Remains of the dye

Before 2011 the Ministry of Railways was arguably the most powerful part of China’s vast bureaucracy.

For many years it was popularly known as the Tielaoda (or the Iron Boss) and for good reason. Grafted from the Soviet model, the ministry was structured as a military unit with its own armed force, judicial system and even universities. In 1992 when Deng Xiaoping made his famous Southern Tour, the Ministry of Railways was the only ministry informed in advance of Deng’s itinerary.

So powerful was the Tielaoda that since the day of its inception – October 1, 1949 – the ministry had survived every restructuring of the government bureaucracy. Reforming the rail ministry was in fact a top priority in both the 10th and 11th Five-Year Plans (made at the beginning of this century), but still the Tielaoda managed to defy the central government and remained a state within a state.

Its unique powerbase was finally cracked in 2011. Liu Zhijun, ‘the boss of the Iron Boss’, was removed from his position and arrested for corruption. A fatal train crash in Wenzhou that same year was the catalyst, thanks to stoking widespread public anger at the ministry’s expense. In 2013 it was broken-up, retaining a regulatory function but seeing its powerful rail operations spun out. (Its trainmaking duopoly, CSR and CNR, were merged into an independent rolling-stock goliath last month.)

Since taking power in November 2012, China’s leader Xi Jinping has taken the Party’s anti-graft effort to a whole new level. Last week, the campaign reached new heights when former internal security tsar Zhou Yongkang was sentenced by a Tianjin court to life in prison. Nevertheless it doesn’t seem that Xi has finished yet. The question being asked in Beijing and elsewhere: who could be next?

What’s been the reaction to Zhou’s imprisonment?

Zhou’s conviction was never really in question. But when the inevitable decision finally arrived last Thursday, the timing and the manner of the announcement still came with many surprise elements.

The news was reported by Xinhua that evening via the news agency’s weibo and Twitter account. By the time the state broadcaster China Central Television showed video of Zhou confessing in a courtroom, it was already the hottest topic in social media.

“The basic facts are clear. Once again I plead guilty and express remorse,” Zhou said – his formerly jet-black hair turned silver white – in what is likely to be his final public statement. “Those involved, who bribed my family, were actually coming after the power I held… I broke the law and the Party rules, and my crimes have resulted in grave losses for the Party and the nation,” Zhou said, adding that he won’t appeal.

The trial actually took place on May 22. According to CCTV, the 73 year-old was sentenced to life for accepting bribes, abusing his power and leaking state secrets.

Three years ago Zhou sat with Xi on the nine-member Standing Committee of the Politburo, overseeing the country’s public security and legal systems. But apparently it didn’t take vast amounts of cash to coax one of the most powerful men in Beijing into corrupt behaviour. The court found Zhou guilty of personally accepting bribes worth Rmb731,100 (or less than $120,000). The court also ruled that Zhou had used his power to seek illicit incomes for five people, including his wife and son, which amounted to Rmb129 million, although the punishment for Zhou’s family isn’t immediately known.

More intriguingly, Zhou was found guilty of leaking five “extremely sensitive documents” to Cao Yongzheng, a fortune-teller and qigong master. One of Cao’s most famous feats was predicting that Sydney, instead of Beijing, would win the bidding to host the 2000 Olympics (see WiC236 for the seemingly irrational connections between self-claimed spiritual healers like Cao and prominent Chinese).

Trying Zhou in private saved the Party from more embarrassing revelations while keeping the trial to its ordained script. But the public may have been a bit let down: it had been expecting another “trial of the century” to follow that of Bo Xilai, a political ally of Zhou and the former Party boss of Chongqing, who was prosecuted in 2013. Those proceedings were reported live on weibo. However, according to the Financial Times, the more closed-door court process that Zhou went through also denied Xi “an opportunity to highlight the trial as evidence of his administration’s stated commitment to build a fair and transparent legal system”.

Speculation has mounted as to whether Xi Jinping will soon bring down the curtain on his anti-graft campaign. Citing its top Beijing sources, Reuters reported last week that two other senior officials subject to graft probes, including Ling Jihua (an erstwhile top aide of former Chinese President Hu Jintao) are sick and may not stand trial after all.

What’s next for the graftbusters?

The Central Commission for Discipline Inspection (CCDI) has not stopped working. In fact, the agency has made supervision of state firms its top priority this year. The continuous fight against corruption and misconduct in SOEs, Xinhua suggested, would even become part of the country’s “New Normal” (a term, that on the economic front, is defined as involving slower, but better quality growth).

A first round of wholesale inspections began in March as the CCDI sent investigators to 26 firms overseen by state-owned asset manager Sasac. According to the China Daily, anti-graft officials were stationed for about two months at each of the companies, to check their operational procedures, and handle complaints.

“This will be the harshest anti-corruption campaign that state firms have ever seen,” Beijing News predicted earlier this year. Indeed, by the first week of May, the newspaper reported that 20 SOE officials had already been sacked. These officials include five from Southern Power Grid, one from the State Grid, four from CNPC and one from CNOOC. That means, Beijing News noted, that more than half of the executives purged by the CCDI either come from the energy or power sector.

When the CCDI published its initial investigation report on Tuesday, state firms from the energy and power sectors once again were identified as the villains. Nine companies were named and shamed. CNPC it was announced had never stopped “holding back public funds in its private coffers” after being warned against this practice many times. Corruption risks were also identified in its overseas investment projects. Executives at CNOOC, meanwhile, were revealed to have made use of offshore oil resources to seek private profits.

China Power Investment Corp (CPIC), State Nuclear Power Technology Corp (CNPT) and China Huaneng Group were also singled out for serious problems in their tender and procurement procedures. “Some of their leaders abused power and often intervened in such affairs after taking bribes,” the CCID said.

If the corruption probe against CNPC and the so-called Shengli Gang (a political faction led by Zhou Yongkang and other former oilmen, see WiC207) is anything to go by, that could mean that the powerful clans behind China’s power sector may have cause for concern over the direction CCDI’s latest probes have taken. The sector has long been a domain associated with the former Chinese Premier Li Peng, an advocate for major hydro-electric power projects including the controversial Three Gorges dam. His daughter Li Xiaolin and his son had top roles at two of the country’s top five power producers.

Why is Li Peng in the news?

For much of the last decade Li Xiaolin – dubbed China’s “Electricity Queen” – cut a fine figure as the ‘cadre in Chanel’. The Party’s austerity drive later saw her ditch her designer outfits and keep a lower profile. But like it or not, the 54 year-old is back in the spotlight thanks to her apparent demotion in the latest round of SOE restructurings.

Before this month Li junior was the deputy general manager of electricity giant CPIC. She had worked at the state power firm for more than 12 years. And according to Caijing magazine, when CPIC and SNPT were officially merged on May 29 – to become State Power Investment Corp (SPIC) – it was widely expected Li would be named the new company’s general manager. However, the Party’s Organisation Department didn’t give her the role. Instead, she was made the deputy head of China Datang Corporation.

Li didn’t know about her new role until it was announced, reported ThePaper.cn, and she was allegedly so furious over the decision that she “slammed the door to her office when she returned from the conference”.

Hong Kong’s two most read newspapers then reported last week that Li was prevented from leaving Beijing’s airport when she tried to board a plane to Hong Kong.

To dampen further speculation about the Li family, certain media outlets have jumped to its defence. The website of the People’s Daily, for instance, pointed out that Li’s new appointment at Datang is yet to be confirmed, although it is certain that she has been excluded from SPIC’s leadership. Meanwhile the Shanxi Daily reported this week that Li Xiaopeng, the governor of Shanxi (as well as being Li Peng’s son) has undertaken a five-day trip to Idaho and Wyoming, adding the unusual statement that it was “with the consent of the central government”.

All this media activity prompted the Mingpao newspaper to conclude: “Li Peng and his children must be the family with the most news headlines this month in China.”

The South China Morning Post, meanwhile, noted that the CCDI’s unfavourable report cards on the state power firms coincided with the surprise departure of Li Xiaolin. “Such announcements may serve as a sign that the anti-graft campaign will continue,” the newspaper suggested, though it also observed that analysts are divided as to whether Xi Jinping’s anti-graft drive has already reached its high-water mark with the sentencing of Zhou Yongkang.

“This is the decisive point when he [Xi Jinping] decides whether Zhou Yongkang is the last or the first great tiger,” Roderick MacFarquhar, a professor at Harvard University who focuses on Chinese elite politics, told the New York Times (see WiC174). “I think it’s too early to tell.”

So has a passage been cleared for reforms?

Given the precedents seen at the Ministry of Railways, there is a growing belief that China’s graftbusters might also be blazing a trail for reforms in the power sector.

With the ousting of Zhou and a host of former oilmen, reforms are already underway in the oil industry. Last month the heads of two of the country’s three state-owned oil giants retired, and the third has been shoe-horned into a new job (see WiC280).

Sinopec has also become one of the pioneers of the so-called mixed ownership reforms – an initiative that aims at lessening the influence of state capitalism.

More drastic changes could yet come, as there have been reports that CNPC and Sinopec may combine and, then spin off their gas pipeline businesses. Bloomberg even reported earlier this year that CNPC and Sinopec could merge into a national champion in order to take on the likes of Exxon Mobil (although the report has since been rebuffed by CNPC as well as Sasac).

The pressure for deepening reforms has also emerged in the power sector. For instance, Chinese planners have been placing more importance on nuclear energy versus hydro power (notable as it tends to be the power source of choice for hydraulic engineers-turned-politicians such as Li Peng).

Perhaps that new preference explains why China National Nuclear Power (CNNPC) did so well when it debuted on Shanghai’s stock market last week. The company – which is a major business partner of Bill Gates’ TerraPower in China – is the biggest Chinese nuclear energy firm and a builder of reactors. CNNPC’s shares climbed 44% on their first day of trading, giving the SOE a market value of more than Rmb110 billion.

In April the State Council also published a reform blueprint for the electricity market. In it sweeping changes are proposed that would give local authorities more control over electricity transmission and distribution prices. The revamp could even require the two dominant grid operators, the State Grid and Southern Power Grid, to eventually break up their networks.

Mind you, Caixin Weekly quipped that the very same topic has been talked about at official levels since 2002.

So could the CCDI’s activities this time be the factor that makes a difference? It’s possible: the latest official to fall victim to the graftbuster is Qi Dacai, a former vice president and director of Southern Power Grid.

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