S19: Winged Ambitions

Business History of Modern China

October 27, 2025

Hainan Airlines Boarding Music

Time: Red Corporatism

HNA Group

  • 1993: Founding in Hainan
  • 1999: IPO on Shanghai A-Share
  • 2015: Ranked 464 in Forbes Global 500
  • 2021: Bankruptcy and restructuring

China

  • 1994: Company law
  • 1997: Asian Financial Crisis
  • 1998: SOE reform
  • 2000: Entry to WTO
  • 2008: Global Financial Crisis
  • 2019: Covid-19

Time: Corporate Governance After Mao

State-owned Enterprises: How Important Are They to the Chinese Economy?

Chinese SOE Reforms 1998-2013: Number of SOEs and Privatized SOEs

Output Shares by Ownership Types

Place: Hainan, Hawaii of China

  • Southernmost and smallest province of China by land area, separated from mainland China by the Hainan Strait.
  • Became a separate province in 1988, previously part of Guangdong.
  • Population: 10,081,232 (2020 census)

Key Questions

  • How did the HNA Group rise and fall?
  • Conglomerates and corruption: How do they work in tandem?
  • Why did Chinese economy grow, despite rampant corruption?

Corporate Landscape After Mao

Mao Era: Exclusively SOEs

  • Industry made up of thousands of similar, publicly owned organizations
  • Urban and middle sized, typically consisted of only one factory
  • 1978: China’s industry was essentially 100% publicly owned (SOEs produced 77% of output, urban collectives 14%, and rural TVEs the remaining 9%).

Early reform era: Rise of micro-enterprises (1978-1998)

  • Growth of small-scale firms and return of private firms
  • Most start-ups were household businesses (getihu), typically with eight or fewer employees.
  • Many TVEs were de facto private firms, sometimes with a thin veneer of village or township supervision.
  • Peak relative importance in 1998: 43% of total industrial output.

HNA’s Act 1: When the Caged Bird Flies

  • How did the airline start and develop?
  • Where is Hainan? What is the province’s development strategy? What has it to do with HNA?
  • What early decisions differentiated Hainan Airlines from competitors?

HNA: In the Beginning

  • 1988: Hainan SEZ needed an airline but had very limited government funds.
  • Chen Feng, with aviation experience and connections, was brought in to lead the project.
  • “Xingnan Group,” with World Bank loans, provided crucial funding.
  • Hainan Airlines was founded in 1993: leveraging government license to fly, Chen raised bank loans (400M yuan) and public fundraising (250M yuan) to purchase first plane.
  • Chen Feng used aircraft as collateral to secure loans for further expansion.

HNA’s Early Success

Joint venture

  • HNA was founded in 1993 as a joint venture between the government and private interests.
  • This hybrid ownership model helped HNA avoid issues common to state-owned or family businesses.
  • HNA operated in a market dominated by three large, state-owned airlines (Air China, China Eastern, China Southern) that received preferential treatment.

Be big and be global

  • HNA unusually focused on large aircraft from its beginning, unlike most airlines.
  • HNA convinced its government partners to purchase only Boeing airplanes.
  • Focus on service and brand development.
  • Financial flexibility: Selling shares (25m USD to American Aviation, 71m RMB of B-shares in 1997, and 205m RMB of A-shares in 1999)

Not Mentioned: HNA’s First Backer

Chinese Vice Premier Wang Qishan, center, holds the autographed basketball given to him by President Barack Obama following their Oval Office meeting Tuesday, July 28, 2009, to discuss the outcomes of the first U.S.-China Strategic and Economic Dialogue. Looking on at left is Chinese State Councilor Dai Bingguo.

Wang Qishan

  • Vice President of China (2018-2023)
  • Born in 1948 in Shanxi; son of engineering professor
  • During the cultural revolution: 3 years as sent-down youth in Yan’an, where he met Xi Jinping
  • After getting a degree in history, involvement in the financial sector (starting 1988, led People’s Construction Bank 1994–97)

Wang Qishan and Chen Feng: Patron-Client Relationship

From mentee…

  • 1980s: Wang Qishan established China Agricultural Development Trust and Investment Corporation (Zhongnongxin), which used World Bank loans for rural projects.
  • Chen Feng worked under him.
  • The connection was crucial to Chen’s appointment at HNA and its initial fundraising success.

… To protegé:

  • 1997: Wang Qishan became vice governor of Guangdong
  • 1999: HNA IPO on Shanghai A-Share
  • 2002: Wang became party secretary of Hainan; member of CCP Central Committee

How China Escaped Shock Therapy

Economic orthodoxy

  • Rapid, radical, free-market reforms: privatization and ending price controls
  • Designed to quickly transition a state-controlled economy to a market economy.
  • Boris Yeltsin: Hyper-inflation; Russia’s most profitable industrial enterprises auctioned off to the oligarchs.

Post-Mao China

  • Rent-seeking common and corruption rampant, but opening market to private forces.
  • Cautious about transforming existing state-owned firms: SOE reforms only in late 1990s and incomplete.
  • State ownership seen as a long-run feature of the economy that should be “consolidated and developed”

Transforming SOEs: Not a Great Leap Forward

Transforming socialist businesses into profit-making ones took many stages.

Incentivization

  • From 1984-1989, reformers used incentives to reward managers more and link pay to profits.
  • Contract systems were introduced, making companies commit to fixed profit targets.
  • By 1993, the industrial economy had outgrown the old system, with companies focused on market competition.

Competition

  • Competition increased significantly after the mid-1990s, while reformers imposed harder budget constraints on enterprises.
  • Loss-making enterprises were closed or sold; state sector was dramatically downsized: industrial SOEs dropped from 120,000 in the mid-1990s to only 34,000 by 2003.
  • This led to a painful spike in unemployment.

SOEs: Sick Giants

In 1978, SOEs generated huge profits that were turned over to the government. The next two decades would see a dramatic reversal of fortunes.

Factory, Anshan, 1957
  • New firms increased competition, reducing SOE profits over time.
  • By 1996, SOE profits were almost zero, leading to downsizing and layoffs.
  • Government funding for SOEs decreased, shifting investment reliance to banks.
  • Banks channeled increasing household savings to the corporate sector.
  • SOEs borrowed heavily from banks, accumulating significant debt.

How should China reform its struggling state sector?

“To take the plunge”

Wang Yuwen: Workers at a shipyard in Dalian, Liaoning province, 2004
  • China has the world’s largest labor force, with 770 million workers – more workers than all developed countries combined.
  • Between 1996 and 2003, nearly 50 million workers were laid off.
  • A large influx of less skilled migrant workers moved to cities.
  • These twin events formed the basis of China’s current labor economy.

Reforming SOEs: A Tough Job

Public owners face a difficult balance between efficiency, control, and public interest goals.

  • Giving SOEs autonomy without oversight can lead to corruption and waste.
  • However, close government monitoring often results in political interference.
  • Political interference means SOEs pursue goals other than profit, like maintaining jobs or regional equality.

SOE Reform: Repackage and Resell

  • Reorganizing State-Owned Enterprises (SOEs) into corporate forms allowed them to list on stock markets, which diversified ownership, improved transparency, and raised capital.
  • In 1998, three major state oil companies (Sinopec, CNPC, CNOOC) were restructured and later listed on stock exchanges. They became China’s First Fortune 500 Companies.
  • Dividends from profitable listed firms were used to cover losses from the “left-behind” firms.

New Business: Ranking China’s Rich

Hurun Wealth Report, launched by Rupert Hoogewerf, in 1999

Forbes China, launched in 2003

SASAC: The Richest Organization You’ve Never Heard Of

What is it

  • The State Asset Supervision and Administration Commission was established in 2003 as an “ownership agency” for government firms.
  • Its creation defined government control as “ownership,” not just regulation.
  • State Asset Supervision and Administration Commission (SASAC), which is surely the world’s largest controlling shareholder.
  • Majority owner of nearly 70 SOEs on the Fortune Global 500.

Objectives

  • SASAC created oligopolistic competition by splitting monopolies into a few competing SOEs.
  • Assets were concentrated in vital sectors for national security, natural resources, or natural monopolies.
  • SOEs were instructed to focus on their core businesses and divest non-core operations: “focus on the large, let go of the small”

HNA: Poster Child of Entrepreneurship

  • Hainan Airlines grew rapidly through market reforms and acquisitions of regional airlines.
  • 1999: HNA corporatization and listing on A-shares
  • 2003: SARS epidemic; HNA lost 1.5 billion yuan; asset-liability ratio approaching 90%.
  • New infusion: 3 billion yuan from Hainan provincial gov and domestic institutions; 25 million from George Soros-backed American Aviation LDC
  • Chen Feng diversified the company into retail, logistics, and finance.

HNA’s Act 2: Aiming High

  • What is Chen Feng’s religion? How does it shape his entrepreneurship?
  • What is HNA’s corporate culture? Does it have to do with its commercial success?
  • What happens to most businesses in 2008? Did this happen to HNA Group?

Business Standards, Buddhist Values

How to run a business on Buddhist and traditional Chinese moral values? At HNA, they had Six Core Spirits, Four Commons, and Ten Commandments.

Four Commons

  • common ideal: benefit the prosperity of humankind and to create world peace
  • common beliefs: sincerity, conscience, beauty, and love
  • common striving
  • common philosophy

While you are making money, you should not damage society, public goods, and the wellbeing of others in order to make this profit. One should not forget moral principles at the sight of profits. This is the culture of China business ethics.

SOEs: Back from the Brink

HNA’s story was not unique, but reflected the rising fortunes of SOEs in the early 2000s.

  • Reforms involved closing inefficient SOEs, protecting remaining ones, and government recapitalization of banks to write off bad loans.
  • State industry profitability (normalized by total assets) increased steadily from 1998 through 2007.
  • At the same time, debt-equity ratios began to creep up again: rising industrial SOE debt has contributed to a rise in China’s overall debt level.
  • 2008 marked a turning point after which state and non-state profitability diverged.

Rise of Shareholding State

SASAC

  • The State Asset Supervision and Administration Commission was established in 2003 as an “ownership agency” for government firms.
  • It allowed local governments more freedom to restructure or close firms: they may take in outside investors, even with majority stakes, and can be listed on stock markets where possible.

SCIOs

  • A 2013 reform planned to transfer ownership of state companies to new investment funds called “state capital investment and operations companies”.
  • Focused on development and restructuring, balancing multiple goals.
  • In another vision, SCIOs should be like sovereign wealth funds (SWFs) to maximize profit for state assets.

HNA’s Act 3: Buying Spree

  • What assets did HNA invest in or acquire abroad?
  • What strategies have HNA Group employed to mitigate risks of rapid growth?

HNA: Buy, buy, buy

After 2008, HNA aggressively ramped up acquisitions, both domestic and international, sometimes averaging acquisitions every two to three days.

Year Acquisition/Event
2010 Australia’s Allco aircraft leasing assets and Turkish companies.
2011 GE SeaCo, the world’s 5th largest container leasing company, marking entry into marine container leasing.
2013 TIP Trailer Services; European logistics chain.
2015 Cronos container leasing company; became global leader in container leasing.
2015-2016 HNA acquired a 25% stake in Hilton Hotels for $6.5 billion, becoming the largest shareholder; stakes in Radisson and Red Lion Hotels, expanding global hospitality presence.

2010: Australia’s Allco aircraft leasing assets and Turkish companies.

2011: HNA acquired GE SeaCo, the world’s 5th largest container leasing company, marking entry into marine container leasing.

2013: Through acquisitions like TIP Trailer Services, HNA bolstered its European logistics chain.

2015: Acquisition of Cronos container leasing company made HNA the global leader in container leasing.

2015-2016: HNA acquired a 25% stake in Hilton Hotels for $6.5 billion, becoming the largest shareholder. Also acquired stakes in Radisson and Red Lion Hotels, expanding global hospitality presence.

Peak HNA

2016-2017: HNA reached #170 in Fortune Global 500 with $530 billion in revenue and assets exceeding 1.2 trillion yuan. Assets outside China made up about 15-65% of total by 2017.

Art of the Deal: Other Chinese Buyers

China’s Overseas Investments

HNA’s buying spree revealed not only Chen Feng’s ambition, but also China’s deep trade surplus that funded its outbound investments.

Anti-Corruption Campaign

Corruption in regions and sectors is interwoven; cases of corruption through collusion are increasing; abuse of personnel authority and abuse of executive authority overlap; the exchange of power for power, power for money, and power for sex is frequent; collusion between officials and businessmen and collusion between superiors and subordinates have become intertwined; the methods of transferring benefits to each other are concealed and various.

—Xi Jinping, October 16, 2014

First Head to Fall: Bo Xilai

As Xi Jinping made a bid for power in 2012, his charismatic rival Bo Xilai loomed.

Bo Xilai in 2015
  • Rose to prominence as Mayor of Dalian and Governor of Liaoning; Minister of Commerce (2004-2007); CCP Politburo member and Party Secretary of Chongqing (2007-2012).
  • Considered Xi Jinping’s main political opponent before 2012.
  • Convicted of bribery and embezzlement.

Bo’s Downfall

While Bo Xilai’s downfall was ultimately due to factional rivalry and succession struggles inside the CCP, it was triggered by a business scandal – in a hotel room.

Alleged murder in 2011:

  • Neil Heywood, a business official and Bo family confidant, was murdered because he demanded $22 million from Gu after a real estate venture failed.
  • After Heywood sent an email which threatened her son, Gu Kailai, wife of Bo, decided to neutralize the threat.

Exposé in 2012:

  • Bo’s deputy, Wang Lijun, sought refuge at the U.S. consulate.
  • Wang allegedly presented evidence of a corruption scandal, whereby Bo sought to impede a corruption investigation against Gu.

Plotting for Power

Neil Heywood, Bo Xilai, Gu Kailai, and Wang Lijun
  • 2012: Gu Kailai was convicted of murdering Neil Heywood in August 2012 and received a suspended death sentence; later commuted to life imprisonment in December 2015.
  • 2013: Bo Xilai was removed as the Party Secretary of Chongqing and lost his seat on the Politburo; eventually stripped of all his positions expelled from the party.

Exhibit B: Zhou Yongkang

Zhou Yongkang (b. 1942) was a Politburo Standing Committee member) responsible for internal security. He was the most senior CCP official purged.

  • Career trajectory: Headed China National Petroleum Corporation (CNPC), Sichuan province, and the Ministry of Public Security.
  • His son, Zhou Bin, secured contracts from CNPC and profited greatly by reselling assets.
  • His network of loyal officials helped his family’s business ventures, which included dealerships, mines, real estate, and more.
  • Zhou was jailed for life in 2015 after a secret trial for corruption – it broke the taboo of jailing a top leader.

Wang Qishan: From Economic Reformer to Corruption Czar

  • Mayor of Beijing (2004–07)
  • Member of the Politburo (from 2007)
  • Vice-Premier (from 2008), serving as China’s chief economic negotiator with the United States.
  • Member of the Politburo Standing Committee and Head of the Central Commission for Discipline Inspection (CCDI) (2012–17)

HNA’s Act 4: Crash and Burn

  • How did HNA’s collapse?
  • What caused it?
  • How to save what remained of HNA?
  • What should be the relationship between state and businesses?

From Individual Death to Corporate Death

Wang Jian
  • 2017-07-03: HNA Co-founder Wang Jian fell to his death on holiday in Provence, France; rumors swirled.
  • 2018: Chen Feng was reluctant to sell assets. He appointed his son, Chen Xiaofeng, as CEO and his nephew, Chen Chao, as Chief Investment Officer.
  • 2020: The COVID-19 pandemic severely impacted HNA’s core aviation business, leading to a collapse in revenue.

The Great Unraveling

In early 2020, Chen Feng sought help from the Hainan provincial government. A joint working group from Hainan Province took over HNA Group, initiating bankruptcy restructuring.

Chen Feng:

  • HNA had 200 billion yuan in net assets after liabilities, but they were illiquid.

In reality:

  • HNA had over 2,000 affiliated companies with extremely complex financial structures.
  • Audits revealed HNA’s total debt was 1.1 trillion yuan against assets of 500 billion yuan, resulting in a deficit of nearly 600 billion yuan.
  • The crisis involved tens of thousands of creditors and shareholders, including over 60,000 individual investors and thousands of HNA employees.

HNA: A Family Firm?

Audits uncovered illegal use of listed company funds by major shareholders, hidden guarantees, and extensive network of businesses controlled by executives’ families and associates was revealed.

Chen Brothers: Chen Guoqing (left) and Chen Feng
  • Chen Feng’s brother, Chen Guoqing, registered a mysterious “Hainan America Co., Ltd.” in New York in 1991.
  • This company acted as an intermediary for Hainan Airlines’ aircraft parts procurement from 1996-1997.
  • The intermediary fees were exceptionally high, with two disclosed transactions costing 25.586 million yuan and 14.746 million yuan.

How Corrupt is CCP’s Anti-Corruption Chief?

Asks Guo Wengui, billionnaire turned dissident

Guo Wengui
  • 1970: Born and grew up in poverty
  • Early 2000s: Built a career in property development; won construction deals for Beijing Olympics
  • 2006: Sex tape of Deputy mayor of Beijing forced him to drop opposition to Guo’s land deals
  • 2014: After a business dispute and the arrest of one of his intelligence contacts, Guo fled China for London, then New York.
  • 2017: Chinese gov presented charges of bribery and corruption; Guo accused Wang Qishan of owning secret stakes in HNA

Discuss: How to Save HNA

Which should be the right way forward?

Out-of-court Reorganization

  • HNA and all creditors privately negotiate and reach a consensus plan
  • Avoid the complexity of judicial proceedings

Litigation Reorganization

  • Strictly follows bankruptcy law procedures
  • Avoid future long-term litigation

Too Big to Fail: Bailing out HNA

On Jan 29, 2021, HNA Group and 321 companies began bankruptcy restructuring at the Hainan High People’s Court – it was China’s largest bankruptcy restructuring case by number of entities, debt, and legal complexity.

  • Over-ruling Chen Feng’s request to maintain a minority 3% share, the equity of the original shareholder was completely transferred to the creditors.
  • Hainan Province’s state-owned enterprise Hainan Development Holdings took over HNA’s land at 17 billion yuan – 5 billion above valuation. It extended a financial lifeline to the company – at tax payers’ expense.
  • HNA’s core businesses were divested: the aviation segment (8 companies) was sold to Fangda Group.
  • The airport operations segment (13 airports) is led by the Hainan government, maintaining state control.
  • The trading business (Gongshen Dasiji) is jointly controlled by the All China Federation of Supply and Marketing Cooperatives and HNA.

Capitalism without Democracy

China’s crony capitalism links corruption to incomplete corporate and property reforms.

  • Decentralizing state asset control without clear ownership rights allows stealing.
  • Officials gain opportunities and incentives to steal undervalued state assets.
  • Increased administrative power gives officials means to plunder assets.
  • Plundering occurs through collusion: vertical, horizontal, and with outsiders.

But how did China grow rich in spite of corruption?

Corruption will lead to regime collapse. But the Chinese economy has outperformed post-socialist regimes and democracies alike. Why? How do institutions shape economic development?

Discuss: China’s Gilded Age

“What’s truly extraordinary about China is that no similarly corrupt country has come anywhere close to reaching its scale of economic expansion.”

  • What is China’s “Gilded Age”?
  • “China is not as exceptional as we think it is – the closest parallel is the United States in the late nineteenth century”. How comparable are China and the US?
  • Will the Chinese economy and regime collapse due to rampant corruption?

Discuss: Typology of Corruption

The rise of capitalism was not accompanied by the eradication of corruption, but rather by the evolution of the quality of corruption from thuggery and theft toward sophisticated exchanges of power and profit.

  • What is “access money”? How does it work?
  • How should China tackle corruption?

China’s Gilded Age: Summary

  • “Access money” is the main type of corruption in China because leaders’ rewards are tied to economic performance.
  • This type of corruption stimulates growth but distorts resources, breeds systemic risks, and increases inequality.
  • Reforms have reduced other corruption types like theft and speed money.

Huge Successes, Persistent Failures

Yes…

  • China’s economy is highly competitive and market-driven.
  • For firms to succeed, their governance must also be market-driven.

But:

  • Managers in state firms have broad discretion with little oversight, which can lead to abuses and corruption.
  • Managers are accountable to many groups, but none effectively monitor them.
  • Detecting and punishing corruption is difficult.

Chinese Corporate Governance in Comparative Context

Equity-Market-Based System:

  • Strong requirements for public information disclosure.
  • Significant emphasis on protecting minority shareholders.
  • Share price is a sensitive performance indicator; low prices can lead to management changes.

Control-Based System:

  • Monitored by banks or founding families.
  • Examples of family-owned business conglomerates: Zaibatsu (Japan), Chaebol (Korea)
  • Oversight is exercised by entities with access to insider information, such as banks or those with supplier/customer relationships.

China

  • China’s corporate governance system is hybrid, messy, and unresolved.
  • Stock markets lack adequate transparency in ownership and control.
  • State-owned banks are not equipped to effectively monitor SOEs.

Xi’s Unending Anti-Corruption Campaign

Xi Jinping began a major anti-corruption campaign in 2012. After tens of thousands of officials were jailed, Xi had no sign of stopping yet. Why?

When Anti-Corruption Campaign Makes Corruption Worse

  • Xi’s anti-corruption drive did not bring fundamental reforms, but increased state control and secrecy.
  • Officials promoted for loyalty to Xi may feel untouchable and act more corruptly.
  • Xi’s own insecurity fuels purges, which can increase threats to his power from rivals seeking revenge.
  • Suppressing press freedom, civil society, and an independent judiciary harms corruption control.

Chen Feng: From Buddhist Manager to Prisoner

  • Chen Feng, the 72-year-old founder of HNA Group, was sentenced on July 17, 2025.
  • He was convicted of multiple crimes, including breach of trust, loan fraud, and embezzlement.
  • 12-year prison sentence; fined 221 million yuan; 40 million yuan of his personal property confiscated.

Guo Wengui: How a Chinese tycoon built a pro-Trump money machine

Guo accused Wang Qishan, Xi’s anti-corruption chief, of personal stakes in HNA. What happened next?

On June 3, 2020, Bannon and Guo participated in declaring a “New Federal State of China” (also called “Federal State of New China”).
  • Business associate of Stephen Bannon: Founded GTV, a media company that spread misinformation related to the COVID-19 pandemic.
  • 5,500 investors sunk a total of $452m into GTV, which Guo claimed was worth $2bn.
  • 2023-03: Guo Wengui arrested on in NY charges of fraud and money laundering.
  • 2024-07: Convicted on defrauding; sentencing to follow

Stranger Than Fiction

Buddhist billionnaire, anti-corruption czar, real estate mogul-turned-fugitive, Trump advisor… How did they get entangled?

Chen Feng

Wang Qishan and Xi Jinping

Guo Wengui with Steve Banon, convicted of defrauding online visitors in a billion-dollar scam.

Neil Heywood, Bo Xilai, Gu Kailai, and Wang Lijun

SOE Reforms under Xi: Conflicting Signals

Since 2012, oversight institutions have been strengthened to control managerial slack and corruption, with the Communist Party playing a direct role in enterprises. But how much is the party in control, and to what effects?

  • Public ownership is being justified by assigning firms more developmental objectives: self-reliance on leading tech.
  • Enhanced oversight and multiple goals risk reducing managerial autonomy and incentives.
  • Financial crunch motivated many local governments to sell state assets for revenue.
  • Conflicting objectives make coherent reform difficult.

Future of Hainan: China’s New Tax Haven?

  • Hainan Free Trade Port announced in 2025; goal to transform Hainan into the world’s largest free trade port by 2035.
  • Independent customs: Goods sold from Hainan to mainland China will be treated as imports from 2025.
  • The plan includes offshore financing, duty-free shopping, lower taxes, and reduced visa requirements.

What could this mean for HNA?