The Age, May 25, 2012
Monday, June 4, 2012
Princelings and paupers - John Garnaut
Princelings and paupers
The Age, May 25, 2012
The Age, May 25, 2012
WHEN the kingmaker of Chinese politics, Zeng Qinghong, asked to see the quintessential Australia, his diplomatic minders treated him to jugs of beer and an oversized fillet steak at Brisbane's Breakfast Creek Hotel. Next stop was Sydney, where he dropped in to Rupert Murdoch's Fox studios and was introduced to Nicole Kidman and Ewan McGregor on the set of Moulin Rouge. "He had a grin from ear to ear," says a source who accompanied him at the time.
Zeng was then taken for a leisurely early dinner at Lachlan Murdoch and Sarah O'Hare's mansion in Wolseley Road, Point Piper. Rupert Murdoch was accompanied by his new wife, Wendi Deng, who performed as Zeng's guide and translator and took the lead in persuading him why News Corporation's Star TV should be beamed into China. ''Wendy was definitely running the show,'' the chaperone says.
One of Sydney's finest restaurants was closed for the day so its chefs could prepare Zeng's seafood extravaganza, featuring huge green-lip abalone, to be consumed as the sun set over the Sydney Opera House and Harbour Bridge.
Zeng had clearly enjoyed rolling up his sleeves and bantering with the punters at the Breaky Creek Hotel, but he was even more impressed with the Murdochs' stunning harbour views. In 2008, just after he had brokered the deal that installed Xi Jinping next president and Communist Party secretary, Zeng's son paid $32 million for a home with an identical harbour vista, diagonally across the road.
The century-old mansion, Craig-y-Mor, used to be the home of Australia's most famous insider trader, Rene Rivkin. The Chinese purchase did not attract attention until 2010, when Zeng Wei applied to Woollahra Council for approval to knock it down and build something more expansive. Zeng Wei won the council battle and demolition workers are expected soon. But he is rarely home, as there is still too much money to be made in China.
As the lure of the market grows ever greater and the Communist Party refuses to fetter its administrative powers or subject itself to any laws, ambitious officials and entrepreneurs have found it difficult to accumulate wealth and impossible to defend it without currying the favour of princelings or others welded into the party-state. They gravitate to the ''princeling'' children of leading revolutionaries, like Zeng Qinghong, and grand princelings, like Zeng Wei, knowing that doors open for them and officials or competitors won't dare disturb their interests.
Four years after Zeng Wei's purchase - which remains the most egregious confirmed example of Communist Party princelings flaunting their wealth - China's leaders are again grappling with being unable or unwilling to control the privileges that flow towards their relatives. The reformist advocacy of Premier Wen Jiabao has long been discounted because of his wife and son's aggressive uses of family status to pursue private business opportunities. And now the purged Politburo member Bo Xilai also stands exposed to allegations of great hypocrisy as foreign journalists pore over his family's financial dealings.
While Bo Xilai was reviving Maoist nostalgia on his official's salary of about $US1600 a month, his son was renting a presidential-style suite at Oxford and driving a Porsche in the United States. Bo Xilai's elder brother adopted an alias to control $US10 million worth of shares at the Hong Kong-listed subsidiary of a state-owned bank. Two sisters of Bo's wife control business interests worth $US126 million, according to what a Bloomberg investigation could identify. And his wife, Gu Kailai, stands accused of murdering an English friend, Neil Heywood, after they fell out over money.
Zeng Qinghong, Bo Xilai and Wen Jiabao are all immensely capable individuals, engaging and at ease in any company. Zeng and Bo, who were born into the heart of the communist aristocracy, are far more interested in accumulating power and defending the regime than acquiring the trappings of wealth. In today's China, however, even simple living and apparently idealistic leaders have found it difficult to deny their families access to the power and largesse that naturally flow their way.
Of the nine members of the current Politburo Standing Committee, at least six have children who have profited handsomely from their family status. Since the tragedy of Tiananmen, leaders have collectively failed to find a way of limiting each other's family privileges without fracturing the solidarity between them. It is becoming a regime-threatening vulnerability.
The Communist Party has not seriously tackled corruption among its princeling children since 1986, when the country was poor and tentatively opening itself to the power of the market. The reformist party chief, Hu Yaobang, fought to limit the privileges of leaders' children and even empowered his security apparatus to arrest the son of a Politburo member, Hu Qiaomu, over an embezzlement and pornography racket. Many party elders were disturbed by his audacity, given they also had children who were engaged in murky business dealings. Hu Yaobang's attempt to limit princeling corruption was a factor in him being purged in 1987, according to one of his children.
Nepotism, corruption and specifically the fortunes of leading princeling children fanned the popular outrage that became the Tiananmen protests after the trigger of Hu Yaobang's death. Hu's reformist successor, Zhao Ziyang, moved to respond to protester demands by proposing to have his own family assets investigated, but he himself was purged. When Zhao's successor, Jiang Zemin, was flown in by helicopter from Shanghai to piece the party back together, he brought with him the princeling powerbroker Zeng Qinghong.
The mission was no longer to limit princeling largesse but to manage egos, ambitions and jealousies within that rarefied world in order to optimise the political support that flowed from it. Zeng became the go-to man for favours, positions and advice. He managed, cajoled and manipulated China's most powerful princelings. But his prodigious powers of persuasion stopped at his own front door. He could not control his own son.
In 1993, as head of the party's General Office, a post akin to cabinet secretary, Zeng asked a friend to place his son, Zeng Wei, in a Melbourne university, because he had been unable to gain a place in China's intensely competitive system. ''Let him go out and work, in a restaurant, don't let him lean on others,'' said the father, according to a source familiar with the conversation. Zeng's friend found a sponsor in the Chinese community and arranged university entry and accommodation. But 25-year-old Zeng Wei never turned up.
Zeng Qinghong proudly explained to his friend that his son had decided instead to become an ordinary businessman, engaged in laboriously selling real things that people needed, and had even delivered his father a truckload of watermelons to prove it. Neither the father or the friend had any inkling that within one year after Zeng Wei's no-show in Melbourne, he had progressed from selling melons to promoting multimillion-dollar events. The friend recalls seeing Zeng Wei in a corporate box at the Workers' Stadium in 1994 for an exhibition soccer match between the Beijing soccer team and AC Milan, and embarrassing himself by trying to make an introduction with the CITIC boss, Wang Jun.
''Wang Jun said, 'I know him well, this game is sponsored by Zeng Wei, he invited AC Milan','' recalls the friend. ''He went from study, to watermelons, to this!''
By the time Zeng Qinghong was planning his trip to Sydney in 1999, his son was a wealthy man. Ambitious businessmen across the country, including many princeling children of his father's friends, were falling over themselves to cut deals and be seen to be close to the son of China's most important political powerbroker. ''Talking about all these princelings taking positions in government and wealth in the private sector, I think it's quite natural and may not be a bad thing,'' says the Chinese head of a foreign investment bank in China, who counts himself as a friend of Zeng Wei. ''If it's not them making money it will be somebody else.''
Rupert Murdoch had been fast to grasp the potential of the Chinese market and that his fortunes there would depend on Chinese politicians. When he heard about Zeng's visit his staff peppered Australian diplomats with phone calls until he had carved out a large slice of the Sydney itinerary. At the mansion in Point Piper, Murdoch brought in singer-guitarist Jimmy Little to perform and arts consultant Jean Battersby to hang the finest of his Australian works on the walls.
The next year Zeng returned the hospitality by hosting Murdoch and Deng at the Chinese opera in Beijing. (In the end Murdoch's lobbying efforts failed and he pulled out of the market.)
In 2002, Zeng was promoted to the Politburo Standing Committee and then to vice-president, while his patron Jiang bowed out from front-line duties. Ambitious politicians, officials and entrepreneurs continued their efforts to cultivate ties. Zeng's brother, based in Hong Kong, earned a reputation for aggressively muscling into business opportunities and facilitating compromises with Hong Kong businesspeople who encountered regulatory problems on the mainland.
Zeng Wei, meanwhile, was working on an altogether bigger plane. In the 1990s, Zeng Wei became close friends with the deputy chairman of the Securities Regulatory Commission, Wang Yi, according to a Zeng family friend and business associates of Zeng Wei. The friendship blossomed at a time when the regulator was discovering that it had access to valuable information about state-owned companies that were seeking to list shares on China's nascent stock exchanges. It also had the power to make or break fortunes by providing private companies with listing approvals.
Wang Yi fancied himself as a composer and a composition under his name became the anthem of the Shenzhen Stock Exchange and later a staple of the China National Symphony Orchestra. The friendship turned disadvantageous when Wang was detained by party investigators in a probe into securities market violations, although he was later jailed on unrelated corruption charges.
In 2007 investigative reporters at Caijing Magazine found that 92 per cent of the shares in the power-generating company Luneng, with net assets valued at 74 billion yuan, had been transferred to two unknown private companies for 3.7 billion yuan. A follow-up magazine edition was recalled. Sources close to the Zeng family and the investigation reveal Zeng Wei was involved in the multibillion-dollar transfer of government assets.
Zeng Wei also teamed up with coal barons from Shanxi province, who were searching for protection from the risk of having their assets appropriated by entrepreneurs and officials further up the food chain. One of his partners hosted the wedding of his daughter at a beach resort in March, where the dowry alone was reported to consist of six Ferraris.
Zeng Wei became very close to a Hong Kong property developer, Renhe Commercial, which made its money by streamlining military approval processes and converting bomb shelters into shopping centres in southern China. The company president, Dai Yong'ge, joined Zeng and wife Jiang as directors of a company in Australia, shortly before Renhe listed on the Hong Kong stock exchange.
THE blurring of state and private interests that took place with the early princelings in the '80s looks trifling compared with the melding of politics and business today.
Some of China's most respected public intellectuals are warning that the society and economy are being held hostage to the wealth-maximising requirements of the political elite. Such warnings are being echoed privately in business circles, too.
The private wealth of the party's princelings is usually well concealed, including through the use of multiple identities. But they provide key bridges between politics and the market. Many are joining or establishing investment vehicles and have inserted themselves as agents to lubricate or clog the arteries of private-sector wealth. Stock exchanges double as vehicles for converting family political capital into cash, which can be reconverted into political power. State-owned enterprises can allocate massive contracts in their favour and entrepreneurs split their profits with them in exchange for regulatory protection.
In investment banking and private equity circles, the best known princeling entrepreneurs are Winston Wen, son of Premier Wen Jiabao; Li Tong, daughter of the propaganda chief; and Wilson Feng, whose father-in-law heads the National People's Congress and has responsibility for state-owned enterprises. Other children of China's top nine leaders are said to be aggressively pursuing opportunities. They include:
■ Jia Jianguo, son of the head of the party's ''united front'' work (involved in one of Beijing's most controversial developments, at Dongzhimen Station);
■He Jintao, son of the party's anti-corruption chief and former Organisation Department head (facilitated a complicated restructuring of the Guangdong Investment Trust and Investment Corporation, which left creditors frustrated);
■Zhou Bin, son of oil czar and security chief Zhou Yongkang (contracting with China's big oil companies).
The business operations of all six princelings relate to the portfolios of their fathers (or father-in-law, in the case of Wilson Feng).
China's army of propaganda officials ensure that the private dealings of cadre children never make it into mainstream Chinese media. Nevertheless, even China's official mouthpieces acknowledge the public's growing discontent when it suits them, as they did shortly after the purge of Bo Xilai. ''The spouses and children of some cadres have taken advantage of their power to seek personal gains, disregarding the law, thus stirring public outcry,'' said Xinhua on April 14.
The hypocrisy of Communist Party leaders using socialist ideals to justify their dictatorship, while allowing their children to make millions, is not only alienating ordinary citizens, it is splitting the princelings. Many believe the recent crop of leaders has betrayed and may yet destroy the Communist Party their parents spilled blood for. These descendants of revolutionary leaders reject the term ''princelings'' for its aristocratic connotations and draw a line between themselves and children of ''mere bureaucrats'', such as those listed above.
''In recent years we've heard about the second-generation bureaucrats (guanerdai) but we are not - we are the red successors (hongerdai),'' says Hu Muying, the daughter of Mao's long-time speech writer, Hu Qiaomu, who runs a large ''red successor'' organisation. ''My father's generation worked for the interest of the people, but officials today work to become officials, not serving the people but striving for their own power and interests while their children make huge profits from their parents' power.''
The Communist Party's ''red successors'' speak as if they would do anything to rid the nation of corruption. But their determination stops at the family home. What Hu Muying did not say was that it was her brother, Hu Shiying, who the reformist party boss Hu Yaobang had jailed for corruption in 1986. She has never forgiven Hu Yaobang.
Political analysts see the families of Zeng Qinghong, and his patron Jiang Zemin, as the pioneers of modern princeling business.
Since brokering a deal that saw him hand the vice-presidency to his princeling associate, Xi Jinping, at the 17th Party Congress in 2007, Zeng has confined his political activities to advising former president Jiang. According to a friend, his son's business dealings had contributed to his decision to decline even honorary positions, as they provided too much ammunition to his political enemies.
It seems the lasting legacy of Zeng Qinghong's visit to the Murdoch Point Piper mansion was his son's decision to begin the process of business migration to Australia. Zeng Wei wants his two sons to be educated in Australia, far from the white-knuckle adventures of Chinese politics and business. Regulatory scrutiny has also motivated Zeng to find an overseas refuge, should it be required, but the Communist Party has proven over 25 years that it hasn't got the stomach to discipline its own children.
John Garnaut is writing a book on China's princelings. A version of this story will also appear at foreignpolicy.com