The money trail

Under investigation for graft: Song Lin

In a recent comment to the Financial Times, the Columbia University economist Jagdish Bhagwati drew comparisons between China and his native India. He said the crucial difference was the type of corruption at work. India, Bhagwati said, has a classic ‘rent-seeking’ model “where people jostle to grab a cut of existing wealth”. By contrast “the Chinese have what I call profit-sharing corruption”. Bhagwati meant that since many officials are in cahoots with their business counterparts it aligns interests. Or, as he put it, they have “an interest in having the milkshake grow larger”.

The nature of that ‘profit-sharing’ relationship becomes more evident every week, as more and more corruption cases emerge. And increasingly it’s the same distinctive pattern: the pillage really begins to pick up when bureaucrats secure protective cover from senior Party figures in Beijing. The more junior cadres subsequently kick back much of the proceeds to relatives of their patrons.

In recent months the patronage network of Zhou Yongkang has been one of the most exposed, with the former security chief reported to have siphoned off billions from the state oil industry. The focus has since moved to the power sector and an as-yet unnamed ‘tiger’ who controls the patronage network there.

As we reported in WiC232, purges at Three Gorges Corporation signalled that another phase of the anti-graft campaign had begun. Then last Thursday it was confirmed that the chairman of state giant China Resources – a firm with 400,000 employees and assets of more than $120 billion – has also been placed under investigation for corruption.

Song Lin’s case was exposed by a Xinhua journalist, who used his personal weibo account to blow the whistle on the senior executive. Song vigorously denied the reports by Wang Wenzhi – issuing a denial on the company website – but has since been sacked as the boss of China Resources and replaced by Fu Yuning (who joins from another state conglomerate China Merchants).

Wang claimed last week that Song had used his mistress – an employee with a Swiss bank – to move more than Rmb1 billion ($160 million) offshore. Photos of the pair cuddling in bed were released on the internet, while Wang renewed his earlier claim that the source of the funds was a massive scam in 2010 in which China Resources overpaid for mines in Shanxi.

This was a case that we first reported on last April (see WiC187), and involved Hong Kong-listed China Resources Power and a Rmb7.9 billion purchase linked to coal baron Zhang Xinming. Of the 10 assets offloaded by Zhang’s Shanxi Jinye Coking Group, media reported that two didn’t even seem to belong to him. One held expired exploration rights, while the largest mine needed its licence renewed. Other mines were also suspected of being sold at inflated values. Last spring China Business Journal sent a reporter to Gujiao City in Shanxi and found that “most of the assets of the Jinye Group acquired by China Resources Power were in an ‘abandoned’ state.”

Two questions arise from the decision to investigate Song now. First, why didn’t it happen sooner, as information on the Shanxi deal has been public for more than a year? And, second, who is the political patron whom Song attached himself to? Behind the scenes, this individual was probably the biggest beneficiary of any scheme to shift money offshore via Song’s mistress. (Not that we are suggesting this is a new strategy; see WiC195 for an article on former NDRC deputy Liu Tienan and his own mistress.)

The Guangming Daily made the same point rather forcefully, asking which senior figure was responsible for holding up the investigation of Song for nearly a year?

Wang Xiangwei, editor of the South China Morning Post, writes: “Now an intense guessing game has started that Song’s detention will implicate his protector at the highest level of the government and the Party – another tiger.”

Hong Kong media has hinted that the individual – just like Zhou Yongkang – may have been a member of the Politburo Standing Committee who stepped down in 2012. However, the SCMP’s Wang adds: “The speculation in the corridors of power in Beijing indicate that Song had more than one protector in the leadership. Some have suggested that Song’s detention is part of a wider campaign against the so-called Shanxi Gang, officials who worked their way up the ranks in the coal-rich province or trace their ancestry there.”

That view is supported by another investigation that came to light just days before Song’s. In this case the bureaucrat was Shen Weichen, Party Secretary of the relatively obscure China Association for Science and Technology. According to Lianhe Zaobao, a newspaper, Shen became the first ministerial-level official to be purged this year. But the Beijing News says what makes this case more remarkable is that Shen was also a member of the eighth session of the Central Commission for Discipline Inspection (i.e. the body tasked with rooting out graft).

Soon, other media were speculating about Shen’s activities in Shanxi. Born in the provincial city of Lucheng, he got a degree in physical education, and then raced through the ranks via the Communist Youth League.

His powerbase was consolidated when he became Party Secretary of Taiyuan municipality and a standing member of Shanxi’s provincial committee. According to Legal Weekly, it was long rumoured that Shen once worked closely with a Taiyuan real estate developer, assisting with land purchases and permits in return for bribes.

Legal Weekly adds that local sources claim that Shen’s steady advancement – in 2010 he would become deputy minister of the Central Propaganda Department in Beijing – was undoubtably due to the help of an influential patron. But in Shen’s case, it remains to be seen whether this patron is going to be revealed too (and even if he might be the same man as Song’s mentor).

The mystery continues…

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