Beijing power struggle sinks Red Princess's HK firm

A property company controlled by a niece of former Chinese Vice President Zeng Qinghong is sinking deeper in default as the power struggle between Zeng (above, left) and Chinese President Xi Jinping intensifies.

The rivalry between Xi and his adversaries is heating up in the run-up to the sixth plenum of the Communist Party of China (CPC) to be held in Beijing from November 8 to 11. It has grown so serious that Xi apparently canceled his trip to the Glasgow Climate Summit, the year's most important such international climate conferences, from October 31 to November 12 as he can't afford to be absent from the country in the leadup to the 6th Plenum out of fear of a leadership challenge, sources say.

At the plenum, a "historic resolution" is expected to be passed which would boost Xi's power, as a step to giving himself a further term at the "Two Sessions" in March next year. If Xi succeeds in prolonging his presidency, he will break the two-term limit set on Chinese presidents by the late Chinese leader Deng Xiaoping after the excesses of the Maoist era.

"More evidence has emerged of a ferocious power struggle between China's supreme leader, President Xi Jinping and powerful factions and personages including former Vice-President Zeng Qinghong and current Vice President Wang Qishan," wrote Willy Wo-Lap Lam, a senior fellow of the Jamestown Foundation, on the US think tank's website on October 14.

"Even more obvious is the power struggle between Xi and former PBSC (Politburo Standing Committee) member and Vice President Zeng Qinghong. Zeng, a princeling and close aide of former president Jiang Zemin, is also a major leader of the so-called Shanghai Faction. Zeng is believed to be the "protection umbrella" behind several multi-billion enterprises. One of these enterprises, Fantasia Holdings which is headed by his niece Zeng Baobao," Lam added.

Zeng Baobao, also known as Baby Zeng Jie (above), is the founder and controlling shareholder of Fantasia, a Hong Kong-listed property developer.

On October 26, Fantasia announced its property management subsidiary, Colour Life Services Group, had defaulted on a RMB700 million (US$110 million) loan from Country Garden, a large Hong Kong-listed property developer. As a result, Country Garden enforced the terms of the loan by acquiring a subsidiary of Colour Life, Link Joy Holdings, tentatively for RMB2.6 billion instead of an earlier-agreed RMB3.3 billion.

The Hong Kong share price of Colour Life plunged 35.6 percent to HK$1.63 on October 27, after being suspended from September 29 to October 26. Fantasia's shares remain suspended since September 29.

On October 4, Fantasia announced it defaulted on US$500 million of US dollar offshore bonds.

On October 7, Baby Zeng made a post on Weibo, a Chinese social media platform, which said, "Specialized matters should be handled by specialists, the ass decides for the brain, it will be given to the most stable ass, as for the other discourses, thanks and don't worry. Keep calm, think hard, pay attention."

"Zeng's subtle comments seemed to be targeted at Xi, who has been putting pressure on a host of real estate and technology companies, some of which have been nationalized," wrote Lam.

In China, local governments are taking over parts of the operations of China Evergrande Group, one of the largest Chinese property developers, reported Caixin on September 27. The Hong Kong-listed firm is teetering on the verge of default with US$300 billion of debt, making it the world's most indebted property company.