Loyalty scheme

Mega telco merger to follow graft clean up?

China Unicom Chairman and Chief Executive Chang Xiaobing attends a news conference announcin the company's annual results in Hong Kong

Wrong numbers: Chang Xiaobing

In Confucian philosophy xiao, or filial piety, is the primary duty of all human beings.

But Xi Jinping looks more interested in advocating a second key Confucian virtue: zhong or loyalty. But the Chinese president’s definition of loyalty only encompasses the Party. He draws the line at showing any filial loyalty where corrupt family members are concerned.

Last week Xinhua quoted a Politburo speech in which Xi warned its 25 members to “avoid any sense of superiority regarding their power or status” and “educate and supervise their children or other family members and subordinates” to ensure the Party adheres to clean governance.

The message behind the ongoing anti-graft campaign was spelled out even more clearly in an article published in the daily newsletter of the Central Commission for Discipline Inspection (CCDI) following the detention of China Telecom’s chairman and CEO Chang Xiaobing on charges of “serious violations of Party discipline” in late December. Caixin Weekly said Chang was arrested on December 26, with China Telecom announcing his resignation on December 30.

The CCDI newsletter said Chang pursued “personal rather than Party loyalty,” promoting those who served him and sacking those who did not. He misunderstood that only “those devoted to the Party understand the underlying meaning of loyalty. Those who advocate personal loyalty do so to take advantage of the situation and enrich themselves.”

Chang was assigned to head China Telecom only four months ago. The appointment came amid the CCDI’s year-long investigation into the telecom sector. Early in 2015, it had already snared two handpicked subordinates from Chang’s decade-long stint running China Unicom. The CCDI concluded that numerous China Unicom executives had accepted money and sexual favours from the firm’s suppliers in return for favourable contracts. Later in the summer it issued a further indictment, this time targeting China Mobile and China Telecom, though this has yet to lead to any arrests. But the CCDI did say the telcos’ top executives “formed a parasitic family that hunted and feasted on state assets”.

So far the only concrete allegation made public against Chang comes from a letter penned by a local credit rating agency, which accuses him of selling the state-owned office building where the rating agency was based for Rmb800 million ($123 million), far below its Rmb1.2 billion appraised value.

The purchaser was Guo Boxiong, the former vice chairman of the powerful Central Military Commission. Guo was expelled from the Party last July and handed over for court martial after being found guilty of taking huge bribes. Chinese newspapers say Guo expressed his zhong to ex-president Jiang Zemin throughout his career. Some say Chang was likewise part of the Jiang faction (also known as the Shanghai Gang), with links to the former leader’s elder son Jiang Mianheng.

Indeed, one of the highlights of Chang’s reign at China Unicom was the 2008 merger with China Netcom. Jiang junior had a strong influence over the latter as CEO of the Shanghai government’s private equity firm Shanghai Alliance Investment Limited (SAIL), which was a major shareholder of China Netcom when the company was founded in 1999 (Jiang junior also sat on its board).

But his investment vehicle is also now subject to a CCDI probe. Last November the anti-graft body said it was sending personnel to investigate 20 financial services companies in Shanghai, including SAIL.

China Telecom’s current chief operating officer Yang Jie will take Chang’s place until a new CEO is found. Observers believe more drastic changes now await the sector, and that even a mega-merger between China Telecom and China Unicom could be on the cards.

Since the government enforced a job swap on the CEOs of China Telecom and Unicom last summer, the two companies have grown ever closer in a bid to combat China Mobile’s dominant market share. They have already initiated network sharing and in mid-December announced detailed plans to develop a joint handset as well.

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