphasized that as the Chinese government pursues tax collection, investors are striving to cope with the impact of the current strict tax enforcement. Goldman Sachs analysts stated that in their recent communications with clients, they have found concerns about the so-called tax supervision by the Chinese government, which may further drag down the Chinese economy.
In late July, the Chinese authorities announced enhanced tax supervision on offshore trusts held by Chinese citizens, aiming to plug loopholes used by wealthy families or individuals in the past for asset protection. Those involved have a 90-day grace period and must settle taxes by October 22nd to avoid late payment penalties.
Citing data from the Boston Consulting Group (BCG), Reuters reported that Chinese ultra-high-net-worth individuals may hold overseas assets worth up to $1.2 trillion, with over half of China’s super-rich using offshore family trusts to manage their wealth.
A Reuters report from August also mentioned that the recent crackdown on offshore wealth by the Chinese Communist Party has prompted some wealthy individuals to reexamine their family trusts and overseas investment structures. Some individuals may need to sell assets or borrow money to meet tax obligations.
This could pose additional pressure on the currently weak Hong Kong stock market. Bloomberg noted that on September 11, the Hang Seng Index closed at 24,805 points, down 3.3% for the week. The Hang Seng Index has accumulated a decline of about 3% so far this year, with the market being dragged down by factors such as weak Chinese consumer demand and poor profit prospects for internet companies.
The report quoted Chen Da, founder of Dante Research, as saying that with the sluggish Chinese real estate market, the government’s revenue increasingly relies on taxes. He expects that enforcement will strengthen, making many entrepreneurs feel “like sitting on pins and needles.”
Bloomberg cited Xiangrong Yu, Chief Economist for China at Citigroup, who analyzed that if tax controls lead some shareholders to sell assets and cash out, founder-controlled enterprises using offshore holding structures may face short-term pressure. Block trades may become an important way for shareholders to quickly cash out.