Fanhua developed a huge commercial real estate project in the founder’s hometown for more than two years without telling investors. Fanhua has been pre-selling residential units there for delivery in 2020—which puts the company on the hook to spend to build out those units. The project was finally mentioned, in passing, on a November 2018 company conference call. ‣ Investors are skeptical that regulators are doing their job in China—how much of this company’s value has been stolen? Based on the evidence, we believe this company is uninvestable

We believe that Fanhua has been implicated in a corruption case in China that saw a close associate from PICC P&C sentenced to 11 years in jail. Fanhua has been specifically barred since 2017 from selling P&C insurance for the biggest insurer in China. We think reputable insurance companies are now very reluctant to work with FANH. Fanhua has failed to disclose guarantees for trust plans issued to finance subsidiary China Finance Holdings (CNF) and for other corporate purposes. CNF’s prospectus shows $682 mln in funds raised from trust plans and a default rate of over 12%. Although it is unclear how much liability Fanhua, a minority shareholder, bears, the guarantees for loans underlying the trust are explicit