Not so black and white

A power struggle escalates at China’s largest dairy producer


Interested parties: a major row at Chinese dairy giant Yili intensifies

Long before ‘Fake News’ became Donald Trump’s favourite bugbear, there were tools in China to curb the spread online of what Beijing deems to be ‘misinformation’.

Recently a state-run web service called Piyao has been introduced to quash rumours through collecting and analysing internet memes.

And a regulation was passed in 2013 to hold rumour-mongers liable for defamation if their unverified information was viewed 5,000 times or shared more than 500 times online.

The legal definition of xunxin zishi, meaning “picking quarrels and provoking troubles”, was also broadened to encompass online behaviour – a move that increased criminal penalty for dissent on the web.

So when two WeChat bloggers were sentenced to imprisonment under the charge of xunxin zishi late last month, you might well assume that the information they released had irked the government. They did, but why is a lot more complicated – and has a lot to do with the shifting chess board of Chinese power.

Arrested in May, Liu Chengkun and Zou Guangxiang were found guilty of vilifying Pan Gang, chairman and CEO of state-owned Inner Mongolia Yili Industrial Group, in a series of WeChat posts in late March. Yili is the largest dairy producer in China and the eighth largest in the world by sales.

Pan had been out of the public eye between January and late May. While Yili explained that the 48 year-old was receiving medical treatment in the US, Liu circulated a three-part online satire about Pan. The fictional account portrayed him as a villain who owed his meteoric rise to underhand practices, and cast aspersions that his disappearance was linked to an anti-corruption probe. Zou later published a separate article suggesting Pan was placed under investigation by China’s ruling Communist Party.

The widely circulated posts sent a shockwave through the stock market in Shanghai, and wiped Rmb6.1 billion ($880 million) off the market capitalisation of the Hohhot-based company, which is also a constituent of the MSCI China index.

The court ruled that the “fabricated material”, though directed against Pan, had a direct impact on Yili as Pan acted as the company’s legal representative. “[The incident] has greatly disrupted cyber and social order,” said the court.

The People’s Daily also faulted the two bloggers for causing “panic to dairy farmers, Yili staff, Yili’s business partners and investors.” Both Zou and Liu will appeal against the verdict.

Foreign media initially saw the trials of Zou and Liu as another instance of the government cracking down on activists, journalists and human rights lawyers.

However, an open letter by Yili, published a few hours after the conviction of the duo, sheds a different light on the case.

Yili claimed that the work of Liu and Zou was in fact masterminded by its former chairman Zheng Junhuai, who has in the past 14 years constantly pestered the company.

The conflict dates back to 2004 when Zheng was arrested for embezzlement. Zheng ended up being jailed for six years after being found guilty of siphoning Rmb16.5 million ($2.37 million) from the company while he was pushing through a management buyout in the 1990s.

In its 11,000-word open letter, Yili noted that Zheng had actually misappropriated Rmb240 million. But thanks to “the protection of a certain senior national leader”, the letter added, some of Zheng’s most serious offences were overlooked and he was given a much lighter sentence. And after he had served his time, his cosy relationship with powerful figures had emboldened him to ask Yili to transfer further “illicit assets” to his accounts.

Yili said it had submitted evidence of other economic crimes committed by Zheng to the disciplinary inspection unit of the Communist Party’s Central Committee, including the theft of Rmb200 million of state-owned assets in the northern province of Heilongjiang, where Zheng is now based as the chairman of Heilongjiang Hongxing Group Food.

The letter’s release coincides with heightened activity by President Xi Jinping’s anti-corruption campaign in Yili’s homebase, Inner Mongolia. At least six top officials or retired leaders in the autonomous region have been detained or subjected to investigation so far this year. Among them are Xing Yun, who previously served as the vice-chairman of the Inner Mongolia People’s Congress, and Yang Jing, formerly chairman of the Inner Mongolia Autonomous Region in the 2000s, and who was later made secretary general of the powerful State Council in Beijing.

Removed from his post in the Chinese cabinet in February, Yang was implicated in the investigation related to Xiao Jianhua, the financier last seen in Hong Kong’s Four Seasons Hotel in January 2017, according to the South China Morning Post. Yang was accused of colluding with “law-breaking businessmen and society people”, among other misdeeds.

Despite the whiff of scandal at home, Yili is taking bolder steps to boost its presence beyond China. Two weeks ago the group launched a new ice cream brand called Joyday in Indonesia as its first step in its expansion into Southeast Asia. It has also announced plans to acquire Fauji Foods, a Pakistani food and drinks distribution company, while mooting a bid for Japanese firm Kirin’s Australian food and beverage business, according to Bloomberg. The overseas moves could be attributed to its slowing growth at home, as net profit for the first nine months rose just 2.24% on the year to Rmb5.05 billion, the company reported on October 31.

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