CCP Inc. In Portugal
China’s Investments in Financial Services and the Reach of the Chinese Communist Party in the Private Sector
Andrew Polk | 2022.11.15
How did an ecosystem of Chinese party-state actors enable a range of state-owned and private Chinese companies to embed themselves in Portugal’s financial system, creating a foothold to widen China’s presence within the country and beyond?
Introduction
In recent years, China’s unique brand of state capitalism has undergone profound changes at home and abroad. These have involved a widening array of state and non-state actors and an enhanced role for the Chinese Communist Party (CCP) in both top-down economic strategy and bottom-up business decisions for a range of companies.
As previous reports in this series on the evolving Chinese economic model have detailed, this latest iteration of state-directed economic decisionmaking is most notable for the increasingly complex array of incentives and alignments between commercial and national strategic objectives that characterize outbound spending by Chinese companies today. This framework for conceptualizing, and responding to, the unique non-market aspects of China’s emerging global investment regime is best articulated as a shift from “China Inc.” to “CCP Inc.”
“CCP Inc.” is comprised of an ecosystem of key state-owned and private commercial actors, state-owned financiers, government regulators, and CCP organs that are connected through an increasingly complex web of direct and indirect transactional, financial, strategic, operational, and political relationships. Importantly, these ecosystems operate both within the domestic commercial space, where they have been honed to provide integral support to state development goals, as well as in the international commercial space, where they provide a significant boost to the reach and economic influence of a given Chinese commercial entity, when compared with standalone private sector competitors from other countries.
This case study explores how the CCP Inc. ecosystem has enabled a range of state-owned and private Chinese companies to embed into Portugal’s financial system with a view toward widening China’s financial presence within the country, in Europe more broadly, and in a range of other markets. This study focuses in particular on Fosun International Limited [复星国际有限公司] — a Hong Kong-listed subsidiary of the Shanghai-headquartered conglomerate Fosun Group and a key private sector player — which for many years has acted as a prominent source of foreign direct investment into Portugal’s financial sector, alongside and in concert with a range of Chinese state-owned enterprises (SOEs).
More specifically, this study will examine the role of two key Fosun subsidiaries in Portugal — insurer Fidelidade Companhia de Seguros, SA, (Fidelidade) and Banco Comercial Português (BCP Millennium) — and the role they have played in enabling the CCP Inc. ecosystem to engage in Portugal’s financial sector.
▲ Figure 1: Key Fosun Subsidiaries in Portugal. Source: “Corporate Structure,” Fosun International.
Further, this study will explore how Fosun — as a nominally private company — was both allowed and encouraged to invest heavily in a range of Portuguese assets as the contours of the CCP Inc. model have developed in recent years. Fosun’s success in aligning its investments within the parameters of the CCP Inc. framework is particularly notable given that its expansion in Portugal occurred at a time when outbound private investment by other major Chinese conglomerates was not only under scrutiny but also being actively reined in by senior Chinese officials, who had become acutely concerned about aggressive outbound spending by the Chinese private sector.
This unique ability of Fosun to continue investing abroad at a time when private sector outbound spending was otherwise being actively curtailed speaks to one key aspect of the CCP Inc. model: private sector alignment with national strategic objectives. While such alignment has long been a part of the key performance indicators for China’s SOEs, the CCP’s activism in shaping the business environment for private sector players, as well as increasingly impacting the business strategies of private companies, is a more recent phenomenon. It is also foundational to the shift from the earlier “China Inc.” model to today’s “CCP Inc.” ecosystem. Nowhere is this more evident, at present, than in China’s domestic technology sector, specifically regarding platform economies, as the CCP has sought to bring the sector firmly in line with national governance objectives over the past several years.
However, this dynamic is also apparent in China’s approach to outbound spending and specifically in recent investments in Portugal’s financial sector. As Portugal has become a critical node in China’s strategy for engaging with and investing in Europe over the past decade, Fosun and other companies’ ability to align with that geopolitical objective set the stage for some of the largest Chinese investments in the continent. Moreover, this occurred even as other private sector conglomerates were being pressured to divest a range of assets throughout the world, thanks to the CCP’s efforts to contain outbound spending and reduce those companies’ overall debt loads and related systemic debt risk.
This study proceeds in four chapters. The first chapter outlines the initial Chinese foray into Portugal as SOEs, and notably Fosun, played a key role in bailing out the country on the back of the European debt crisis that erupted in 2010. Importantly, these initial investments from 2011 to 2014 largely took place within the more well-known China Inc. model, whereby SOEs (primarily) invested in a foreign country to directly, and to a large extent overtly, support China’s geopolitical aims. However, these initial investments, particularly by Fosun, laid the groundwork for the more complex CCP Inc. ecosystem to deepen its presence within Portugal in the following years, especially as the importance of the Portuguese market and Sino-Portuguese relations became a linchpin in China’s Europe strategy amid increasing Sino-European tensions and European skepticism toward the CCP.
The second chapter of this study examines the ways in which Fosun, in particular, used its initial investment in the Portuguese financial sector, a key element of China’s bailout of Portugal, to pave the way for additional Chinese investment and relationships within the sector. Through this investment, Fosun increasingly became part of a wider network of Chinese companies operating in the market while bolstering commercial and diplomatic ties with a key European partner.
The third chapter steps back to examine the wider context in which Fosun’s investments took place. Key to this context was a concerted, protracted effort by senior Chinese officials to gain better control over outbound private sector spending, shore up financial stability, and ensure much closer alignment between private sector business operations and strategic objectives of the party-state. Private sector alignment is a key element of the CCP Inc. model, and Fosun’s ability to continue operating successfully within this narrower scope for maneuver not only epitomizes the CCP Inc. model at work but also underscores the pitfalls for nominally private Chinese companies of stepping outside of the CCP Inc. framework.
The final chapter of this report concludes by highlighting the elements of Fosun’s use of the CCP Inc. model, via its two key Portuguese subsidiaries, to leverage its presence within the Portuguese financial sector to support China’s wider geopolitical and global commercial aims throughout Belt and Road Initiative (BRI) countries and Latin America.
Laying the Groundwork
The Contours of China’s Portugal Bailout
Chinese companies began investing heavily in Portugal in 2011, when the country was facing mounting economic headwinds thanks to a decade of lackluster economic performance and associated debt accumulation, the lingering effects of the 2007–08 global financial crisis, and the subsequent debt crisis that metastasized throughout Europe in 2010–13.
▲ Figure 2: Annual Chinese Investment into Portugal, 2010–2021. Source: “China Global Investment Tracker,” American Enterprise Institute.
The country’s challenges culminated in a €78 billion ($104 billion) economic bailout program lasting from 2011 to 2014 that was initiated by the International Monetary Fund (IMF) in conjunction with the European Central Bank (ECB) and European Commission, the three of which would colloquially come to be referred to as “the troika.” These funds provided to Portugal by the troika were part of the group’s wider European bailout program that ultimately amounted to close to €500 billion ($667 billion) and included a wide range of countries, most notably Greece, Ireland, Spain, Hungary, and Romania.
The troika’s key stipulations around its bailout program for Portugal included the need for the Portuguese government to lower public debt and spending, introduce structural economic reforms, and privatize certain national assets, including stakes in national power companies. Additionally, Portugal’s domestic banks had significant exposure to the country’s economic challenges, which set the stage for Chinese companies — and Fosun in particular — to invest in state-owned assets in the financial sector.
Ultimately, as part of the bailout, the Portuguese government opted to raise funds through the sale of stakes in electric utility company Energias de Portugal (EDP), grid operator Redes Energéticas Nacionais (REN), and Caixa Seguros e Saúde, the insurance arm of Caixa Geral de Depósitos (CGD), Portugal’s largest state bank. At the time, Caixa Seguros e Saúde enjoyed a 26 percent market share in the insurance sector, making it the country’s largest insurance group. Three major subsidiaries were at the core of the group: Fidelidade, Portugal’s largest insurer, health insurer Multicare, and travel and transport insurer Cares.
▲ Figure 3: 2013 Makeup of Key Insurance Players in Fosun’s Portugal Deal. Source: Author’s research based on multiple sources.
Chinese SOEs stepped in to undertake investments in the Portuguese power sector, and in late 2011, Portugal completed the sale of a 22 percent stake in EDP to the China Three Gorges Corporation (CTG) [中国长江三峡集团] for €2.7 billion ($3.8 billion), making the Chinese SOE the utility company’s largest shareholder. Months later, the State Grid Corporation of China [国家电网] purchased a 25 percent stake in power company REN for €390 million ($543 million).
The Chinese government’s backing of these deals, and strong interest in pushing forward a commercial and bilateral relationship with Portugal at the time, was underscored by the premium that CTG offered on the EDP investment. The Chinese SOE outbid other interested parties by offering to purchase its stake in the Portuguese utility company at a 53 percent markup on EDP’s share prices at the time, bringing in an unexpectedly large revenue windfall for the embattled Portuguese government. This revenue generation was particularly important given the troika’s requirement that the Portuguese government raise at least €5.5 billion ($7.7 billion) via asset sales during the period of the bailout program. That goal would be aided considerably by Fosun’s €1 billion ($1.39 billion) investment in Caixa Seguros e Saúde, which is more commonly referred to by the brand name of its key subsidiary, Fidelidade, the largest and most important subsidiary of the group. Ultimately, the Chinese asset purchases detailed above would account for over 70 percent of the revenue generation requirements put in place by the troika around Portugal’s bailout program.
▲ Figure 4: Key Dates in Timeline of IMF Portugal Bailout and Related Chinese Investments into Portugal. Source: Author’s research based on multiple sources cited throughout the report, as well as “Portugal profile - Timeline,” BBC, May 18, 2018.
As the economic bailout program from the IMF, ECB, and European Commission progressed, Portuguese authorities began the process of undertaking an equity sale in Caixa Seguros e Saúde throughout 2013. Lisbon contacted 66 potential investors and received five preliminary offers for the insurance group. Chinese conglomerate Fosun International Limited was one of two bidders selected to provide a final proposal, with the U.S. private equity firm Apollo Global Management tendering the other final offer. Fosun would go on to successfully win the bid and acquire an 80 percent stake in Fidelidade, Multicare, and Cares for €1 billion ($1.3 billion). Fosun’s financial adviser, Morgan Stanley, said the deal, which was financed in part by the Bank of China and the Industrial and Commercial Bank of China (ICBC), was the largest acquisition between Chinese and European financial institutions since 2008. Importantly, Manuel Rodrigues, Portugal’s secretary of state for finance, said that Fosun won the deal over Apollo not only because of a better financial offer but also because Fosun promised it would not break up the insurer.
The deal enabled Fosun to become the only major private sector Chinese player to participate in Portugal’s bailout. However, the deal progressed with clear backing at the highest levels of the Chinese party-state, with Chinese president Xi Jinping and Portuguese president Aníbal Cavaco Silva both on hand to witness the official closing of deal in Beijing in May 2014. According to Fosun, the deal also marked the first major outbound investment of a Chinese firm to acquire a foreign insurance company.
This investment ultimately laid the groundwork for Fosun to further deepen its presence in the Portuguese financial sector and also set up future key investments in the sector by other Chinese players, namely state-owned UnionPay [中国银联], in 2018. It also further widened the reach of Chinese players in the power sector and enabled a foray into the Portuguese healthcare sector, among other key industries.
Indeed, later in 2014, Fosun joined state-owned State Grid Corporation of China as an investor in the Portuguese grid operator REN by purchasing a 3.97 percent stake in the company. Later that year, through its newly acquired Fidelidade subsidiary, Fosun acquired a 96.07 percent stake in healthcare services provider Espírito Santo Saúde – SGPS, SA, which owned one of the largest private hospitals in Lisbon, Hospital da Luz.
During this period, Fosun clearly indicated the strategic nature of its investments in Portugal as an anchor through which to pursue investments throughout Europe. In the press release announcing its acquisition of Espírito Santo Saúde, for example, Fosun directly stated:
Portugal is a very important market for Fosun and a strategic destination in Fosun’s global investment footprint. Fosun aspires to anchor from Portugal to seek and identify different investment opportunities within Portugal and in other parts of Europe, covering industries including real estate, leisure travel, healthcare, and consumer sectors.
While such an approach would seem to be justified in terms of the company’s business strategy toward the European market, the approach paralleled a similar tack by Chinese officialdom. The Ministry of Foreign Affairs highlighted this approach after a 2013 meeting between then-foreign minister Yang Jiechi and Portuguese minister of state and foreign minister Paulo Portas, underscoring that Portas “welcomed more Chinese enterprises to invest in Portugal, noting that Portugal is willing to further advance the bilateral comprehensive strategic partnership and thereby promote the comprehensive development of EU-China ties.” This approach by Fosun similarly parallels that of Chinese SOE investments in Portugal, with CTG’s investment in EDP being undertaken in large part as an effort by the Chinese company to gain a foothold in the wider European renewable energy market — a goal that would be further underscored by CTG’s 2018 attempt to take full ownership of EDP and its renewable energy subsidiary.
This wider strategic push by Chinese authorities and companies into the Portuguese market is highlighted by the fact that overall Chinese foreign direct investment in Portugal went from virtually zero in 2010 to €5.7 billion ($6.3 billion) by the end of 2016, with Fosun playing a critical role in some of the largest investments during this period, most notably in the financial services sector.
As this study details, Fosun’s ongoing ability to deepen its investment presence within Portugal throughout this period was due in significant part to the company’s recognition of and integration into the evolving CCP Inc. model of outbound investment, especially as it was crystalizing in 2017–18. As such, the company’s direct connections — including through its leadership — to different elements of the CCP are important to note, as such associations work to reinforce alignment between official party and state bodies and private sector actors in China.
Most importantly, Fosun’s founder and chairman, Guo Guangchang, has long-standing connections to various CCP institutions. Guo was a member of the 10th and 11th National People’s Congresses — China’s legislature — which ran from 2003 to 2008 and 2008 to 2013, respectively. He was also a member of the 9th (1998–2003) and 12th (2013–2018) National Committees of the Chinese People’s Political Consultative Conference — China’s top political advisory body, which has a remit to undertake so-called United Front work to ensure alignment between the CCP and non-CCP groups, including the private sector. Guo is also a current member of the standing committee of the All-China Youth Federation, a CCP-led body affiliated with, among other groups, the Communist Youth League of China, a key power base of former CCP general secretaries Jiang Zemin and Hu Jintao as well as the current premier, Li Keqiang.
In addition to Guo, Fosun’s board features several other members with connections to the party-state. Co-CEO and executive director Chen Qiyu, for instance, was a member of the 12th and 13th standing committees of the Shanghai Municipal People’s Consultative Conference. Another co-CEO and executive director, Xu Xiaoliang, is a member of the Shanghai Youth Federation, Shanghai’s local chapter of the All-China Youth Federation. Meanwhile, non-executive director Zhang Shengman was previously a deputy director at the Ministry of Finance, and non-executive director Zhang Huaqiao is a former People’s Bank of China official and former non-executive director of the state-owned Sinopec Oilfield Service Corporation.
These are just a handful of the key public affiliations that Fosun’s leadership has, or previously had, with institutions within the party-state system. And while such affiliations are not unusual among Chinese private sector executives, such associations and relationships could only have helped in Fosun’s successful navigation of and alignment within the CCP Inc. ecosystem in recent years.
Ultimately, Fosun was well placed to play a key role in China’s strategic expansion within the Portuguese financial sector, for a range of reasons. As the next chapters of this study detail, the company was able to deftly execute that expansion — not only to its own advantage, but also in a way that enabled other Chinese entities, notably some key state-owned financial institutions, to deepen their presence within the country throughout the years following the initial bailout program.
▲ Figure 5: Selected Party and Government Affiliations of Fosun Board Members. Source: Author’s research based on multiple sources.
Fosun and CCP Inc.’s Growing Presence in the Portuguese Financial Sector
Fosun’s initial investment in Fidelidade established a foundation through which the company would deepen its own ties, and widen the CCP Inc. network, within the Portuguese financial sector — as well as eventually act as a base of CCP Inc. connectivity throughout key BRI countries and Latin America. In coming years, these investments would enable deeper relationships for other Chinese SOEs, particularly UnionPay International and China Reinsurance Corporation (China Re), within Portugal, a process that continued to run in parallel to the wider CCP courting of Portugal as a key component in its strategy toward Europe.
Following the initial Chinese bailout of Portugal, Fosun made one of its most critical investments when it purchased a sizable stake in Banco Comercial Português (BCP Millennium), Portugal’s largest private bank, in November 2016. Fosun signed a memorandum of understanding (MoU) with BCP Millennium to acquire a 16.67 percent stake for €174.6 billion ($193.2 billion) and signaled its intention to raise its stake to 30 percent over the years to come. The initial share purchase made the company BCP Millennium’s largest shareholder alongside Angolan state oil company Sonangol Group. Subsequently, Fosun acquired a 30 percent stake in multiple tranches over several years, upping its stake in the bank to 27 percent throughout 2017 and to 29.93 percent in 2020.
As Fosun boosted its ownership of BCP Millennium, the bank also began to undertake a critical role in pushing forward Chinese commercial, policy, and geopolitical aims in Portugal. Critically, in May 2018, BCP Millennium acted as the intermediary for state-owned China Three Gorges Corporation (CTG) in its €9 billion ($10.6 billion) bid to take a controlling interest in utility company Energias de Portugal (EDP) as well as the company’s renewable energy arm, EDP Renováveis. CTG launched the bid as an all-cash tender offer for the outstanding shares that the Chinese SOE did not obtain in its 2011 investment in the company, looking to purchase the outstanding 76.7 percent at a 5 percent share-price premium over the €3.09 ($4.30) share price at the time.
▲ Figure 6: Fosun’s Evolving Ownership Stake in BCP Millennium over Time. Source: Author’s research based on multiple sources.
CTG’s bid was of particular importance at that time: it not only represented a major new push by a Chinese SOE into the European renewable energy market, but it came at a time when Chinese foreign direct investment into Europe had become increasingly controversial. EDP shareholders, led by activist investment firm Elliott Investment Management, which held a 2.9 percent stake in EDP at the time, eventually blocked the bid, arguing that Fosun undervalued CTG and citing a shareholder voting rights reform requirement, included by CTG as part of the takeover bid, as too onerous.
Importantly, though, the potential transaction came in the wider context of increased Western skepticism around Chinese outbound investment and was under scrutiny from European and U.S. regulators. Indeed, the episode underscored a growing rift between Portuguese and other European governments over Chinese investment in Europe. Portugal’s then-prime minister António Costa indicated he had “no reservations” around the proposed takeover, even as German, French, and Italian regulators had moved to push forward a draft EU screening framework for investment into the bloc that would give EU regulators in Brussels the ability to weigh in on investments deemed “likely to affect security or public order in one or more member states.”
While ultimately unsuccessful, BCP Millennium’s participation — and by extension Fosun’s participation — in facilitating the offer on behalf of CTG highlights a key example of the CCP Inc. ecosystem at work. The foothold of the nominally private Chinese company in the Portuguese financial sector was key to allowing CTG to push the bid forward. It reflected not only an effort to expand the reach of CCP Inc. into the Portuguese economy but also an attempt to further China’s foreign policy aims by boosting its presence in the European renewable energy market and trying to circumvent growing European skepticism toward Chinese investment in strategic European assets.
But even as CTG’s takeover attempt faltered, BCP Millennium continued to act as a key conduit for a deepening Chinese presence in the Portuguese financial sector and the wider Portuguese economy. Indeed, throughout 2018, the bank’s ties to a number of Chinese financial institutions, and within Chinese financial markets, grew rapidly. In May of that year, BCP Millennium re-signed an MoU in Beijing with Chinese state-owned lender ICBC — one of the underwriters of Fosun’s initial Fidelidade investment in 2014 — which had initially been drawn up in 2010. BCP Millennium’s explicitly stated intention, and that of its major shareholder, Fosun International, in re-signing the MoU was to leverage the relationship to deepen economic ties between China and Portugal, using the latter as a key launching pad for deepening these same ties in Europe and Portuguese-speaking African countries. Indeed, the press statement accompanying the MoU signing stated:
[BCP Millennium] remains committed to being a relevant part of an international business platform between China/Macao, Portuguese speaking countries — namely in Africa — and Europe, in order to support trade activity and investment flows in those geographies . . . taking advantage of ICBC’s regional presence and influence as well as other potential synergies in cooperation with the bank’s principal shareholder, Fosun International.
▲ Figure 7: Key Fosun Acquisitions in Portugal over Time. Source: Author’s research based on multiple sources.
Additionally, BCP Millennium signed an agreement in June 2018 to conduct renminbi clearing and settlement with the Bank of China Macao, which “reinforced the bank’s presence in the Chinese market” as it became “the first bank in Portugal to be considered a participating bank with access to Macao’s payments system.” Importantly, the Bank of China had been another major underwriter of Fosun’s initial Fidelidade investment, underscoring the long-standing relationship between Fosun, its Portuguese subsidiaries, and the Chinese lender. That same month, BCP Millennium officially signed an agreement with Alipay (the payment arm of China’s fintech giant Ant Group), pursuant to a March 2018 MoU, which allowed it to become the first bank to facilitate transactions between Portuguese merchants and Chinese travelers.
Most notably, in December 2018, BCP Millennium signed an agreement with UnionPay International — a subsidiary of the state-owned payments provider China UnionPay — to become the first European bank to issue UnionPay bank cards, marking a major overseas expansion for the Chinese SOE.
▲ Figure 8: Fosun Relationships with Other Chinese Entities in Portugal through Its BCP Millennium Subsidiary. Source: Author’s research based on multiple sources.
The BCP Millennium agreement with UnionPay marked a particularly exceptional example of the CCP Inc. ecosystem in action. Not only did the agreement offer UnionPay — officially the largest global issuer of bank cards at the time but with little presence in the European Union — a key foothold in the European market, the deal also further underscored BCP Millennium’s place as a key touch point for a range of Chinese financial and non-financial institutions in Portugal. The unique placement of BCP Millennium as a key player in the Sino-Portuguese relationship was underscored in no uncertain terms by the fact that the deal with UnionPay International was signed as part of a state visit by Xi Jinping to Portugal in late 2018.
During the trip, Xi Jinping and Portuguese prime minister António Costa signed several bilateral cooperation agreements, including a formal agreement for Portugal to sign onto the BRI. These agreements were paired with an additional announcement of 17 key commercial agreements in the areas of infrastructure, finance, automobiles, and science and technology, including the UnionPay International deal with BCP Millennium. Other key deals inked at the ceremony included a memorandum between telecommunications company Altice Portugal (formerly known as Portugal Telecom) and Huawei Technologies Company to strengthen cooperation on 5G frequency band licenses and an agreement to establish the STARlab project — a joint space and maritime technology laboratory between the Chinese Academy of Sciences, Portuguese aerospace and defense company Tekever, and Portugal’s Centre for Product Engineering and Development.
Additionally, the international subsidiary of the state-owned China Oil and Foodstuffs Corporation (COFCO) signed an agreement with the Portuguese Trade and Investment Agency to establish the COFCO International Centre of Excellence for corporate shared services. Following the deal, the chairman and CEO of COFCO International stated that “Portugal’s positive approach towards international business, skilled human resources and strategic location were the main reasons for choosing Portugal over several other candidate locations.”
The signing of the BCP Millennium agreement with UnionPay alongside such obviously important strategic agreements in the areas of technological infrastructure, aerospace and maritime research, and agribusiness underscores both the high-level Chinese government backing for the financial sector cooperation as well as its own strategic importance. Indeed, during a meeting with Portuguese president Marcelo Rebelo de Sousa on the same state visit, Xi highlighted China’s strategic approach to the bilateral relationship with Portugal by saying that “as a member of the European Union, Portugal has huge influence on Africa and many Portuguese-speaking countries, and is a key link in China’s economic internationalization strategy.”
For its part, Fosun International indicated that the BCP Millennium tie-up with UnionPay International, first floated in late 2017, was a major milestone in the company’s push to “promote the synergy of various sectors such as banking, insurance, and health” within Portugal as the company moved to “fully mobilize resources to promote outstanding domestic [Chinese] financial enterprises, [including] . . . [the] Industrial and Commercial Bank of China, China UnionPay, the China-Africa Fund, [and] the China-Portugal Fund.” Additionally, Fosun leadership indicated that “together with BCP, [the company would] help Chinese enterprises to go global, and jointly carry out cooperation in payments, investment, loan business, and other aspects.”
Xi’s 2018 state visit to Portugal, and the wide array of commercial deals and relationships connected to that visit, represent a snapshot of CCP Inc. in action. While high-level state visits are used by many countries to help reinforce commercial ties, the highly strategic nature of each of the deals that were signed on Xi’s Portugal trip speaks to a more fundamental alignment between CCP strategic objectives and Chinese commercial interests abroad. It further underscores the incentives of a range of companies — including BCP Millennium’s Chinese parent, Fosun — to support official efforts to cement Portugal as a critical partner on the European continent and as a potential launching pad into the wider region.
Critical Context of Fosun’s Success with BCP Millennium
Fosun and BCP Millennium’s success in enabling a wider CCP Inc. network of investment into Portugal is particularly notable considering that it came at a time when outbound investment by other private sector Chinese conglomerates was being actively reined in by Chinese authorities.
Throughout 2017, Chinese officials had become increasingly concerned about soaring rates of outbound investment over the previous several years. For example, Vice Premier Liu He commissioned a study to examine the economic vulnerabilities created by such large outbound flows of direct investment, particularly in light of the role such investment played in bursting Japan’s economic bubble in the 1990s. According to media reports, the study included a recommendation to gain greater control over, and reduce the scale of, outbound investment by some of China’s largest private sector companies.
Indeed, the topic of outbound investment, and its potential role in destabilizing the domestic financial system, reportedly emerged as a key topic of discussion at an April 2017 Politburo meeting. Importantly, China’s 25-member Politburo typically discusses key economic policy priorities at its monthly meetings once a quarter, in January, April, July, and October. And while the official readouts of the Politburo meeting and Politburo study session from that month do not explicitly mention the goal of reducing outbound spending by Chinese companies, they focus intensely on senior Chinese policymakers’ clear concern about reducing financial system volatility and instability, including vulnerabilities and potential spillover effects created by the Chinese financial system’s growing linkages with the global financial system.
Critically, in the readout of the Politburo study session on financial security on April 26, 2017, Xi clearly stated that “financial security is an important part of national security and an important foundation for the stable and healthy development of the economy.”
▲ Figure 9: Overall Chinese Outbound Investment 2010–2020. Source: “走出去”公共服务平台 [“Going Out” Public Service Bulletin], 中华人民共和国商务部 [Ministry of Commerce of the People’s Republic of China], accessed November 10, 2022.
These key Politburo meetings would ultimately set the stage for a prolonged, multiyear effort to de-risk the domestic Chinese financial system, part of which involved a crackdown on foreign and domestic financial activities by some of China’s largest private sector conglomerates, including the HNA Group, Dalian Wanda Group, Anbang Insurance Group, and Fosun Group.
Prior to the crackdown on outbound investment deals, these four companies alone accounted for a whopping $57 billion in outbound spending from 2015 to mid-2017, representing a full 15 percent of all outbound spending by Chinese companies during this period. In June 2017, financial authorities specifically requested reports from banks on the overseas loans made to each of these companies, and over the following several years, scrutiny of the companies’ financial positions, and specifically their overseas spending and assets, ramped up.
Ultimately, the State Council released a key set of opinions in August 2017 to codify and tighten the previously disparate rules around outbound investment by laying out specific areas of overseas direct investment that were encouraged, restricted, and prohibited. Encouraged investment areas included those in the services sector, in technology that would help to move China up the value chain, and for projects under the umbrella of the BRI. Restricted investment areas included real estate, hotels, cinemas, entertainment, sports clubs, and “investment platforms without specific industrial projects.” Meanwhile, prohibited investment areas included “investment involving the production of core technologies and products of the military” or “investments that endanger or may endanger the interests of the state” — a broad umbrella under which Xi had placed financial system stability just months before.
Over the following several years, the four major private sector conglomerates that had been singled out by authorities for renewed scrutiny, including Fosun, would see a range of regulatory outcomes in terms of their ability to maintain and expand their respective portfolios of overseas assets, a process that further highlighted some key aspects of the emerging CCP Inc. framework at that time. Core among these was the need for nominally private sector entities to more clearly align with national strategic objectives in undertaking outbound spending.
Within this context, then, it is notable that Fosun was able to continue deepening its ties in the Portuguese financial sector, through its Fidelidade subsidiary and related investment in BCP Millennium, over the course of 2017 and 2018. Indeed, of the four conglomerates that came under Beijing’s scrutiny, Fosun has seen by far the best regulatory outcomes and clearly maneuvered to get back into the good graces of senior policymakers. By comparison, Anbang Insurance Group (安邦保险集团) was taken over by the government in February 2018. The company’s non-core assets were wound down over the following three-year period of government receivership, and its founder and chairman, Wu Xiaohui, was handed an 18-year prison sentence for fraud. Meanwhile, on the very same day that Anbang’s government takeover was announced, Fosun announced plans to purchase a controlling interest in one of France’s oldest fashion design companies. For its part, HNA Group [海航集团] has been placed into bankruptcy and taken over by provincial authorities, while its chairman and CEO were both detained by authorities on suspicion of crimes in late 2021. Finally, Dalian Wanda’s [万达集团] overseas asset base is now a fraction of its peak, as the company shed assets amounting to $19.2 billion between mid-2017 and early 2019.
Fosun’s success in navigating the regulatory crackdown, especially in comparison to its highly chastened peers, can be explained in part by the clear alignment between its investments in Portugal and Chinese policymakers’ objectives to leverage commercial and diplomatic relations with the country as an avenue for deepening commercial engagement and investment in Europe more broadly as well as to cultivate a key ally in mitigating rising European skepticism toward Chinese investment. Indeed, as internal concern around capital outflows via unruly overseas direct investment was beginning to percolate among the Chinese leadership in late 2016, Xi called directly for more Chinese investment in Portugal, going so far as to say that China would encourage expansion in areas including finance, insurance, and healthcare — areas in which Fosun was already the leading Chinese player in the country through its investments in Fidelidade and BCP Millennium.
As the government’s crackdown on outbound investment and high debt levels among China’s private sector conglomerates moved forward, Fosun’s domestic messaging within China also began to align more closely with CCP and Chinese state priorities. As soon as July 2017, Fosun chairman Guo Guangchang began to publicly support Beijing’s tougher rules on overseas investments, citing a reduction in potential risks to financial security as one element of his support of the eradication of irrational outbound investment. Guo’s clear and public alignment with the new outbound investment framework, and his company’s subsequent ability to operate successfully within it, is particularly notable given the fates of the Anbang and HNA chairmen.
Indeed, this alignment came not only on the back of the crackdown on overseas spending but also after Guo had previously been caught up in Xi’s sweeping anti-corruption crackdown on the financial sector. In late 2015, Guo was among several high-profile private sector Chinese executives that were subjected to anti-corruption investigations and temporarily went missing from public view. On December 10, 2015, local financial media reported that Fosun executives had been unable to reach Guo since noon that day. Guo’s sudden disappearance ultimately led to a brief suspension of trading for Fosun International shares on the Hong Kong exchange before he resurfaced on December 14, saying he had been assisting judicial authorities in their investigations but offering no further details. Some observers speculated that Guo’s detainment was related to his relationship with Yao Gang, vice chairman of the China Securities Regulatory Commission, or Ai Baojun, vice mayor of Shanghai, both of whom were under investigation by anti-corruption authorities at the time. Such an experience may have heightened Guo’s political sensitivity and helped him shepherd Fosun successfully through the evolution of the CCP Inc. ecosystem in the following years.
Additionally, after the crackdown on outbound spending, Fosun International began to more explicitly tie its outbound investment efforts to support of the BRI, with co-CEO Xu Xiaoliang saying in September 2017, just weeks after the release of the State Council’s opinions on outbound investment, that “now that we know what the government encourages and discourages, we have a clearer idea of where to expand our global footprint.” Guo further highlighted this point in a 2018 interview, stating: “Our overseas investments are approved by the Chinese government and the local governments, not just in Europe but globally” and “The Chinese government . . . support[s] the companies who respect the law.”
▲ Figure 10: Timeline of the Regulatory Crackdown on Outward Direct Investment. Source: Author’s research based on multiple sources.
In short order, these increased efforts at public alignment with the CCP’s enhanced oversight of outbound spending by nominally private sector Chinese conglomerates were overtly recognized. In December 2017, the CCP’s official mouthpiece, the People’s Daily, went so far as to publicly praise Fosun’s outbound investment activities in an op-ed, juxtaposing those efforts directly against other Chinese companies that had failed to realign to the emerging CCP Inc. model of outbound investment.
The article highlighted the achievements of China’s ongoing investment presence beyond its borders, arguing:
Behind the dazzling achievements, some enterprises take advantage of the “going out” strategy to strengthen and refine their brands; however, some are involved in undesirable foreign investment behaviors.
The article went on to call out Fosun’s investment in BCP Millennium as a model for other companies to emulate, highlighting the initial groundwork that the tie-up was already laying for UnionPay to expand in Europe:
Recently, BCP [Millennium], which has Fosun as an investor, reached a strategic cooperation agreement with UnionPay to jointly carry out UnionPay card issuance, innovative payment promotion, and other cooperation in Europe. This exemplifies Fosun’s successful practice of helping the Belt and Road Initiative and Chinese enterprises with their global layout.
Finally, the article hit home the point that outbound investment by a range of Chinese companies can only succeed within the framework of overt policy support, stating:
Steady and positive “going out” is not possible without policy support and guidance. In the face of the excessively rapid growth of outbound foreign investment in fields such as real estate, hotels, cinemas, entertainment, and sports clubs in recent years, relevant regulatory authorities have provided risk warnings and adopted a series of policy measures. According to Guo Guangchang, chairman of Fosun International, “Capable government ensures effective markets. Stable, predictable, more transparent, and fairer policies can support real and legal foreign investment in line with the national strategy, which guarantees long-term and healthy development of companies.”
The clear realignment of Fosun within the parameters of the CCP Inc. model not only allowed the company to gain high-level backing for its ongoing investments in the Portuguese financial sector throughout 2017 and 2018 but also underpinned increasing ties between Fosun-invested Portuguese companies and other major Chinese financial players along the BRI and into a wider range of international markets over the following years, as the next chapter of this report explores. Moreover, the ability of Fosun to continue operating within Europe and to deepen its ties — and those of the wider CCP Inc. ecosystem — is even more striking when considering the outcome of similar investments by the other nominally private sector Chinese conglomerates during this period of enhanced scrutiny. Most notable in this regard is the fate of HNA Group’s 2017 investment in Germany’s Deutsche Bank AG.
In a move similar to that of Fosun’s investments in Fidelidade and BCP Millennium, HNA Group bought stakes in Deutsche Bank in February and March 2017, becoming one of the bank’s largest shareholders, with a 4.8 percent stake, worth just over €1 billion ($1.13 billion). Then, in May 2017, just around the time that Fosun was increasing its stake in BCP Millennium, HNA went on to boost its investment in Deutsche Bank further, ultimately taking on a near 10 percent stake in the German lender, making the Chinese conglomerate its largest shareholder.
The parallels between the HNA and Fosun investments in key European financial players are particularly notable, not only for their similar timing but also given that HNA’s investment came as the German lender was struggling under the weight of an array of regulatory penalties and poor investment decisions from 2013 to 2016, requiring infusions of outside capital to help steady the bank in 2016 and 2017. These dynamics were similar to the challenges faced by a range of Portuguese financial institutions in the wake of the European debt crisis, which opened the door for the initial Fosun investment in Fidelidade and later BCP Millennium.
▲ Figure 11: Selected Major Overseas Investments by HNA 2015–2017. Source: Author’s research based on multiple sources cited throughout this report and others. Please reference the endnotes for complete additional citations.
However, the ultimate fate of Fosun’s investments in Portugal could not have been more starkly different than that of HNA’s investment in Deutsche Bank. Indeed, rather than utilizing its position as a key shareholder in the German lender to enable a growing presence of the CCP Inc. ecosystem within the German economy and financial sector, as Fosun was able to achieve in Portugal, HNA quickly made an about-face on its German investment, selling down its stake to 8.8 percent in February 2018 and losing its status as the firm’s largest shareholder after less than a year in that position. While this initial paring of HNA’s stake in Deutsche Bank was widely attributed to the need to raise capital in order to address liquidity issues that the Chinese conglomerate was facing in early 2018, the company continued to sell off its stake in the coming years as Chinese officials demanded that the company wind down its non-core business lines and assets. Ultimately, HNA was effectively taken over by the provincial government of Hainan, where the group is based, which began the process of restructuring the group in late 2021.
The juxtaposition of HNA’s failed overseas investments, as well as the forced spin-off of its foreign assets and its ultimate takeover by local authorities, against the ongoing flourishing of Fosun’s overseas expansion throughout this period throws into stark relief just how successful the latter company was in both recognizing and aligning with the rapid evolution of the CCP Inc. model during the 2017–18 time period. Fosun’s public and high-profile alignment with the concerted regulatory push to fully align overseas spending tightly with CCP and Chinese state strategic objectives was a critical element in its continued success investing abroad.
Furthermore, Fosun’s overt drive to leverage its investments and business relationships in Portugal to open additional overseas business opportunities for a range of Chinese state and private companies — both within and beyond the financial sector — speaks to a clear recognition of the importance of the ecosystem aspect of the CCP Inc. model. Indeed, in this model the outbound spending and foreign commercial presence of a given company is not simply meant to boost that company’s bottom line, nor even to solely support China’s diplomatic and strategic objectives abroad. Importantly, such investments are also meant to boost commercial opportunities for other Chinese players in overseas markets.
In this way, Chinese companies — both state-owned and nominally private — can swim in the wake of other Chinese companies’ success in penetrating foreign markets, and the relationships between these companies work to reinforce China’s overall foreign commercial presence. The People’s Daily article praising Fosun’s efforts to open a pathway for UnionPay International’s expansion in Europe makes this point explicit, and Fosun would go on to further internalize and execute on this element of the CCP Inc. model in future overseas operations alongside other key Chinese SOEs.
Building on Success
Fidelidade’s Presence beyond Portugal
Following the increased scrutiny of outbound investment by nominally private Chinese companies in 2017, Fosun continued to deepen the alignment between its global investment portfolio and China’s national objectives, further integrating into the CCP Inc. model in the process. Another key tie-up came in 2019 when Fosun’s Fidelidade subsidiary entered into a strategic partnership with China Reinsurance Corporation (China Re) [中国再保险] to provide project financing and reinsurance for the BRI.
In keeping with Fosun’s moves to align both messaging and investments with CCP priorities, the agreement was signed in April 2019 in Beijing at the Second Belt and Road Forum for International Cooperation, a gathering that was widely seen as core to furthering China’s geopolitical and global commercial objectives at the time by seeking to redefine the BRI against growing global critiques of the effort. The initiative’s growing reputation as environmentally unfriendly, corrupt, and debt-fueled had led Chinese leadership to seek to recast the effort. This push fit within officials’ wider efforts to gain greater control over outbound spending as they sought “to exert more control over the program . . . including [with] clearer rules for state-owned-enterprises, restricting use of the BRI brand, and building overseas auditing and anti-corruption mechanisms.”
Xi Jinping chaired the forum, which was attended by thousands of participants, many from the foreign business community, and dozens of foreign heads of state. Xi held a spate of bilateral meetings as part of the forum, including talks with President Marcelo Rebelo de Sousa of Portugal, where Xi characterized the bilateral relationship as one of “prominent strategic significance, high complementarity in interests, and strong economic complementarity.” The readout of the meeting further underscored China’s view of Portugal as a key channel for stabilizing and improving broader relations with Europe, saying “it is believed that the Portuguese side will also continue to play an active role in maintaining the right direction of China-Europe relations.”
Inking the Fidelidade partnership with China Re at the forum, therefore, worked to boost the prominence of the agreement, which was listed by Chinese state media as one of 17 key investment projects announced at the gathering. Reporting around the agreement further indicated that the primary area of focus for the partnership would be to enhance “reinsurance solutions for projects in Portugal, Spain, France, Angola, Mozambique, Cape Verde and Peru.” For its part, Fidelidade expressly stated that the partnership with this important SOE, the only state-owned reinsurer in China, would enable the Fosun-owned group to widen its reach throughout various geographies to “diversify its scope and develop new opportunities for international business growth, bolstering its offer to the Chinese community around the world.”
Meanwhile, China Re’s publicity around the agreement further underscored that it would help to unlock new investment opportunities within China and around the world for Fidelidade, saying: “The two sides will also seek opportunities for cooperation in the construction of the Greater Bay Area of Guangdong, Hong Kong and Macao, especially to exert the influence of Fidelidade Insurance Group of Portugal in Portuguese-speaking countries and provide professional services for Macao to exploit markets of Portuguese-speaking countries.” In addition, linked to the Fideldidade-China Re strategic cooperation was a separate effort between China and Angola to enact a strategic cooperation agreement with Fidelidade.
▲ Figure 12: Key Fosun and Fidelidade Investments in Latin America 2019–2020. Source: Margaret Myers, “Going Out, Guaranteed: Chinese Insurers in Latin America,” The Dialogue, January 2022.
While the establishment of its partnership with China Re appears to have been the marquee agreement that Fidelidade undertook in 2019, Fosun was simultaneously expanding its presence in a range of other markets around the world through its Fidelidade subsidiary with the express purpose of offering insurance support to Chinese projects, most notably throughout Latin America.
That year, Fidelidade announced it would sell insurance in Chile “through a series of partnership agreements. Elsewhere in South America, the Portuguese company acquired 51 percent of Peruvian insurer La Positiva Seguros y Reaseguros, through its local subsidiary, and purchased an almost one-fourth ownership of Alianza Compañía de Seguros y Reaseguros in Bolivia.
These investments were undertaken within the context of specific Chinese policies to leverage the insurance sector to support and stabilize a range of investment activities in Latin America, as emphasized in a January 2022 report on Chinese insurers in Latin America from the Inter-American Dialogue:
China’s top planners have noted the importance of enhanced insurance support for the country’s overseas operations in recent five-year plans and in policies toward Latin America. China’s 1+3+6 Cooperative Framework, introduced to the region by Xi Jinping in 2015, is among the Latin America-specific policies intended to boost funds, credit loans, and insurance to the region — in this case for project development in logistics, electricity, and information technology. . . . As Zhu Junsheng, deputy director of the Insurance Research Office of the Financial Research Institute of the Development Research Center of the State Council noted, Chinese infrastructure firms, insurers, and other actors are expected to increasingly work together to identify high-quality overseas projects and ‘increase the attractiveness of infrastructure projects to market funds.’
These deepening investments and relationships, in both Latin America and BRI countries, that Fosun has pursued in recent years via its Fidelidade subsidiary show the ongoing and intensifying alignment of Fosun’s global commercial objectives with Chinese geopolitical and strategic interests. Additionally, the ever-growing roster of key SOE financial players with which Fosun and Fidelidade are partnering in these endeavors further highlights Fosun’s ability to leverage the CCP Inc. ecosystem to its advantage. That is especially true considering that over the past several years senior Chinese officials, including Xi Jinping, have repeatedly stated their view that the Portuguese relationship and market should be seen as a critical anchor for China’s growing commercial and diplomatic presence around the world.
Conclusion
The ability of Chinese-invested companies such as Fidelidade and BCP Millennium to leverage their relationships with Chinese SOEs to expand into a wide range of markets around the world is a core component of the CCP Inc. ecosystem. Such cooperation allows for a wider array of relationship building, networking, and financial and policy support than any one company could achieve on its own.
Equally as important, Fosun’s maneuvering to embed itself within the Portuguese financial sector through high-profile, strategic investments has allowed the company to act as one of the key anchors in the wider CCP Inc. approach to the Portuguese market. Indeed, the fact that this nominally private company worked to boost the presence of key state-owned actors within Portugal — including the China Three Gorges Corporation, UnionPay, the Industrial and Commercial Bank of China, and the Bank of China — rather than the other way around, speaks to the essence of the shift from “China Inc.” to “CCP Inc.” that has taken place in recent years and is ongoing today. Moreover, Fosun’s maneuvering to buoy the strategic national objective of developing commercial and diplomatic ties with Portugal as a jumping off point to pursue deeper engagement in European and other markets underscores how thoroughly the CCP has co-opted the Chinese private sector as the CCP Inc. model of economic governance has evolved.
As this report has highlighted, these achievements are all the more remarkable given the fast-evolving nature of policies dictating outbound private sector Chinese investments at the time Fosun was pursuing its expansion into Portugal, especially in light of the failure of other private Chinese conglomerates to achieve similar alignment with national goals.
Ultimately, this case study not only highlights some of the crucial elements of the CCP Inc. model in action but also underscores the still-evolving nature of that model. As state-owned and nominally private Chinese companies continue to widen their investment footprints throughout the global economy, it will be critical for policymakers and business leaders in Western countries to deepen their understanding of the contours of the CCP Inc. ecosystem as it has evolved to date. But additionally, to compete against the CCP Inc. ecosystem going forward, Western countries must also seek to anticipate how the ecosystem will become further refined and design forward-looking global trade and investment regimes robust enough to meet the challenge.
Andrew Polk is a senior associate (non-resident) with the Freeman Chair in China studies at the Center for Strategic and International Studies (CSIS) and the cofounder and head of economic research at Trivium China, a Beijing-based strategic advisory firm.