Wen’s money

As the leadership of the Chinese Communist Party changes at ongoing 18th Party Congress, a piece in the New York Times casts a light on the scale of corruption in China.

It opens noting Wen’s poor background but then states bluntly, that his mother, “became outright rich, at least on paper, according to corporate and regulatory records. Just one investment in her name, in a large Chinese financial services company, had a value of $120 million five years ago, the records show”. The article goes on to write “Many relatives of Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership”.

It then notes that “A review of corporate and regulatory records indicates that the prime minister’s relatives — some of whom, including his wife, have a knack for aggressive deal making — have controlled assets worth at least $2.7 billion. In many cases, the names of the relatives have been hidden behind layers of partnerships and investment vehicles involving friends, work colleagues and business partners”.

The fact that such wealth can be gained by someone at the very top of Chinese power gives an insight into how much money is being acquired lower down the scale, the report adds “the family’s ventures sometimes received financial backing from state-owned companies, including China Mobile, one of the country’s biggest phone operators, the documents show. At other times, the ventures won support from some of Asia’s richest tycoons. The Times found that Mr. Wen’s relatives accumulated shares in banks, jewelers, tourist resorts, telecommunications companies and infrastructure projects, sometimes by using offshore entities”.

The piece explains “The holdings include a villa development project in Beijing; a tire factory in northern China; a company that helped build some of Beijing’s Olympic stadiums, including the well-known “Bird’s Nest”; and Ping An Insurance, one of the world’s biggest financial services companies. As prime minister in an economy that remains heavily state-driven, Mr. Wen, who is best known for his simple ways and common touch, more importantly has broad authority over the major industries where his relatives have made their fortunes. Chinese companies cannot list their shares on a stock exchange without approval from agencies overseen by Mr. Wen, for example. He also has the power to influence investments in strategic sectors like energy and telecommunications. Because the Chinese government rarely makes its deliberations public, it is not known what role — if any — Mr. Wen, who is 70, has played in most policy or regulatory decisions. But in some cases, his relatives have sought to profit from opportunities made possible by those decisions”.

Yet it is too much of a coincidence that such wealth has been acquired by the family of the premier without his knowledge or assistance.

It goes on to give examples, “The prime minister’s younger brother, for example, has a company that was awarded more than $30 million in government contracts and subsidies to handle wastewater treatment and medical waste disposal for some of China’s biggest cities, according to estimates based on government records. The contracts were announced after Mr. Wen ordered tougher regulations on medical waste disposal in 2003 after the SARS outbreak. In 2004, after the State Council, a government body Mr. Wen presides over, exempted Ping An Insurance and other companies from rules that limited their scope, Ping An went on to raise $1.8 billion in an initial public offering of stock”. The article notes that there are formal rules around high officials and business but at the same time ” no law or regulation prohibits relatives of even the most senior officials from becoming deal-makers or major investors — a loophole that effectively allows them to trade on their family name”.

The article goes on to describe how a web of companies keeps Wen and his family in control but out of the limelight from the companies, “Wen’s relatives have sometimes been hidden in ways that suggest the relatives are eager to avoid public scrutiny, the records filed with Chinese regulatory authorities show. Their ownership stakes are often veiled by an intricate web of holdings as many as five steps removed from the operating companies, according to the review. In the case of Mr. Wen’s mother, The Times calculated her stake in Ping An — valued at $120 million in 2007 — by examining public records and government-issued identity cards, and by following the ownership trail to three Chinese investment entities. The name recorded on his mother’s shares was Taihong, a holding company registered in Tianjin, the prime minister’s hometown”.

Of course Wen is not the only high official with money, as the article mentions “The apparent efforts to conceal the wealth reflect the highly charged politics surrounding the country’s ruling elite, many of whom are also enormously wealthy but reluctant to draw attention to their riches. When Bloomberg News reported in June” it was blocked by Chinese censors.

When asked by the New York Times to comment Wen and his family said nothing but some flimsy excuse was mentioned by, “Duan Weihong, a wealthy businesswoman whose company, Taihong, was the investment vehicle for the Ping An shares held by the prime minister’s mother and other relatives, said the investments were actually her own”.

The piece notes the role of Wen’s wife,  “Zhang Beili, is one of the country’s leading authorities on jewelry and gemstones and is an accomplished businesswoman in her own right. By managing state diamond companies that were later privatized, The Times found, she helped her relatives parlay their minority stakes into a billion-dollar portfolio of insurance, technology and real estate ventures”. Tellingly the piece goes on to mention “her lucrative diamond businesses became an off-the-charts success only as her husband moved into the country’s top leadership ranks”. Further to this Zhang enhanced her wealth because “jewellery regulators often decided which companies could set up diamond-processing factories, and which would gain entry to the retail jewelry market. State regulators even formulated rules that required diamond sellers to buy certificates of authenticity for any diamond sold in China, from the government-run testing center in Beijing, which Ms. Zhang managed”.

The article then turns its attention to Wen’s only son, Wen Yunsong, also called “Winston Wen”. The article mentions “Winston Wen and his wife, moreover, have stakes in the technology industry and an electric company, as well as an indirect stake in Union Mobile Pay, the government-backed online payment platform — all while living in the prime minister’s residence, in central Beijing, according to corporate records and people familiar with the family’s investments”. It mentions how “Wen’s earliest venture, an Internet data services provider called Unihub Global, was founded in 2000 with $2 million in start-up capital, according to Hong Kong and Beijing corporate filings. Financing came from a tight-knit group of relatives and his mother’s former colleagues from government and the diamond trade” adding that in 2005 he founded “New Horizon Capital with a group of Chinese-born classmates from Northwestern. The firm quickly raised $100 million from investors”.

In the space of seven years that article notes “the firm has returned about $430 million to investors, a fourfold profit, according to SBI Holdings”. The piece ends the discussion about Wen’s son, “In 2010, when New Horizon acquired a 9 percent stake in a company called Sihuan Pharmaceuticals just two months before its public offering, the Hong Kong Stock Exchange said the late-stage investment violated its rules and forced the firm to return the stake. Still, New Horizon made a $46.5 million profit on the sale”.

The response of Wen was to set up a probe. Apparently, he “sent a letter asking for the investigation to the Politburo Standing Committee, China’s equivalent of the Cabinet, according to the South China Morning Post. It is not known how the investigation will proceed, or if its findings will ever be made public, but the request was accepted, unnamed sources told the newspaper”.

Naturally enough the response of the Chinese government “The Chinese government swiftly blocked access Friday morning to the English-language and Chinese-language Web sites of The New York Times from computers in mainland China”. There is only so long this pattern will last for.