MCLC: family ties

[Denton, Kirk]

MCLC LIST
From: kirk (denton.2 at osu.edu)
Subject: family ties
***********************************************************

Source: NYT (5/17/12):
http://www.nytimes.com/2012/05/18/world/asia/china-princelings-using-family
-ties-to-gain-riches.html

‘Princelings’ in China Use Family Ties to Gain Riches
By DAVID BARBOZA and SHARON LaFRANIERE

SHANGHAI — The Hollywood studio DreamWorks Animation recently announced a
bold move to crack China’s tightly protected film industry: a $330 million
deal to create a Shanghai animation studio that might one day rival the
California shops that turn out hits like “Kung Fu Panda” and “The
Incredibles.”

What DreamWorks did not showcase, however, was one of its newest — and
most important — Chinese partners: Jiang Mianheng, the 61-year-old son of
Jiang Zemin, the former Communist Party leader and the most powerful
political kingmaker of China’s last two decades.

The younger Mr. Jiang’s coups have included ventures with Microsoft and
Nokia and oversight of a clutch of state-backed investment vehicles that
have major interests in telecommunications, semiconductors and
construction projects.

That a dealmaker like Mr. Jiang would be included in an undertaking like
that of DreamWorks is almost a given in today’s China. Analysts say this
is how the Communist Party shares the spoils, allowing the relatives of
senior leaders to cash in on one of the biggest economic booms in history.

As the scandal over Bo Xilai continues to reverberate, the authorities
here are eager to paint Mr. Bo, a fallen leader who was one of 25 members
of China’s ruling Politburo, as a rogue operator who abused his power,
even as his family members accumulated a substantial fortune.

But evidence is mounting that the relatives of other current and former
senior officials have also amassed vast wealth, often playing central
roles in businesses closely entwined with the state, including those
involved in finance, energy, domestic security, telecommunications and
entertainment. Many of these so-called princelings also serve as middlemen
to a host of global companies and wealthy tycoons eager to do business in
China.

“Whenever there is something profitable that emerges in the economy,
they’ll be at the front of the queue,” said Minxin Pei, an expert on
China’s leadership and professor of government at Claremont McKenna
College in California. “They’ve gotten into private equity, state-owned
enterprises, natural resources — you name it.”

For example, Wen Yunsong, the son of Prime Minister Wen Jiabao, heads a
state-owned company that boasts that it will soon be Asia’s largest
satellite communications operator. President Hu Jintao’s son, Hu Haifeng,
once managed a state-controlled firm that held a monopoly on security
scanners used in China’s airports, shipping ports and subway stations. And
in 2006, Feng Shaodong, the son-in-law of Wu Bangguo, the party’s
second-ranking official, helped Merrill Lynch win a deal to arrange the
$22 billion public listing of the giant state-run bank I.C.B.C., in what
became the world’s largest initial public stock offering.

Much of the income earned by families of senior leaders may be entirely
legal. But it is all but impossible to distinguish between legitimate and
ill-gotten gains because there is no public disclosure of the wealth of
officials and their relatives. Conflict-of-interest laws are weak or
nonexistent. And the business dealings of the political elite are heavily
censored in the state-controlled news media.

The spoils system, for all the efforts to keep a lid on it, poses a
fundamental challenge to the legitimacy of the Communist Party. As the
state’s business has become increasingly intertwined with a class of
families sometimes called the Red Nobility, analysts say the potential
exists for a backlash against an increasingly entrenched elite. They also
point to the risk that national policies may be subverted by leaders and
former leaders, many of whom exert influence long after their retirement,
acting to protect their own interests.

Chinese officials and their relatives rarely discuss such a delicate issue
publicly. The New York Times made repeated attempts to reach public
officials and their relatives for this article, often through their
companies. None of those reached agreed to comment on the record.

DreamWorks and Microsoft declined to comment about their relationship with
Mr. Jiang.

A secret United States State Department cable from 2009, released two
years ago by the WikiLeaks project, cited reports that China’s ruling
elite had carved up the country’s economic pie. At the same time, many
companies openly boast that their ties to the political elite give them a
competitive advantage in China’s highly regulated marketplace.

A Chinese sportswear company called Xidelong, for example, proudly
informed some potential investors that one of its shareholders was the son
of Wen Jiabao, according to one of the investors. (A private equity firm,
New Horizon, that the son, Wen Yunsong helped found invested in the
company in 2009, according to Xidelong’s Web site.) “There are so many
ways to partner with the families of those in power,” said one finance
executive who has worked with the relatives of senior leaders. “Just make
them part of your deal; it’s perfectly legal.”

Worried about the appearance of impropriety and growing public disgust
with official corruption, the Communist Party has repeatedly revised its
ethics codes and tightened financial disclosure rules. In its latest
iteration, the party in 2010 required all officials to report the jobs,
whereabouts and investments of their spouses and children, as well as
their own incomes. But the disclosure reports remain secret; proposals to
make them public have been shelved repeatedly by the party-controlled
legislature.

The party is unlikely to move more aggressively because families of
high-ranking past and current officials are now deeply embedded in the
economic fabric of the nation. Over the past two decades, business and
politics have become so tightly intertwined, they say, that the Communist
Party has effectively institutionalized an entire ecosystem of crony
capitalism. “They don’t want to bring this into the open,” said Roderick
MacFarquhar, a China specialist at Harvard University. “It would be a
tsunami.”

Critics charge that powerful vested interests are now strong enough to
block reforms that could benefit the larger populace. Changes in banking
and financial services, for instance, could affect the interests of the
family of Zhu Rongji, China’s prime minister from 1998 to 2003 and one of
the architects of China’s economic system. His son, Levin Zhu, joined
China International Capital Corporation, one of the country’s biggest
investment banks, in 1998 and has served as its chief executive for the
past decade.

Efforts to open the power sector to competition, for example, could affect
the interests of relatives of Li Peng, a former prime minister. Li
Xiaolin, his daughter, is the chairwoman and chief executive of China
Power International, the flagship of one of the big five power generating
companies in China. Her brother, Li Xiaopeng, was formerly the head of
another big power company and is now a public official.

“This is one of the most difficult challenges China faces,” said Mr. Pei,
an authority on China’s leadership. “Whenever they want to implement
reform, their children might say, ‘Dad, what about my business?’ ”

There are also growing concerns that a culture of nepotism and privilege
nurtured at the top of the system has flowed downward, permeating
bureaucracies at every level of government in China. “After a while you
realize, wow, there are actually a lot of princelings out there,” said
Victor Shih, a China scholar at Northwestern University near Chicago,
using the label commonly slapped on descendants of party leaders. “You’ve
got the children of current officials, the children of previous officials,
the children of local officials, central officials, military officers,
police officials. We’re talking about hundreds of thousands of people out
there — all trying to use their connections to make money.”

To shore up confidence in the government’s ability to tackle the problem,
high-ranking leaders regularly inveigh against greedy officials caught
with their hand in the till. In 2008, for instance, a former Shanghai
Party secretary, Chen Liangyu, was sentenced to 18 years in prison for
bribery and abuse of power. One of his crimes was pressing businessmen to
funnel benefits to his close relatives, including a land deal that netted
his brother, Chen Liangjun, a $20 million profit.

But exposés in the foreign press — like the report in 2010 that Zeng Wei,
the son of China’s former vice president Zeng Qinghong, bought a $32
million mansion in Sydney, Australia — are ignored by the Chinese-language
news media and blocked by Internet censors.

Allegations of bribery and corruption against the nation’s top leaders
typically follow — rather than precede — a fall from political grace. Mr.
Bo’s downfall this spring, for instance, came after his former police
chief in Chongqing told American diplomats that Mr. Bo’s wife, Gu Kailai,
had ordered the murder of Neil Heywood, a British businessman, in a
dispute over the family’s business interests.

Evidence has surfaced of at least $160 million in assets held by close
relatives of Bo Xilai, and the authorities are investigating whether other
assets held by the family may have been secretly and illegally moved
offshore.

Wen Jiabao, the prime minister, responded by demanding a more forceful
crackdown on corruption. Without naming Mr. Bo by name, People’s Daily,
the official Communist Party newspaper, denounced fortune seekers who
stain the party’s purity by smuggling ill-gotten gains out of the country.

Some scholars argue that the party is now hostage to its own unholy
alliances. Cheng Li, an expert on Chinese politics with the Brookings
Institution in Washington, said it would be difficult for the Chinese
government to push through major political reforms aimed at extricating
powerful political families from business without giving immunity to those
now in power.

And with no independent judiciary in China, he said, party leaders would
essentially be charged with investigating themselves. “The party has said
anticorruption efforts are a life-and-death issue,” Mr. Li said. “But if
they want to clean house, it may be fatal.”

Chinese tycoons have also been quietly welcomed into the families of
senior leaders, often through secret partnerships in which the sons,
daughters, spouses and close relatives act as middlemen or co-investors in
real estate projects or other deals that need government approval or
backing, according to investors who have been involved in such
transactions.

Moreover, China’s leading political families, often through
intermediaries, hold secret shares in dozens of companies, including many
that are publicly listed in Hong Kong, Shanghai and elsewhere, according
to interviews with bankers and investment advisers. Lately, the progeny of
the political elite have retooled the spoils system for a new era, moving
into high-finance ventures like private equity funds, where the potential
returns dwarf the benefits from serving as a middleman to government
contracts or holding an executive post at a state monopoly.

Jeffrey Zeng, the son of the former Politburo member Zeng Peiyan, is a
managing partner at Kaixin Investments, a venture-capital firm set up with
two state-owned entities, China Development Bank and Citic Capital. Liu
Lefei, the son of another Politburo member, Liu Yunshan, helps operate the
$4.8 billion Citic Private Equity Fund, one of the biggest state-managed
funds. Last year, Alvin Jiang, the grandson of former president Jiang
Zemin, the former Communist Party leader and president, helped establish
Boyu Capital, a private equity firm that is on its way to raising at least
$1 billion.

Most recently, with the Communist Party promising to overhaul the nation’s
media and cultural industries, the relatives of China’s political elite
are at the head of the crowd scrambling for footholds in a new frontier.

The February announcement of the deal between DreamWorks and three Chinese
partners, including Shanghai Alliance Investment, was timed to coincide
with the high-profile visit to the United States of Xi Jinping, China’s
vice president and presumptive next president. The news release did not
mention that Shanghai Alliance is partly controlled by Jiang Zemin’s son
Jiang Mianheng. A person who answered the telephone at the Shanghai
Alliance office here declined to comment.

Zeng Qinghuai, the brother of Zeng Qinghong, China’s former vice
president, is also in the film business. He served as a consultant for the
patriotic epic “Beginning of the Great Revival.” The film exemplified the
hand-in-glove relationship between business and politics. It was shown on
nearly 90,000 movie screens across the country. Government offices and
schools were ordered to buy tickets in bulk. The media was banned from
criticizing it. It became one of last year’s top-grossing films.

Scholars describe the film industry as the new playground for princelings.
Zhang Xiaojin, director of the Center of Political Development at Tsinghua
University, said, “There are cases where propaganda department officials
specifically ask their children to make films which they then approve.”

Zhao Xiao, an economist at the University of Science and Technology in
Beijing, said, “They are everywhere, as long as the industry is
profitable.”