A Surprise Sale Hits Haidilao
Haidilao slumped after co-founder Shu Ping unloaded roughly $350 million of shares, sending the stock down 13% across two trading days to its weakest level since March 2022. The company didn't give a reason for the sale and didn't immediately respond to an inquiry. In a filing, it said the disposal met the shareholder's funding needs and would not affect the business or financial position.
It was striking given that Chief Executive Officer Zhang Yong - Shu's spouse - had bought stock just a few months before at levels over 20% higher than her disposal price.
The Trust-Tax Shift Changing Calculus
In late July, China said it would impose taxes on offshore trusts owned by its citizens, shutting a long-favored estate and wealth-planning avenue for wealthy families. Beneficial owners were given a 90-day period ending Oct. 22 to pay the amounts due without incurring late-payment penalties.
"Business owners will view the current period as a rare transitional phase, when conditions are likely to be most favorable, giving them an incentive to settle tax obligations sooner rather than later," said Dong Yizhi, a lawyer at Joint-Win Partners in Shanghai. In that context, Hong Kong shares may face an additional drag, as many marquee listings remain founder-led with sizable stakes parked in offshore trusts.
The Hang Seng Index has fallen about 3% this year, missing much of the AI hardware excitement and pressured by weak consumer demand and a muted profit outlook at large internet platforms.
Who Else Is in Focus
Data compiled by Bloomberg point to other founder-led companies with large holdings tied to offshore trust structures, including Li Ning Co., Xiaomi Corp., and Sunac China Holdings. There is no indication their founders are planning share sales.
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For Li Ning, about 19% is held by Viva Goods Co., a trust structure under the ultimate control of the founder's family. The stock has slid about 9% since the Haidilao news. Morgan Stanley said the market may have reacted too strongly to fears the tax changes would spark selling, noting that Viva has continued to buy shares despite the rule change.
Guming Holdings discloses that Modern Leaves Ltd., a family trust entity, holds 41%. At Xiaomi, Smart Mobile Holdings Ltd. holds 8.9% of the company, and the vehicle is under the control of founder Lei Jun.
Li Ning, Guming and Xiaomi did not immediately reply to inquiries seeking comment on the potential effects of the tax changes. Importantly, holding shares in an offshore trust does not automatically translate into sales. Depending on income and accumulated gains, the amounts due may be modest relative to the overall wealth of controlling shareholders, which would reduce any urgency to generate liquidity.
According to Xiangrong Yu and colleagues at Citigroup Inc., founder-led Chinese companies that use offshore vehicles might still encounter short-term selling pressure if the rules prompt some investors to monetize assets, with block trades being among the more liquid avenues. Because such trusts are widespread among founder-run Hong Kong companies, some investors interpret Haidilao's action as hinting that additional similar sales could follow.
"If you're holding Hong Kong stocks, you could do worse than screen for companies where founders control large stakes through offshore trusts, those that have paid out substantial dividends and set up their trusts early on," said Yang Ruyi of Shanghai Prospect Investment Management Co. "As the compliance deadline approaches, those stocks could be more vulnerable to founder-selling and heightened volatility," she added.
What It Means for Your Money
"I think we'll see more situations like this going forward," said Chen Da, founder of Dante Research. As China relies more on taxes and less on land sales, he expects tighter enforcement. "Many wealthy entrepreneurs are looking over their shoulders right now," he added.
For everyday investors, the setup is straightforward to watch: founder-heavy companies with offshore trusts could see choppier trading as the Oct. 22 grace period nears, while ongoing insider purchases and smaller prospective tax bills might temper selling pressure in some names.
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