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China’s ‘princelings’ turn privilege into profit

When Chinese authorities launched an investigation in 2006 into potential foreign currency violations by Beijing Henderson Properties, the real estate developer called in some curious outside help. It turned to a Chinese investment company with no evident expertise in currency regulations and to a murky Hong Kong foundation with no dis­cern­ible offices and no listed telephone number.

But the real estate company’s helpers did have one significant asset: access to officials at the Chinese government agency handling the investigation, made possible by the door-opening powers of China’s “red nobility,” a potent network of Communist Party leaders, their families and their friends.

A confidential January 2007 Henderson memo obtained by The Washington Post lays bare the property developer’s calculations, describing the two organizations as “a bridge for our company to link up with the State Administration of Foreign Exchange. They claim to have intimate connections with high levels at SAFE, and have certain influence.”

The principal span of this “bridge” was Shenzhen Zhaotian Investments, a China-registered private company headed by Tian Chenggang, the son of a former member of the Communist Party’s supreme decision-making body, the Politburo Standing Committee. A second connection was provided by the Strait Peaceful Reunification Foundation, a Hong Kong group with close ties to the brother of another former Standing Committee member. What the two outfits did exactly is unclear, but Henderson ended up facing only a modest fine.

The episode, detailed in documents relating to a recent Hong Kong court case triggered by a dispute over consulting fees, illuminates a small corner of a booming but almost entirely hidden Chinese industry: influence peddling by members of Communist Party aristocracy. The children and other relatives of party barons, known as princelings, dominate the market in high-level connections, a valuable commodity in a country where the will of the party often trumps the rule of law.

The role — and riches — of China’s princelings has become a particularly touchy issue in the run-up to a party congress this fall that is expected to elevate Vice President Xi Jinping, theson of a Mao-era revolutionary hero, to the summit of power in Beijing.

Xi’s family has not been linked to any evidence of trading influence for cash, but the recent purge of Chongqing party chief Bo Xilai, another prominent princeling, has focused attention on the lavish lifestyles and often mysterious wealth of senior ruling-party families.

In recent weeks, pictures of Bo’s son Guagua have been plastered across the Internet, showing the Harvard student cavorting at bacchanalian parties. (Xi’s daughter also studies at the school but keeps a lower, more button-down profile.)

Bo’s wife, Gu Kailai — a lawyer and the daughter of an early People’s Liberation Army general — is now in detention and under investigation in the death of British business consultant Neil Heywood, an estranged Bo family friend and onetime business adviser. Gu used to run a consulting business, assisting foreign companies trying to find their way in China. Bo’s wife and her sister, along with Bo’s brother, a businessman in Beijing, have stakes in a string of ventures in China and abroad.

For his lobbying on behalf of Henderson during the 2006 currency investigation, Tian demanded about $5.5 million, according to a summary of the saga presented last month by Judge David Yam Yee-kwan. Henderson told the court that it was ready to pay for Tian’s help but judged his fees exorbitant and, challenging his assertions that there was a prior agreement on his fee, refused to pay that amount. The quarrel went to court in Hong Kong last year, and a verdict was issued last month. Tian’s investment firm lost the case and is appealing.

Henderson Land Development, the Hong Kong parent of the Beijing real estate developer, refused, through its attorneys, to comment on its use of outside consultants, or to reply to written questions, citing the ongoing legal proceedings. Testifying this past fall on the 27th floor of Hong Kong’s High Court building, Tian displayed a demeanor that helps explain why many of China’s princelings are so deeply unpopular with many ordinary Chinese.

“He tried to project an air of superiority. . . .His attitude was contemptuous and disrespectful,” the judge wrote in his March decision. Tian, added the judge, kept “looking around all the time, while avoiding giving straight answers to the questions.” Tian also raised eyebrows by bringing bodyguards into the courtroom, according to journalists who covered the trial.

Resentment toward the families of party elite has bubbled for years in China, stirred by a widespread belief that they are arrogant, flout rules with impunity and leverage their privileged access and clout within the party for personal gain.

When Chinese students first took to the streets during the Tiananmen Square protests in 1989, an explosive handwritten poster appeared at Peking University. It listed party leaders and the business interests of their relatives. The list was torn down immediately after the military moved in to crush the protesters and troops entered campuses.

Since then, China’s economy — a mix of private and state enterprises and heavily dependent on bureaucratic diktat — has grown nine times as big. Profiteering by officials and their families has expanded rapidly, too — and grown even more politically sensitive.

“How to Manage a Successful Business in China,” a 2010 book offering tips on how to negotiate pitfalls in China, describes high-level connections as an indispensable key to success but also warns that princelings, because of their often haughty manner and sense of entitlement, are a potentially disruptive force.

“It is usually a better idea to keep such persons at arm’s length by using them as well paid consultants,” advise the book’s Swedish authors, Johan Bjorksten and Anders Hagglund, both of whom have worked extensively in China. Princelings “can play an important role as door openers but sooner or later you will have to ‘own’ your own network of key relationships in order to ensure business security and success.”

On April 11, just hours after announcing Bo’s ouster from the Politburo and Central Committee and his wife’s arrest, the party, through its official mouthpiece, the People’s Daily, lashed out at unnamed officials whose families amass unexplained riches. “Many use designated third parties — spouses, sons and daughters, lovers or friends” to generate and conceal wealth, complained the newspaper.

The mechanisms by which princelings turn privilege into profit are numerous and, even when aboveboard, are protected by a carapace of secrecy around party barons and their kin. The legal battle in Hong Kong, however, offers a glimpse into the activities of a clutch of companies and associations that, according to court documents, corporate records and interviews, are closely tied to relatives of two former members of the Politburo Standing Committee, Tian Jiyun, China’s former vice premier, and Zeng Qinghong, a former vice president.

Their work for Henderson, according to court documents, consisted largely of lobbying Chinese officials to go easy on the real estate company over alleged violations of elaborate regulations governing the movement of foreign currency in and out of China.

At a November 2006 lunch meeting at Hong Kong’s Grand Hyatt Hotel, for example, Tian Chenggang, the son of Tian Jiyun, assured a Beijing Henderson executive that he had “started to mediate” a deal with the State Administration of Foreign Exchange, according to the summary of events presented by the judge.

Tian also said that he got his aged father — China’s senior economic policymaker for nearly 10 years — to come out of retirement and lobby the developer’s case with officials at SAFE and “believed there would be a prompt settlement.” Tian asserted in court that the Beijing foreign exchange agency initially intended to levy a fine of at least 30 percent on the developer’s currency remittances but, thanks to his intervention, settled for 0.6 percent.

Henderson also got a fine lowered, according to the Hong Kong judge’s ruling, after a 2005 investigation that was mediated by associates of Zeng Qinghuai, the brother of the former vice president. For those services, Henderson agreed to about $650,000 in fees. The judge decided that the $5.5 million bill from Tian’s firm for the 2006 case was “far in excess” of the earlier payment.

Lobbying in the earlier case was handled by Tianli (Hong Kong) Trading Co. and the Strait Peaceful Reunification Foundation, which does not appear in an official registry of Hong Kong companies and associations, despite requirements that all companies conducting business here file such registrations. Like Tian’s Shenzhen Zhaotian Investments, the Reunification Foundation and Tianli Trading have no obvious expertise in China’s complicated foreign currency regulations — but they do have high-level connections.

Tianli Trading — Tianli means heavenly profit — and the Reunification Foundation also intervened on the property developer’s behalf with officials at SAFE, according to the Hong Kong judge’s ruling. As part of what the judge termed “business consultancy services,” they also worked with Henderson to try to settle a dispute in Beijing over a real estate deal that went sour. For that, the trading company and the Reunification Foundation received a $2.1 million cash advance from Henderson but did not settle the problem, the judge wrote.

A complex web

Members of China’s “red nobility” are a diverse group. Some princelings hold senior positions in the military, others are executives in state-run banks and companies, while others have gone into private business, particularly finance and consulting. They also span different political factions and generations.

Tian Jiyun, Tian Chenggang’s father, rose to prominence in the 1980s and gained a reputation as an open-minded reformer. His star faded after the 1989 Tiananmen massacre, but he kept his Politburo slot and went on to a number of other senior positions.

Zeng Qinghong, whose brother, Zeng Qinghuai, is also involved in consulting, is by contrast a pillar of the more conservative post-Tiananmen order. The son of Zeng Shan, an early revolutionary, Zeng served as the right-hand man of now-ailing former party chief Jiang Zemin and played an important part in the selection of Vice President Xi as the likely next party boss.

Zeng’s brother and Tian’s son have nonetheless found common cause in business and cultural activities. Both declined to be interviewed.

Zeng Qinghuai, who moved to Hong Kong in the 1990s as an envoy of China’s Culture Ministry, is listed in company registration filings here as living on the 38th floor of aluxury apartment complex. The rent on such an apartment, according to the building’s manager, is at least $11,500 a month.

Zeng has fingers in many pies, from moviemaking and publishing to an auto-parts manufacturer he advises in Liaoning province, where now-disgraced Bo Xilai first made his name, and various Hong Kong ventures. Active in the entertainment business in Beijing and Hong Kong, Zeng is widely thought to be a friend of Peng Liyuan, the singer wife of Xi.

Zeng also sits on the board of the Chinese Cultural Exchange Association, a Hong Kong organization that has at least three large, well-appointed offices but that rarely surfaces in public. Its only visible recent venture was the publication, in collaboration with Wen Wei Po, a party-controlled Hong Kong newspaper, of a thick coffee table book celebrating ties between Taiwan and mainland China.

Tian Chenggang also had a hand in the book, launched in September at a grand Beijing ceremony attended by senior Chinese officials. Two of the exchange association’s directors also serve on the board of Tian Chenggang’s Shenzhen Zhaotian Investments, registration records show.

Zeng’s activities have overlapped with those of Tian, who is also involved with the Liaoning auto-parts manufacturer, with which his Shenzhen Zhaotian Investments launched a $237 million joint mining project. Henderson initially engaged Tian’s firm to help with the 2006 currency investigation on the recommendation of the Reunification Foundation and Tianli Trading, of which Zeng is a director and which the Hong Kong judge described as an “associated company” of the foundation.

When Tian ran into trouble getting Henderson to pay his consulting fees, Tianli Trading and the Reunification Foundation gave him $1.6 million as a partial payment. They took the money from the $2.1 million advance paid earlier by Henderson for settlement of the failed property deal. The Hong Kong judge said the money had been paid to Tian’s company “without authority” by the Reunification Foundation, and he ordered that the full advance be returned to Henderson.

A visit to office addresses listed in court documents for Tianli Trading and the Reunification Foundation show no sign of either organization. Both the listed premises are occupied instead by the Chinese Cultural Exchange Association.

On a recent afternoon, the only person working at the association was Wu Hao, a student from mainland China whose business card describes him as “secretary to the president.” He declined to name the president, saying only that Zeng Qinghuai is “a boss.” He declined to elaborate on what Zeng and the association actually do. “Their internal matters are very complicated,” Wu said.

Source: Washington Post

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