Rich pickings

Debate rages over why so many tycoons end up in jail

Xu Ming w

Mug shot: Xu Ming is in jail

The term ‘robber baron’ was first used in the mid-13th century in medieval Germany. These unscrupulous men got their name from piracy on the Rhine river, although the term would resurface 600 years later in North America – this time to describe the plutocrat industrialists of the gilded age. There, it became a derogatory label for the sharpest business practices of the era and the vast fortunes amassed. The most successful robber barons were monopolists who stamped out competition, abused the stock market and peddled influence in government for financial gain.

The barons lived at a time when the American economy was the most exciting ‘emerging market’ around. That draws comparison with modern-day China as does likewise the numerous entrepreneurs who have also amassed vast personal fortunes. But while America’s robber barons are best remembered for their subsequent acts of philanthropy, their Chinese equivalent are increasingly associated with a less wholesome legacy: spending time in jail.

International Finance News calculates that “at least 100” tycoons have been sent to prison over the past decade and the topic was back in the news during the recent trial of Bo Xilai, the purged Party boss of Chongqing. One of those giving evidence against him was Xu Ming, founder of the Dalian Shide conglomerate, who was detained by the authorities in March last year and then disappeared from sight until last month’s trial.

In fact, the rumour was that Xu might have died in custody, such was his absence from the media coverage of the scandal. Not so: Xu finally reappeared during court proceedings, when he testified against Bo. The once overweight billionaire was much thinner from his prison diet, with International Finance News describing him as “almost unrecognisable”. But what emerged during his testimony was that Xu’s conglomerate had benefitted from Bo’s assistance. In return he provided financially for Bo’s family. The hearing portrayed this as a corrupt nexus between an ambitious businessman and a powerful politician.

International Finance News – which is run by the People’s Daily – says that such cases aren’t unique. In fact, they have become institutionalised by the system itself. Government officials control business permits, access to finance and licences for natural resources, ensuring that many entrepreneurs cultivate “delicate relationships” with such figures – often ties that lead to bribery. Collaboration can work well for both sides, particularly when the official can bestow sweetheart deals and the businessman is savvy enough to profit from them. But if the political patron loses favour, almost inevitably the tycoon risks exposure.

The Economic Observer says tycoon jailings have become so common that they have “implanted a deep insecurity in the hearts of China’s rich”. It adds that this explains why so many wealthy business owners are going abroad (see WiC185) or at least securing residency rights outside China. Although many in the business elite have made their fortunes by bending the rules, they fear that the loss of their patrons leaves them at the mercy of political infighting. “Rule of man instead of rule of law has greatly shaken the confidence of entrepreneurs,” says the newspaper.

Such is the extent of the dilemma that it has triggered debate between two influential business leaders. The discussion began after the founder of Lenovo, Liu Chuanzhi, told a group of entrepreneurs that they should lie low and not draw attention to themselves by expressing opinions or lobbying for reforms. Liu seemed to suggest it was possible for the successful business person to avoid politics entirely and focus purely on the bottom line.

But media commentators and netizens were far from convinced, given that so many business decisions in China are influenced by the political context.

In response to Liu’s view, Wang Shi took a punchier line. The Vanke chairman gave a speech at Tencent’s annual staff conference warning that entrepreneurs “should not just bury our heads in work without talking” but should “stand up and say ‘no’ when society is going backwards and in danger.”

Property boss Wang thought that entrepreneurs owed it to others to seek to improve China and guide the government in the right direction. He agreed that tycoons had the option to “vote with their feet” but he thought a better path in the current “transitional society” was to stay in China, or as he put it “vote more with their hands than their feet”.

But even Wang seems to recognise it isn’t easy to be outspoken. He admitted that he had been “disgusted” by Bo Xilai’s campaign to revive Maoist revolutionary songs in Chongqing, for instance, but acknowledges that he did not express this view publicly at the time.

Indeed the arrest of another tycoon may bring the Liu-Wang debate to a cautionary conclusion. As we pointed out last week, it seems probable that Xue Manzhi was arrested precisely because he was so opinionated on his personal weibo – albeit Xue was detained for paying for sex, rather than political favour.

Robber barons beware…

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