Defying Mao, Rich Chinese Crash the Communist Party

The Wall Street Journal’s James T. Areddy explores the intersection of wealth and power in today’s China:

China has been grappling of late with political and social tension over its murky policy-making process and its growing income disparity. The party has been especially sensitive this year during the leadership change about revelations about fortunes amassed by the offspring of political leaders, known as “princelings,” by leaders of state businesses and by other politically connected people. Many ordinary Chinese blame high prices, poor quality food and pollution on guanshang guojie—meaning, roughly, officials in bed with businessmen.

[…] It is difficult to pinpoint precisely how holding political positions advances the business interests of the wealthy, if at all. They may do better because of their political positions, or, conversely, they may owe their positions to their business success. There are a multitude of reasons for Chinese companies to be on good terms with political leaders. Chinese companies routinely do business with the government, borrow money from state banks, even negotiate their tax bills with local authorities.

The web of political power and business interests is mapped in a dense and extensive infographic accompanying the report. Areddy also points to an illustrative series of deals involving former Chongqing Party boss Bo Xilai and Wen Jiabao’s son Wen Yunsong.

The transactions began when officials in Chongqing’s government who answered to Mr. Bo sold shares of a state-run grocery and electronics chain to an investment group led by New Horizon Capital LP, a firm founded by Premier Wen’s son, Wen Yunsong.

After first buying 25% of the chain-store business, the New Horizon-led group increased its holdings to 39%, according to regulatory filings and government reports. The investment group effectively became a partner of the Chongqing government in the retail business.

In October 2009, Chongqing Department Store Co., 600729.SH -1.56% a bigger retailing group also controlled by the local government, bought the chain in a 3.921 billion yuan ($574 million) all-stock merger. That deal valued the private-equity group’s initial 25% stake at 980 million yuan, almost 2.8 times what it had paid 18 months earlier.

The Wall Street Journal report coincided with a major Bloomberg investigation, also published on Boxing Day. At Bloomberg View, William Pesek discussed the implications of the Bloomberg report, and of David Barboza’s October exposé of Wen’s family’s wealth at The New York Times.

When you peruse many of the reader responses to foreign press reports about Chinese graft, conspiracy theories abound: The western media want to undermine China’s rise and is doing the bidding of officials in Washington and Tokyo. That, of course, is silly. Only a fool would hope for a crash in the world’s No. 2 economy and for 1.3 billion people to struggle to find enough to eat. Global economics isn’t a zero-sum game. When hundreds of millions of people get rich, that will benefit all of us, whether you work for Rolex, Nike Inc. or Toyota Motor Corp.

[…] The sad truth is that hundreds of millions of Chinese aren’t rolling in yuan the way Deng might have hoped. It’s getting harder to hide that reality from China’s masses, and that poses a growing threat to the Communist Party. Closing international-media websites, as China does at the sight of an unflattering article, can’t hide the internal decay as wealth becomes more and more concentrated.

[…] No industrializing economy has ever avoided a crash, and neither will China. Possible catalysts include pollution and surging living costs. Yet the one that China’s leaders are probably most loath to confront is the sight of Communist Party officials becoming modern-day Rockefellers and Vanderbilts. It surely never occurred to Deng that finding wealth would be China’s undoing. When you follow the money, it’s hard to conclude otherwise.

December 28, 2012 3:26 PM
Posted By: