Leadership And Reported Wealth In China
By Countercurrents.org
27 October, 2012
Countercurrents.org
Huge wealth in China is now not a new issue. But connection between the Chinese leadership and Chinese new elites are creating controversies in different spheres. The following reports from the New York Times and the Guardian provide a few facts, which will be substantiated or nullified by time and future politics in China:
The mother of China’s prime minister was a schoolteacher in northern China. His father was ordered to tend pigs in one of Mao’s political campaigns. And during childhood, “my family was extremely poor,” the prime minister, Wen Jiabao, said in a speech last year [1].
But now 90, the prime minister’s mother, Yang Zhiyun, not only left poverty behind, she 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 details of how Ms. Yang, a widow, accumulated such wealth are not known, or even if she was aware of the holdings in her name. But it happened after her son was elevated to China’s ruling elite, first in 1998 as vice prime minister and then five years later as prime minister.
Many relatives of Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership, an investigation by The New York Times shows. 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. Untangling their financial holdings provides an unusually detailed look at how politically connected people have profited from being at the intersection of government and business as state influence and private wealth converge in China’s fast-growing economy.
Unlike most new businesses in China, 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 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.
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. Partnerships controlled by Mr. Wen’s relatives — along with their friends and colleagues — made a fortune by investing in the company before the public offering.
The Guardian reported [2] on October 26, 2012:
China has lashed out at a US newspaper report that premier Wen Jiabao's family has amassed vast wealth worth at least $2.7bn (£1.68bn), censoring the New York Times website and questioning the paper's motivations.
The story said Wen, widely seen as the humane face of China's top leadership, was not directly linked to the holdings. But the association with such a fortune was in stark contrast to the man-of-the-people image he has cultivated.
A foreign ministry spokesman said the report "blackens China's name and has ulterior motives". Censors blocked the paper's Chinese language website, at least partially obstructed access to its main site, and banned microblog searches for New York Times in English and Chinese.
"China manages the internet in accordance with laws and rules," spokesman Hong Lei told reporters when asked why the sites were inaccessible.
The detailed account, based on company and regulatory filings, said several of Wen's relatives had become extremely wealthy since his ascent to the top leadership, controlling assets whose total worth is more than the GDP of Burundi. In many cases their holdings were obscured by layers of partnerships and investment vehicles involving friends, colleagues or business partners.
The report is damaging not only to Wen, but also to the Communist party. It has faced months of unwelcome scrutiny while preparing for a once-in-a-decade leadership transition – mostly thanks to the scandal surrounding disgraced leader Bo Xilai and his wife Gu Kailai's conviction for murdering a British businessman. On October 26, 2012 Bo was expelled from the country's legislature, as expected, paving the way for his prosecution. He has been accused of corruption and abuse of power.
There has been a spate of revelations about wealth amassed by people around other senior figures. Authorities blocked the Bloomberg website earlier this year after it exposed the multi-million dollar assets held by the extended family of Xi Jinping, heir-apparent to the presidency. It has also reported that Bo's relatives accumulated at least $136m in assets.
The top leaders "are like paranoid, flying eagles," said Edward Friedman, professor of political science at the University of Wisconsin-Madison. "If you are looking up they look like the most powerful creatures in the world. But what they see is what a long fall it would be. I think in their consciousness it is very much about all the things that could go wrong."
He added that, at least among politically-conscious people in urban areas of China, there seemed to have been a tremendous shift in mood since 2008, with patriotic pride and suspicion about the west giving way to a growing sense that the regime does not care about them.
Steve Tsang, an expert on Chinese politics at the University of Nottingham, said of the US report: "It's the kind of story where the leadership is united. "Wen is implicated, Bo down … Who's next? Part of the arrangement is that someone leaving power is still protected after he leaves office, so that the system will continue."
Given the bad blood known to exist between Wen and Bo, many anticipate supporters of the latter will seize on the report with glee. Others wonder if it may reduce Wen's future influence. Although he is due to retire as premier, former leaders still play a significant role in the party's decision-making.
Many people – particularly among the elite – had been aware of rumors about Wen's relatives. But the scale of the reported assets is striking and the timing highly sensitive.
A BBC News report on the piece was also blocked in Beijing. Censorship means many in China will remain unaware of the US account.
Wen has repeatedly urged China's leaders to ensure their families and associates do not abuse government influence, and pushed for officials to disclose the assets of their immediate families. Declarations are not public and the New York Times said four-fifths of the assets it found were held by relatives not covered by party rules, including his mother and various in-laws.
A former government colleague of Wen, speaking anonymously, told the New York Times: "In the senior leadership, there's no family that doesn't have these problems … His enemies are intentionally trying to smear him by letting this leak out."
A US diplomatic cable obtained by Wikileaks, dating from 2007, quoted an executive in Shanghai as saying: "Wen is disgusted with his family's activities, but is either unable or unwilling to curtail them."
In March, the premier made an emotional defense of his tenure during his annual press conference, saying history would have the final say and stressing that he had never pursued personal gain.
Substantial holdings in the name of Wen's mother and other relatives were held via an investment vehicle run by a wealthy businesswoman close to Wen's wife, Zhang Beili. Duan Weihong told the New York Times the investments were her own. She sought a low profile so had asked relatives to find others to hold the shares on her behalf. They had "by accident" chosen the premier's relatives.
Zhang Beili, who is rarely seen with her husband, works in the diamond trade. Their son Winston Wen runs New Horizon Capital, one of China's biggest private equity funds.
His wife Yang Xiaomeng told the New York Times: "Everything that has been written about him has been wrong. He's really not doing that much business any more."
The Times said members of Wen's family declined to comment or did not respond.
Separately, the Brookings Institution said the brother of the man expected to replace Wen – vice premier Li Keqiang – should be moved from his senior post at China's state-owned tobacco monopoly. Li oversees public health as part of his duties.
His younger brother, Li Keming, is deputy director of the tobacco body and Cheng Li, author of the Brookings report, suggested his role might have set back attempts to curb tobacco use in China.
As comment on the controversial issue Isabel Hilton wrote in The Guardian [3] on October 26, 2012:
In 1992 the late Deng Xiaoping, the Chinese former leader and father of "socialism with Chinese characteristics", said: "Let a part of the population get rich first." He did not explicitly assign that leading role to the Chinese Communist party, but the party, which continues to insist on its exclusive right to rule and its vanguard role in Chinese politics and society, took Deng's instructions to heart.
Deng's reforms – economic liberalization combined with the party's unchanging grip on China's politics, law, machinery of state, security apparatus, much of its industry and commerce and all of its land – kick started 30 years of rapid economic growth. That brought average per capita income in China up to a still modest $2,425 by 2010. It also facilitated the huge fortunes made by party leaders and their families over the same period.
China is on the brink of a leadership change, the infighting for which exposed the accumulated family wealth of Bo Xilai, the disgraced former party secretary of Chongqing. Bo now faces a long list of charges, including corruption. But given the overwhelming evidence of the intimate relationship between political power and money in China, it is hard to avoid the conclusion that Bo's behavior, in this respect at least, was not an exception.
The party itself has repeatedly stressed that corruption is one of the biggest threats to its continuing rule, but revealing details of the unprecedented wealth enjoyed by leaders' families remains unpopular with the Chinese authorities. Chinese media that do so can face the serious charge of threatening "social stability". International media are simply blocked, as the New York Times was this week for its account of the fortunes of the family of China's premier, Wen Jiabao ($2.7bn in assets). Bloomberg Business News was similarly blocked for an account in June of the family wealth of Xi Jinping, the man expected to become China's president in November, a relatively modest $136m. Xi once advised colleagues in the Communist party to "rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain".
Wen's image as a benign and caring leader – he is popularly though sometimes satirically referred to as Grandpa Wen in China – has been honed over the years by regular TV appearances at moments of national trauma. He has comforted earthquake victims and apologized for breakdowns in the train service. He has also made statements in support of political reform, though no progress has been made under his leadership. Wen's family has not yet been implicated in any of the scandals of conspicuous wealth and jetset lifestyles that regularly fuel the resentment of the less fortunate majority.
But the mechanisms by which Wen's wife and son built up their eye-watering portfolios are routinely discussed around Beijing dinner tables, and accounts of his and other leadership family fortunes have been published, in Chinese, in Hong Kong. The fact that Wen's wife, son and even his 90-year-old mother have swiftly grown spectacularly rich is not a big surprise in China.
The symbiosis of politics and money extends to China's parliament, the National People's Congress which, as the annual Hurun report on China's rich has shown, is now a billionaires' club: the wealthiest 70 members enjoy a combined net worth of $85bn. By way of comparison, the estimated combined net worth of 660 top US officials, including the president, reportedly adds up to a mere $7.5bn.
Source:
[1] NYTimes.com, David Barboza, “ Billions in Hidden Riches for Family of Chinese Leader”, Oct. 25, 2012, http://www.nytimes.com/2012/10/26/business/global/family-of-wen-jiabao-holds-a-hidden-fortune-in-china.html?_r=2&#h[Mrob,1
[2] Tania Branigan, “ Wen Jiabao's £1.68bn family wealth: China furious at US exposé”, http://www.guardian.co.uk/world/2012/oct/26/china-wen-jiabao-family-wealth-revealed
[3] “China's economic reforms have let party leaders and their families get rich”, http://www.guardian.co.uk/commentisfree/2012/oct/26/china-economic-reforms-leaders-rich
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