Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ News / World/  Severing a family’s ties, China’s president signals a change
BackBack

Severing a family’s ties, China’s president signals a change

Action against a retired Communist Party leader may challenge tacit rule allowing elite clans to accumulate vast wealth

A file photo of Zhou Yongkang. Officially, the Chinese leadership has said nothing about the corruption investigation into Zhou or the detention of his immediate relatives, and President Xi Jinping’s ultimate intentions about how to handle the case remain a matter of speculation. Photo: BloombergPremium
A file photo of Zhou Yongkang. Officially, the Chinese leadership has said nothing about the corruption investigation into Zhou or the detention of his immediate relatives, and President Xi Jinping’s ultimate intentions about how to handle the case remain a matter of speculation. Photo: Bloomberg

Hong Kong: His son landed contracts to sell equipment to state oil fields and thousands of filling stations across China. His son’s mother-in-law held stakes in pipelines and natural gas pumps from Sichuan province in the west to the southern isle of Hainan. And his sister-in-law, working from one of Beijing’s most prestigious office buildings, invested in mines, property and energy projects.

In thousands of pages of corporate documents describing these ventures, the name that never appears is his own: Zhou Yongkang, the formidable Chinese Communist Party leader who served as China’s top security official and the de facto boss of its oil industry.

But President Xi Jinping has targeted Zhou in an extraordinary corruption inquiry, a first for a Chinese party leader of Zhou’s rank, and put his family’s extensive business interests in the cross hairs.

Even by the cutthroat standards of Chinese politics, it is a bold manoeuvre. The finances of the families of senior leaders are among the deepest and most politically delicate secrets in China. The party has for years followed a tacit rule that relatives of the elite could prosper from the country’s economic opening, which rewarded loyalty and helped avert rifts in the leadership.

Whether to wipe out Zhou’s influence or to send an unmistakable signal to the entire party elite, Xi appears to be rewriting the rules. He has widened the inquiry into Zhou to include his wife, a son, a brother, a sister-in-law, a daughter-in-law and the son’s father-in-law, all of whom have been taken away by the authorities in recent months, according to relatives and witnesses.

Zhan Minli, one of the few members of the clan who remain free, said her granddaughter—who is also Zhou’s granddaughter—has been left in the care of a kindergarten in Beijing because the rest of the family is in custody.

“It is too cruel for a five-year-old child," she said in an interview in her home in Southern California. “The government needs to answer to the people as well as the leadership itself," she added.

Officially, the Chinese leadership has said nothing about the corruption investigation into Zhou or the detention of his immediate relatives, and Xi’s ultimate intentions about how to handle the case remain a matter of speculation.

Some political analysts argue that a leader of Zhou’s status would not face an inquiry of this kind unless Xi regarded him as a direct threat to his power. In other words, Zhou is the loser in a political struggle. His family’s financial dealings lost their immunity only because Zhou fell from favour, not because elite business dealings were being criminalized.

But another school of thought is that Xi considers the enormous agglomeration of wealth by spouses, children and siblings of top-ranking officials a threat to China’s stability by encouraging mercenary corruption and harming the party’s public standing. Those people say he has pushed the Zhou investigation beyond traditional bounds to signal that the rules have changed and that top leaders will be held responsible for their family’s business activities, even though Xi’s own family members have been among those who have grown rich.

If that is so, the case has the potential to alter the political compact of China’s boom years. For many elite clans, like Zhou’s, acquiring stakes in lucrative enterprises that did business in the realm that the family patriarch supervised was not effectively banned—and sometimes not even well disguised.

An investigation by The New York Times of the assets held by Zhou’s relatives highlights the considerable sums involved and illustrates how deeply invested members of the party establishment are in industries where political connections are important.

Three of Zhou’s relatives—a sister-in-law, a son and Zhan, the son’s mother-in-law—hold or have controlled stakes in at least 37 companies scattered across a dozen provinces, from Audi dealerships to property firms, according to corporate documents filed with the government. Seventeen focus on investments in energy, mostly in ventures with the state-owned oil giant China National Petroleum Corp., which Zhou headed in the 1990s. Nine centre on Sichuan province, where Zhou served as party chief from 1999 to 2002.

“Because of his connections to energy, land and the internal security system, in effect the family had kind of carte blanche to go into anything they wanted," said Andrew Wedeman, a professor of political science at Georgia State University who studies corruption in China.

In all, the holdings examined by The Times are worth at least 1 billion renminbi ($160 million) although that estimate is based on a limited assessment of each company’s value and does not include real estate or overseas assets, which are more difficult to identify and assess.

Even so, these assets make Zhou the third member of the nine-man Politburo Standing Committee that ruled China from 2007 to 2012 to have family members with documented wealth exceeding $150 million.

In 2012, The Times reported that relatives of Wen Jiabao, then the prime minister, controlled investments worth at least $2.7 billion. And Bloomberg News linked hundreds of millions of dollars in assets to the extended family of Xi, who was China’s vice president and leader in waiting at the time. There is no indication that authorities have investigated the financial dealings of Wen’s or Xi’s relatives.

Long ties to oil industry

The first hint of a move against Zhou came in late 2012, shortly after Xi formally became China’s top leader. Within three weeks of Xi’s elevation, and Zhou’s retirement, party investigators detained a senior official in Sichuan province who had risen under Zhou’s wing. Since then, the authorities have detained and announced investigations into more than two dozen of Zhou’s former aides and colleagues, and their business allies, including seven men who worked as senior managers at China National Petroleum Corp. or its listed arm, PetroChina.

No evidence has emerged that proves Zhou, 71, was involved in the investments or did anything illegal. Nor is it clear that his relatives violated any Chinese laws or actively used their relationship with Zhou to secure deals. But Xi appears confident that he has enough evidence to eliminate Zhou’s influence.

The son of a beet farmer who caught eels as a sideline, Zhou rose to become one of the most feared politicians in China. He began his career as an oil field technician, spending more than a decade in the 1970s and early 1980s working his way up the administration overseeing the Liaohe Oil Field in northeastern China. He kept rising through the ranks until he became head of CNPC, the nation’s largest energy company, which accounts for more than half of China’s oil production and three quarters of its gas production.

Zhou later became party chief of Sichuan, one of the country’s most populous provinces. In 2002, he was appointed minister of Public Security and, in 2007, he joined the Politburo Standing Committee, the party’s top echelon, and assumed control of the body overseeing the police, courts and intelligence agents.

But even as a domestic security chief, Zhou kept a proprietorial eye on the oil and gas sector, occasionally visiting CNPC facilities in China and abroad. Zhou’s last known public appearance was a visit in October to his alma mater, the China University of Petroleum in Beijing, where he exhorted students to abide by the university’s motto: “I will contribute oil for the motherland."

Zhou’s relationship with CNPC gave him influence over a unique player in the Chinese economy, a giant firm with annual revenue in excess of $400 billion, operations from Sudan to Venezuela and tendrils in every corner of China. Enjoying near monopoly status in some regions and industries, the company is a magnet for politically connected people seeking money-making opportunities.

At least three of Zhou’s relatives profited from CNPC’s rise: his oldest son, Zhou Bin; Zhan; and his sister-in-law, Zhou Lingying, the wife of a younger brother.

Zhou Bin, 42, is majority owner of a Beijing company that sells equipment to Liaohe as well as to CNPC oil fields in at least three other provinces, corporate records show. His mother-in-law, Zhan, 71, owns companies selling natural gas with CNPC in two provinces. And Zhou Lingying, 63, teamed up with CNPC to sell natural gas in another province and owns stakes in companies that also work with CNPC in western China, according to the documents.

All told, the three relatives hold or have recently held ownership stakes in at least 11 companies that have done business with CNPC or the other state-owned oil giant, Sinopec, company documents show. At least four of the companies are owned in part by CNPC subsidiaries.

In each case, the investments came long after Zhou left CNPC and had ascended to the Politburo.

An office suddenly closes

A short walk south from CNPC headquarters in Beijing, the offices on the 21st floor of the gleaming New Poly Building are dark and locked. It was here that Zhou Lingying and her business partners, through their company, Beijing Hongfeng Investment Co., bought control of CNPC assets in Sichuan, the province Zhou ran until 2002.

Late last year, employees abruptly stopped coming to work after government officials showed up one day to examine the company’s records, a security guard said. A wilted potted plant remained as evidence of a sudden end to business. The offices are on the same floor as the China Investment Corp., the country’s $575 billion sovereign wealth fund.

Much of what can be traced of Zhou Lingying’s businesses leads to the New Poly Building. She owns stakes in at least seven companies with addresses there, investing in energy, mining and real estate projects across the country. They include a mining project in China’s far western Xinjiang region, property and energy investments in Sichuan and a struggling potash mine there acquired from CNPC.

Zhou Lingying began her career as a shop girl at a general store, working her way up to become manager and later running a supply company before retiring at age 50 in 2001, according to a résumé included in corporate documents and residents in the Zhou family village of Xiqiantou in eastern China.

But she made a major new foray in December 2007, weeks after her brother-in-law was elevated to the Politburo Standing Committee, setting up her principal holding company, Beijing Honghan Investment Co., with her son, Zhou Feng.

Records show at least four other companies linked to Zhou Yongkang’s relatives sprang up about the same time.

Even as Zhou Yongkang prepared to retire, his sister-in-law was still working to forge relationships with CNPC, forming a venture with a subsidiary to sell natural gas and invest in gas filling stations in the family’s home city of Wuxi.

At a condominium development in Wuxi sprinkled with ponds and walking paths, Zhou Lingying and her husband Zhou Yuanqing lived in a fourth-floor duplex, where the authorities detained them in early December.

Asked if the couple were still living in the apartment, one of the two security guards at the gate jested, “No, and they probably won’t be in ever again."

California links

On the other side of the Pacific Ocean, Zhan Minli lives in an Orange County, Calif., retirement community of ranch-style homes and broad lawns. Short and silver haired, she opened the door to her house after reading written questions passed under her door about the companies she owned in China.

Zhan said the holdings in her name were actually controlled by Zhou Yongkang’s son, Zhou Bin, who is married to her daughter, Huang Wan. She said it was customary in China to put assets in the name of one’s parents, and suggested that her son-in-law used her name because his own mother had died in a traffic accident.

Zhan said she and her husband were longtime US passport holders despite Chinese documents that said they had retained Chinese citizenship. Property records show they have lived in the US for nearly three decades, moving from Maryland to New Jersey and finally to Southern California, where their house has an estimated value of more than $700,000, according to the online real estate database Zillow.

Zhan’s home in Beijing looks to have been much more expensive. In 2010, a company document listed her residence in a luxury development in northeastern Beijing where units can sell for more than $11 million.

Her official business address was listed several miles away inside a dusty compound at the end of a dirt road. The building appears long abandoned, but for the red light on a surveillance camera peering from above the front entrance and the ferocious barking of a dog.

Several firms in deals with CNPC are registered at the address under Zhan’s name and that of a business partner, Mi Xiaodong, 43, identified by the Chinese business magazine Caixin as a college friend of and proxy for Zhou’s son.

The companies have invested in gas projects on Hainan Island and in Hebei province outside Beijing as well as in a housing development outside the capital. Zhan and Mi also owned a Beijing company, dissolved in February 2009, that held an oil drilling firm in northwestern China’s Shaanxi province, where CNPC ran an oil field.

Zhan denied any wrongdoing or having much knowledge of these investments.

“I’ve never seen the oil field we owned," she said. “I don’t know how money laundering works."

© 2014/The New York Times

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 20 Apr 2014, 11:47 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App