China's anti-corruption drive sets off death threats and dawn raids

Bloomberg

Email Print

A pedestrian walks past the headquarters building of Founder Group in Beijing, China, Aug. 17, 2013. A pedestrian walks past the headquarters building of Founder Group in Beijing, China, Aug. 17, 2013.

RELATED NEWS

Frozen Chinese bank accounts. Top executives taken in for questioning. Reports of death threats and pre-dawn clashes between armed body guards and police in Beijing.
That’s the fallout from a corporate feud playing out in Chinese press and social media for the past two months.
On one side is Peking University Founder Group, a state-owned company that partnered with Credit Suisse Group AG (CSGN) in a separate securities joint venture whose chairman has disappeared. On the other side is a billionaire real estate developer and his company, Beijing Zenith Holdings Co.
The fight originates from a business dispute at their jointly owned Founder Securities Co. (601901), China’s sixth-largest listed brokerage with a market value of $12.4 billion. Founder acquired Zenith’s China Minzu Securities Co. with stock, making the property firm into Founder Securities’ second-largest shareholder. The relationship soured as the two sides squabbled over control and terms, leading to lawsuits and arbitration.
The mutual recriminations involve allegations of corruption, denied on both sides, and reported links to powerful political backers under investigation for wrongdoing. The case illustrates how President Xi Jinping’s anti-corruption crusade is spilling over into business disputes. The Communist Party warned last month that political cliques and their corrupt business ties wouldn’t be tolerated.
Tarnishing opponents
“The anti-corruption campaign is the golden opportunity for companies, especially the state-run firms, to tarnish their business opponents or even political rivals,” said Zhang Ming, political science professor at Renmin University in Beijing. “The anti-graft fight in China is not yet institutionalized, but is a system based on public reporting. So it’s really easy to be used by the public as a weapon to target anyone they want.”
Founder Group’s four top executives were ordered by officials to cooperate with an investigation, its chairman stepped down and 17 of its accounts with 1.8 billion yuan ($289 million) were frozen by court order, the company disclosed in filings to the Shanghai Stock Exchange.

Li You, chief executive officer of Founder Group, speaks at the Observer Forum 2013 in Beijing, China, on Dec. 21, 2013.
The joint chairman of Founder Securities and its venture with Credit Suisse, Lei Jie, can’t be contacted, the brokerage said in a filing to the Shanghai exchange last week. Lei asked for sick leave on Jan. 12 and the firm hasn’t been able to reach him since Jan. 19, with “a certain impact on the company’s internal operations,” it said.
Miles Kwok
Founder’s acquisition of Minzu caused it to say it wanted to exit the venture with Credit Suisse, which it has yet to do. Spokesmen at Credit Suisse have repeatedly declined to comment on the venture or the dispute.
Zenith’s founder, Miles Kwok, also known as Guo Wengui, was taken in by authorities to assist the police, according to Tencent news, a major portal in China, citing an anonymous source. Zenith’s Beijing-based deputy general manager, Lv Tao, denied the report as well as Founder’s allegations against Zenith in a phone interview before his phone was switched off as of Jan. 11. Kwok couldn’t be reached for comment.
Kwok is famous for building a dragon-shaped, self-designated seven-star hotel overlooking Beijing’s iconic Bird Nest Stadium. The Hurun Report estimated his wealth at $2.6 billion, making him 74th-richest in China.
The dispute provides a possible window into how high-level political patronage in China, long helpful for doing business, can risk turning into liability.
Political links
Zenith has asserted that Founder is tied to retired President Hu Jintao’s former aide Ling Jihua, who, according to the official Xinhua news agency, is being investigated for corruption. Chinese-language media outside China link Zenith to Ma Jian, one of the country’s top spy masters that the Communist Party said is being probed for “serious law and discipline violations.”
Ma couldn’t be reached for comment, and a fax sent to the Communist Party’s Central Commission for Discipline Inspection, which said it’s investigating him, didn’t receive a reply. Ling Jihua also couldn’t be reached, and a fax sent to the United Front Work Department, where Ling was minister before his removal, wasn’t answered. Chen Xu, a Founder spokesman, said he was “not clear” about his company’s alleged political connections.
Interagency rivalries
“The case suggests that there are bitter interagency rivalries within key sectors of the economy,” said Andrew Wedeman, a professor of political science at Georgia State University who studies corruption in China. “The reality is that government agencies continue to own and operate profit-seeking businesses and use their administrative powers to help their businesses earn fat and fast profits.”
Founder, in addition to taking legal action against Zenith, had been using social media to deny the allegations since Zenith started levying them in November.
“The company is the company, the individual is the individual, and one should take full responsibility for his own behavior,” Founder’s Chen said in early January when asked to respond to the panoply of Zenith allegations against Founder executives.
With 40,000 employees and 75 billion yuan in annual revenue, Founder Group runs medical, Internet and commodities-trading businesses, plus the brokerage at the center of the dispute. It was spun off from Peking University, sometimes called the Harvard University of China, in 1986, with the university its 70 percent shareholder. A person at the general office of Peking University Asset Management Co., which overseas the school’s assets including Founder Group, declined to comment on questions related to the dispute with Zenith.
First shot
Zenith fired the first shot at Founder in November, saying it was aligning itself with the president’s anti-corruption drive. Using its website and microblog, it accused Founder’s chief executive officer, Li You, of manipulating shares of a subsidiary, PKU Healthcare Corp. (000788), and pocketing 400 million yuan. Founder denied the charge on its official Weibo account, a Twitter-like blog.
Then Zenith alleged that Founder CEO Li and his wife transferred 4.5 billion yuan to offshore accounts, while their daughter held another 4 billion yuan in Singapore. It charged that Li bribed the head of the China Securities Regulatory Commission’s investor-protection bureau, who the regulator announced is being investigated for corruption. And it said Li was using influence to get “more than 100” children of senior officials coveted admissions to Peking University every year.
Denying everything
Founder publicly denied those charges and called for authorities to investigate Zenith. Neither Li nor his family can be reached for comment, according to Founder’s Chen, who declined to give their whereabouts.
“The allegations we have made are based on facts,” Zenith’s Lv Tao said before his phone began playing a message since Jan. 11 saying it had been switched off. “We believe the government will uphold justice.”
The mobile phone of Yang Ying, Zenith’s chief financial officer, has also been switched off since Jan. 12.
Chinese state media published allegations that originated from an article that was first posted to U.S.-based website Boxun.com. It said Founder CEO Li was associated with former President Hu’s personal secretary, Ling Jihua, one of the highest-ranking officials to be targeted in Xi’s anti-corruption campaign. A person familiar with the situation, who asked not to be identified because he wasn’t authorized to speak publicly, confirmed that the article was written and posted by Zenith.
Police report
Founder then posted on its official Weibo site that it had reported Zenith to police for “damaging the company’s reputation,” libel, false accusations, and creating a disturbance.
Another Boxun article said Kwok was connected to top spy Ma Jian. Singapore-based Lianhe Zaobao and the Chinese-language service of Radio France International also reported the alleged connection.
Kwok rose from humble origins. The Changjiang Times, an official newspaper, said he was a junior high school dropout, the seventh of eight siblings born to a poor family in eastern China’s Shandong province. He made his fortune after partnering with a Hong Kong businesswoman in the 1990s, then branching into real estate and running a furniture company affiliated with retired cadres from the nuclear industry, according to the report citing anonymous sources.
Official’s downfall
The report cited the sources as saying Zenith founder Kwok was “the person behind the downfall of many senior officials including” a former vice mayor of Beijing, Liu Zhihua, who was removed for corruption in 2006. Liu received a suspended death sentence, which normally turns into life imprisonment, in 2008 for taking bribes, Xinhua reported. The Changjiang report didn’t provide further details on Kwok’s alleged role.
His most famous investment is Pangu Plaza, built by Kwok’s Beijing Pangu Investment Co. The luxury development includes the seven-star hotel and buildings topped with full-scale traditional Chinese courtyard homes overlooking the Olympic Green in northern Beijing. Scenes from the Viacom Inc. movie, “Transformers: Age of Extinction,” which Pangu tried to block because of a dispute over sponsorship, were filmed there.
Kwok gained international attention in 2010 with an unusual gift to his employees: 5,000 copies of the memoir of Cherie Blair, former U.K. Prime Minister Tony Blair’s wife, according to the U.K.’s Daily Mail.
Hotel clash
According to accounts posted by Zenith, armed police raided the Lakeview Hotel near the gates of Peking University, where Founder executives were holed up on the sixth floor, in the early hours of Dec. 19.
Police scuffled with armed men protecting Founder’s CEO, who got away in his pajamas, Zenith posted. A photo provided by a journalist on the scene showed about 10 men sitting on the hotel floor. Staff at the hotel confirmed there was a confrontation and declined to comment.
Xinhua reported that police had been sent to investigate. Police didn’t respond to phone calls and a fax seeking comment. Chen, the Founder spokesman, pointed to the police action reported by Xinhua, denied that the executives were arrested and declined to comment further.
Founder responded by accusing Zenith executives of sending threatening text messages to their top management.
“I have already sent people to monitor your WeChat, text messages and e-mail, so I know everything about you,” said the message Founder posted on its Weibo account, without identifying who sent it but indicating it came from Zenith.
The text boasted that the Communist Party “listens to my commands” and would soon have ministerial-level officials help destroy Founder.
“You will die in prison,” the posted text message said. “You don’t need me to kill you, but I will let you beg me for death, and I will rip your families apart. Happy with that? The Communist Party has a shorter history than Pangu. I have more than 1,000 years of history, the Communists have only 80 years.”

More World News