Chairman of Haichang Ocean Park Detained Amid Wealth Product Defaults in China

Police in eastern China’s Zhejiang province have taken Yu Faxiang, the chairman of Hong Kong-listed Haichang Ocean Park, into custody as authorities investigate alleged mismanagement following defaults on multibillion-yuan wealth management products issued by a firm under his control. The move represents the latest crackdown on mainland China’s shadow banking sector, continuing years of government efforts to regulate and clean up the industry.

Haichang, mainland China’s largest marine theme park operator, disclosed in an exchange filing on Tuesday that police had imposed “criminal compulsory measures” against Yu and that the company was aware of an ongoing investigation into his alleged wrongdoings. The company said it had been informed about the matter by Yu’s family.

The detention comes just six months after Sunriver Holding Group, controlled by Yu, spent HK$2.3 billion (US$295.7 million) to acquire a 39 percent stake in Haichang. Sunriver Holding also controls two Shanghai-listed subsidiaries, Sunriver Culture Tourism and Anhui Gourgen Traffic Construction, both of which confirmed Yu’s detention in separate statements.

Earlier this month, a redemption crisis affected thousands of investors who purchased wealth management products linked to a real estate project operated by Sunriver Holding. On December 7, the three listed companies reported in exchange filings that delays had occurred in repaying the wealth management products and that Yu would bear the related liabilities.

The news sent shares of Haichang tumbling, with the company’s stock falling 6.3 percent to HK$0.45 on Tuesday morning. Sunriver Culture dropped 2.8 percent to 5.91 yuan, while Gourgen Traffic declined 4.6 percent to 7.60 yuan.

Wealth management products, a key component of China’s shadow banking system, are generally targeted at depositors seeking low-risk investments, with funds typically allocated to fixed-income and money market instruments. A significant portion of these products was sold through peer-to-peer (P2P) lending platforms on the mainland. Data from Zhejiang Asset Operation, a P2P platform, indicated that about 10 billion yuan of borrowings by Sunriver Holding matured this month.

“A troubled property industry is still the cause for the repayment scandals,” said Wang Feng, chairman of Ye Lang Capital, a Shanghai-based financial services group. “Yu’s case will see banking regulators swing into action again to minimise risks in other wealth management products.”

Borrowing through P2P trading platforms expanded rapidly on the mainland beginning in 2012, after Beijing encouraged these operators to help cash-strapped small businesses access much-needed loans. However, the sector soon spiraled out of control as thousands of platforms were found to be illegally operating, putting depositors’ funds at risk. In 2016, Beijing launched a crackdown on shadow banks as part of a nationwide clean-up of P2P lending platforms. By 2020, defunct P2P platforms owed depositors 800 billion yuan, according to the mainland’s banking and insurance regulator.

Yu Xiangrong, Citigroup’s chief economist for Greater China, commented last month that stronger stimulus measures were necessary to halt the ongoing decline in China’s struggling property sector. He noted that the sector had not only hindered economic growth but also discouraged consumer spending on goods such as clothing and home appliances. The property industry and related sectors, including home appliances and construction materials, account for approximately a quarter of the country’s economic output.

By fLEXI tEAM