Rail & Infrastructure, Talking Point

Chequebook journalism

Scandal as reporter admits he was paid to fabricate Zoomlion articles

Chen Yongzhou w

Chen Yongzhou: the CCTV caption reads “I am willing to plead guilty, and repent”

In “our judicial system” the public can see the “alleged perpetrators”, explained New York’s mayor Michael Bloomberg, after an angry French response to footage of former IMF chief Dominique Strauss-Kahn being paraded in handcuffs outside a New York police station. “I think it is humiliating,” Bloomberg agreed. “But if you don’t want to do the perp walk, don’t do the crime.”

It turned out Strauss-Kahn didn’t commit the crime in question, with a US judge dismissing his indictment for sexual assault in 2011. According to Reuters, the mayor then changed his tune. Mayor Bloomberg called the perp walk “outrageous” and a “circus”, drawing analogies with “Roman times”. But though his remarks clarified his disapproval of the practice – Bloomberg had “flip-flopped” from two months earlier, the Huffington Post thought – Bloomberg edged away from any responsibility. The mayor told media he had “no say” in the police department’s use of the practice.

Pre-trial perp walks came to mind in China too this week. This came in the wake of news reporter Chen Yongzhou being treated to the local equivalent: a televised confession on national television. Notably it was broadcast before formal charges had even been lodged against him.

In fact, the case looks like a murky affair for almost all the parties involved; Chen himself, his employer and a number of other newspapers, as well as the police, the state broadcaster CCTV, and perhaps even two of China’s largest construction equipment makers. All were drawn into the sordid row one way or another.

What’s the background to the story?

Chen Yongzhou, a reporter at New Express Daily in Guangzhou, was called to a police station in Guangzhou last month about a theft that he had previously reported. He went with his wife. When they arrived, the couple were detained by officers from Hunan and driven to the provincial capital Changsha where Zoomlion, one of China’s largest manufacturers of construction machinery, is headquartered.

For almost a year Chen had been writing articles accusing Zoomlion of malpractice including siphoning off state assets and falsifying financial information. In May he caused a major stir after claiming to have further information that the company was falsifying its accounts. Zoomlion’s shares were suspended from trading as a result and lost more than Rmb1.3 billion ($213 million) in market value, despite a rebuttal of the allegations as “false, groundless and misleading”.

In June Chen went a step further, reporting alleged wrongdoings to stock market regulators, although the China Securities Regulatory Commission said in a written reply that it found no evidence of false sales or conflicting data.

Gao Hui, the assistant to the Zoomlion chairman, fired back via weibo that Chen was a “black hand”. Chen and the newspaper launched legal proceedings for defamation.

In early September Changsha police received a formal complaint from Zoomlion about Chen’s activities. Shortly afterwards he was detained on criminal charges of damaging the company’s commercial reputation.

How did the media respond to the arrest?

After holding off on the story in hope that its reporter would be released, New Express went public on Wednesday last week with a front-page story under the headline “Please Release Him”, following up the next day with another splash under the headline “Again We Ask For His Release”.

“Uncle Policeman, Big Brother Zoomlion, we beg of you, please set Chen Yongzhou free!” it begged.

It questioned too why Chen’s case was being treated as a criminal affair and not a civil action. “We have always believed that if we just go out and responsibly do our reporting, there won’t be any problems and if by chance there are problems, we can print corrections and apologise,” the editorial stated. “If things are really serious, we prepare for the courtroom, and if we lose we pay compensation as it’s demanded. If we must close our doors, well then, that’s only what we deserve.”

Other commentators queried how to quantify damage to a company’s reputation in a case like Chen’s (the South China Morning Post said that Zoomlion’s share price rose nine times out of 12 on the Hong Kong exchange on days he published an article about the company, for instance). Elsewhere, wags suggested that CCTV could get into trouble on the same basis, because of its reports investigating the business practices of foreign firms.

Sina Finance’s Xiang Xiaotian was one of those to laugh off the charges, referring back to a recent feature from the state broadcaster that slammed overpriced coffee (see last week’s issue). “Following the same logic, I propose that Starbucks report CCTV to the Beijing Public Security Bureau for similar reasons,” he scoffed.

There was suspicion of special treatment too?

Another implication in the media was that Zoomlion was calling in favours from its state-owned shareholders in the Hunan government, who own about 16% of the company.

The fact that police from Changsha had travelled hundreds of miles to make the arrest in Guangzhou was soon triggering speculation that they were acting at Zoomlion’s behest, with Southern Metropolis Daily citing evidence from netizens that the Mercedes-Benz sent to collect Chen belonged to the company.

The newspaper also speculated openly about the involvement of the local government from Hunan. “Even more unsettling is if local authorities act only to serve local economic interests. And likewise if local authorities ignore legal limitations and preventative regulations to pursue cases and arrest suspects,” it warned. “Not only is this the ugly result of the failure to limit power, but it becomes a serious example of power doing evil.”

Others agreed that the Changsha authorities may have overstepped the mark. “The police are there to uphold the law, not to protect the backyard of a few special companies and people,” Yu Jianrong, a researcher at the Chinese Academy of Social Sciences, wrote on his weibo. “Changsha police must not remain silent,” the Beijing News also urged. “Please show what evidence you have in the light of day. Please let the law decide whether to detain him or free him, not who has more power or the loudest voice.”

Then the confession…

Before the media campaign could build up further steam there was a shocking revelation. Chen admitted to fabricating the stories or putting his name to material given to him by a third party. He was transformed from hero to villain overnight.

This was acutely embarrassing for New Express because it had promised only three days earlier that it had checked all of Chen’s reports and discovered only one relatively minor mistake.

“If Brother Policeman can find any evidence of shabby reporting on our part, please make notice of it and we will gladly doff our cap,” it assured.

But by Saturday morning CCTV was showing Chen handcuffed and head-shaven in an interrogation room making his confession. The information that he had presented was “absolutely not objective”, he admitted to police. “I’m willing to plead guilty and repent.”

“In this case I’ve caused damages to Zoomlion and also the whole news media industry and its ability to earn the public’s trust,” he continued. “I did this mainly because I hankered after money and fame.”

That elicited the promised cap-doffing from New Express. “Chen Yongzhou, a reporter from this newspaper, took money to publish a quantity of false reports … and our paper didn’t carefully scrutinise the articles. Furthermore, the inappropriate actions taken afterwards severely damaged our credibility and we were taught a lesson.”

How about the reaction since Chen was exposed?

Unsurprisingly Chen’s supporters have gone quiet, although his downfall will have done little to dissuade the media that the police are too eager to criminalise civil disputes.

Legal scholars have also voiced concerns about state TV’s new willingness to air confessions from suspects before formal charges have been made in court. “No matter if he’s guilty or not, there are serious issues with the procedures here,” Abe Yang, a lawyer with Dacheng Law Offices in Shenzhen, told Bloomberg after Chen came clean. “Even if the police believe they have enough evidence, it’s up to the court to decide whether he’s truly guilty.”

“This is a pattern. When there is difficulty convincing people, the best way to kill a conversation is to have CCTV announce that he’s guilty,” Fu Hualing, a law professor at the University of Hong Kong, told Sinosphere, a blog produced by the New York Times.

Chen’s shaming is the latest in a spate of public parades, including that of Xue Manzi, an outspoken venture capitalist with more than 12 million weibo followers, who was arrested for soliciting sex. Xue made his televised apology in September, also admitting to making “irresponsible” comments on the internet. Some see his treatment as part of a campaign to cower “Big V” personalities online (see WiC206).

Liang Hong, a vice president in China for GlaxoSmithKline, was also filmed confessing to bribery as part of an ongoing probe into graft in the pharmaceutical industry. But in Liang’s case and others like it, few of the men whose confessions have been broadcast seem to have been formally charged with criminal offences.

In September another New Express reporter called Liu Hu was arrested, apparently under the new anti-rumour laws, after he used his microblog to call for a high-ranking official to be investigated. According to statements from his lawyer (posted on weibo), Liu is refusing to acknowledge on camera that the allegations were false or that he is guilty of defamation. He is now awaiting trial.

An investor called Wang Weihua, was also detained in Shanghai this month by police from Xinjiang on charges of fabricating information. Wang wrote articles on the internet alleging accounting tricks and manipulation of stock prices at Guanghui Energy and the company reported him to police. But he is insisting via his own lawyer that his analysis was based on publicly available information and that he hasn’t benefitted personally from the bad publicity about the company.

This leads to warnings from Zhang Yuanzhong, a lawyer at the firm Wen Tian in Beijing, that the police must find reasonable evidence of a crime before taking a person such as Wang into custody. Zhang told Century Weekly that charges could only lead to a detention if “it’s proven that the information is untrue, or that a deduction is obviously flawed, or that the materials on which he based a judgement were completely fabricated.”

The case has prompted fresh questions, including whether Wang was arrested because of ties between Guanghui executives, whose company is a major taxpayer in Urumqi, and the city’s bureaucrats. Another is what it might mean for investment analysis in general if more companies start to push for criminal action against their critics. “Researchers who do not want to risk a surprise visit by police from a far-away city may decide to only report sunny skies at the firms they study,” Century Weekly warns.

How about Chen and Zoomlion? Case closed?

Once Chen had been exposed as a fraud, Zoomlion’s shares began to recover their declines of the previous week. That was in spite of reporting a 34% drop in third-quarter profit on Wednesday (to Rmb889 million) amid weak demand and excess capacity in its industry.

Also on Wednesday, Sany – Zoomlion’s main rival in the construction machinery sector – reported a 54% drop in profit to Rmb326 million for the same period.

Zoomlion will hope that Chen’s case is now closed and that the media will lose interest. But other important questions remain unanswered, especially the identity of the middleman who paid Chen and the entity which funded his campaign.

While CCTV seemed strangely incurious, it did provide a mischievous footnote to its coverage. During the report, the camera zoomed in on Chen’s written confession, lingering on what appeared to be a reference to “Sany Heavy Industry” in the text. It was only a momentary glimpse but eagle-eyed netizens had enough time to grab screen shots of the image. Soon enough they were doing the rounds online.

On Monday a Sany executive was quoted in the Chinese media as denying any involvement in the case, although the bad blood with Zoomlion is well known, as well as the rumours that Sany decided to switch its headquarters to Beijing because of its rival’s ties to the authorities in Hunan.

“Zoomlion is state-owned, so the local government is more inclined to Zoomlion. Sany may be leaving out of anger,” a company source told the Shanghai Evening Post at the time (see WiC174).

A series of hints from Gao Hui, the assistant to Zoomlion’s chairman, also seemed to link Sany to Chen. Gao wrote in mid-July that Chen had never interviewed the bosses at Zoomlion, for instance, but that he had met Sany executive Xiang Wenbo on a number of occasions.

In a further post online he was more direct, asking whether Chen “worked for New Express or for Sany Heavy Industry”.

But in another interview with Global Entrepreneur shortly before the move to Beijing, it was Sany executives complaining that they were the victims of a dirty tricks campaign, following accusations including tax evasion, bribing officials and stealing R&D.

“In the eyes of our rivals we have been involved in every illegal activity except drug trafficking and prostitution,” quipped Liang Wengen, Sany’s boss, noting that he had even been forced to deny that he was suffering from an incurable illness.

Such was Sany’s mistrust of its hometown that it is said to have organised its board meetings hundreds of miles away in Jiangsu, while gatherings in Changsha were sometimes convened out of doors because of fears that buildings had been bugged.

And according to Global Entrepreneur, Sany lashed out at its rival in a document handed to Party leaders in Hunan. “For two years, Zoomlion has continuously fabricated rumours against Sany, drumming up a bad press and relentlessly targeting it with untrue reports,” it complained. “In the face of such irrational competition, Sany can’t plan for the long term or focus on normal operations to make itself a first-class enterprise.”

In difficult commercial conditions, investors look to be pretty unimpressed by the ongoing struggle between the two corporate titans. Year-to-date Sany’s stock is down 32% and Zoomlion’s by 37%.

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