Martin Hála on CEFC and CCP Influence in Eastern Europe
Martin Hála is the founder and director of Project Sinopsis, a joint project between AcaMedia and the Institute of East Asian Studies at Charles University in Prague that seeks to inform the Czech public about China and its burgeoning role in the region. Hála is a sinologist who has studied in Prague, Shanghai, Berkeley, and Harvard. In a December interview with CDT, Hála explained Project Sinopsis’ mission:
Project Sinopsis has been designed as a response to the heightened demand for reliable information on and analysis of contemporary China in the aftermath of the recent foreign policy reversals in the Czech Republic and elsewhere in CEE. The region registered steep growth in China’s influence in the last few years, yet the general understanding of the new “strategic partner” remains rudimentary, both among the public and the political elites steering this new political course.
At the same time, there are pockets of knowledge on China both within the region, and internationally; they just remain sequestered from the public discourse. Sinopsis aims to bridge this gap and bring information and analysis from academia, think tanks, and similar knowledge production hubs to the general public through a close collaboration with local vernacular media.
Below is the first in a planned series of columns for CDT from Hála and his Project Sinopsis staff which will focus on the Chinese government’s growing influence in Eastern and Central Europe:
CEFC: Economic diplomacy with Chinese characteristics
A mysterious company paves the New Silk Road in Eastern Europe and beyond
by Martin Hála, Sinopsis.cz
The Chinese energy and finance conglomerate CEFC (中国华信) made headlines internationally in November when Patrick Ho, the General Secretary of its Hong Kong-registered non-profit wing, was arrested in New York and accused of bribing top African politicians on behalf of the corporation. Few have heard of the company before; in some parts of the world, however, notably in the Czech Republic, the company had become notorious long before Ho’s arrest.
CEFC is one of the Chinese companies that appeared in recent years seemingly out of nowhere with loads of cash available for high-profile overseas acquisitions. Most recently, CEFC acquired a 14 percent stake for US$ 9 billion in the Russian state-run oil giant Rosneft, sanctioned for its proximity to the Putin regime by both the U.S. and the E.U. CEFC acquisitions, however, are not limited to energy deals; in places like the Czech Republic, it buys everything from sport clubs to TV stations.
“Ye Jianming‘s mysterious empire”
CEFC’s rise is all the more striking as it is a nominally private company operating in a highly regulated sector, previously dominated by a few mammoth SOEs. When asked about this oddity in one of the few known media interviews with Fortune Magazine, CEFC’s Chairman Ye Jianming explained that the Chinese government concluded at one point that SOEs are automatically suspected in their overseas expansion to be tools of the Chinese state, so it freed some space in strategic sectors like energy for the establishment of private players like CEFC. That sounds plausible, even logical, with the caveat that the space created by the Chinese government also appears to have been promptly filled by it with its own “private” champions.
The Fortune magazine interview, reprinted about two months later with some interesting modifications in the magazine’s Chinese edition, apparently created a lot of interest within China. The respected economic news portal Jiemian (界面) set out on its own investigation into “Ye Jianming‘s mysterious empire.” The resulting article, widely reposted on the Chinese internet, was “harmonized” a few weeks later after threats of legal and police action appeared on the CEFC corporate website.
One of the harmonized article’s findings was that Ye’s claim to have entered into the oil business by acquiring Xiamen-based company Huahang (华航石油公司) through an auction of assets illegally obtained by the notorious smuggler Lai Changxing 赖昌星 was dubious — Huahang never belonged to Lai; it was a state-owned company that could have only been acquired by Ye through privatization. Similarly, from available corporate records it seems that CEFC flagship company, China CEFC Energy (中国华信能源有限公司), was created in 2011 through privatization of a state-owned (people’s owned 全民所有制企业) firm originally set up by the state-run Sinostar Group (中国华星集团).
Toeing the Party line
Chairman Ye may be elusive about CEFC’s origins, but he’s quite straightforward about its current course: “We closely follow the national strategies,” he declared in the Fortune interview. “So we‘ll map out our corporate strategy according to the national ones.” This sounds true in more than one sense.
In a recent profile, Financial Times described the company’s ties to the Chinese political establishment: “CEFC is no ordinary private company. Ye Jianming, the group’s chairman, sponsors a pro-China think tank with ties to retired military intelligence officers, and does business with the military’s ‘princeling’ elite.”
The think tank is the same non-profit wing that got the company in trouble with law enforcement in the U.S (in English the non-profit arm is also known as CEFC–China Energy Fund Committee, 中华能源基金委员会). Even before CEFC’s corruption scandal in Africa, however, China Energy Fund Committee raised eyebrows with its political positions, hardline even by the current Chinese standards. In 2013, commentators associated with CEFC’s “strategic analyst,” colonel Dai Xu 戴旭 (sometimes writing under the pseudonym Long Dao 龙韬), effectively killed off the discussion on constitutionalism, the last great domestic debate in China, with a series of aggressive commentaries in the overseas edition of People’s Daily. The demise of constitutionalism in 2013 marked the onset of severe ideological crackdown, starting with the infamous “Document No. 9,” listing all the liberal values that the CCP identified as its ideological foes.
In foreign policy, Dai Xu again made waves in 2013 with belligerent calls to “teach Vietnam a lesson” in the South China Sea. In short, it seems that CEFC not only follows the PRC’s state policies closely, as Chairman Ye eloquently put it, but aligns itself with the most conservative elements in the CCP and PLA. The company and its Chairman have also been connected in academic literature with Chinese military intelligence, most notably in the Institute 2049’s 2013 report on Chinese “Political Warfare.”
The Great Czech Reversal
In the same fateful year of 2013, the Czech Republic held its first direct presidential elections won (rather closely) by the populist candidate Miloš Zeman. Zeman was brought back from self-declared retirement after a stint as the Czech PM in 1998 – 2002 by a cabal of political and business interests. In his political life prior to the Presidency, Zeman never showed much interest in China. On one occasion in 1996, he publicly ridiculed those who would be willing to serve any foreigners, even the Chinese, “ready to undergo a plastic surgery to slant their eyes.”
By 2013, he apparently changed his mind, and started pursuing an unconditional reversal of the Czech Foreign Policy towards China, uttering similarly outrageous statements with an exactly opposite spin. His change of heart was directly related to persistent efforts of the biggest Czech financial conglomerate PPF to secure a nationwide license to provide consumer finance services in China. After an initial pilot project in Tianjin in 2010, PPF was told that further progress depended on a more cordial attitude in Prague towards the People’s Republic. PPF set about the task enthusiastically, hiring Zeman’s former defense minister Jaroslav Tvrdík as their chief lobbyist. After Zeman’s election in 2013, Tvrdík became his advisor, as well as the advisor of Zeman’s hand-picked PM in his “care-taking” government that ruled the country for more than half a year without securing the Parliament’s vote of confidence. In 2014, a Czech policy reversal was officially announced during the Czech FM’s visit in Beijing. The very same year, PPF obtained the coveted nationwide license and went on with their very profitable business in China.
Elite capture in Prague
The following year, in an apparent response to PPF’s success in China, a hitherto unknown Chinese company CEFC entered the Czech Republic. In the fall of 2015, CEFC went on a weeklong shock-and-awe shopping spree in Prague, buying some prime real-estate, a football club, a brewery, and a media conglomerate. The buying frenzy was advertised as just the beginning of a massive upcoming capital injection into the Czech Republic, a proof of the wisdom of the Czech foreign policy u-turn’s wisdom.
Simultaneously, it was announced that back in the spring CEFC Chairman Ye Jianming had been named Zeman’s advisor. The delay in making the appointment public was never explained, but it follows that before the very visible CEFC acquisitions, making an unknown representative of an unknown foreign company the Czech President’s advisor would have appeared even more outlandish. Interestingly, the appointment was made the same year when Ye Jianming also became the advisor of the former Ugandan FM Sam Kutesa in his capacity of the UNGA President. According to the U.S. indictment against Patrick Ho, the accused CEFC representative then wired Sam Kutesa half a million dollars.
Zeman’s Czech advisor for China and PPF lobbyist Tvrdík became the head of CEFC’s “European” headquarters in Prague. In a somewhat incestous circle, Tvrdík became the central hinge in an informal axis between PPF, CEFC, and the Czech state. CEFC Europe then went on to hire a plethora of former Czech politicians and top government servants. A certain Mr. Sklenář, originally in charge of the protocol at the Prague Castle, distinguished himself by going back and forth through the revolving door between CEFC Europe and the Czech President’s office not once, but twice in three years. The Czech state seems to be fusing with CEFC.
Meanwhile, CEFC‘s economic activities in the Czech Republic proved rather underwhelming, certainly in comparison with their growing political clout. Most of the promised billions never materialized, and the little business there was happened to involve almost exclusively a close-knit group of political entrepreneurs around the Czech President and his advisors.
When the issue of CEFC’s alleged connection to Chinese military intelligence came up in the local press, CEFC instructed its legal representation in the Czech Republic to serve threatening notices to the media concerned. Given the close-knit circle of CEFC associates in the country, it is perhaps not surprising that the law firm representing it happened to be run by the closest friend of the then Czech PM, considered by some observers to be the most influential éminence gris in Prague.
The legal notices specifically objected to connecting CEFC Chairman Ye Jianming with the Chinese Association for International Friendly Contact (CAIFC), often described as the public face of Chinese military intelligence. When an online outlet pointed out that Chairman Ye’s work for the Shanghai branch of CAIFC was included in his official resumé available on CEFC’s very own website, the item was quickly taken down. Yet the very same information remained in many public documents, some of them filed by CEFC itself.
CEFC’s own media assets in the Czech Republic, obtained during the short-lived shopping spree in 2015, diligently promote the “China Story,” a positive narrative called for by CCP’s Secretary General Xi Jinping. According to a recent quantitative analysis, the image of Communist China has been mixed in most Czech media. The only exception were the media outlets co-owned by CEFC, which offered 100 percent positive coverage and didn’t publish a single critical voice.
CEFC is now bidding for the most influential TV channel in the country, TV Nova, in a consortium with the Czecho-Slovak financial group Penta. Penta was created by a group of former classmates from Moscow’s MGIMO Institute, and became notorious in Slovakia through the “Gorilla Affair”, an alleged attempt to influence the Slovak government with regular secret meetings in a private apartment in Bratislava. Official investigation into the scandal has been dragging on for years with no end in sight.
TV Nova is part of the Central European Media Enterprises (CME), currently owned by Time-Warner. Its media assets span several East European countries (Czech Republic, Slovakia, Bulgaria, and Romania). The prospective acquisition of this small media empire apparently does not need any regulatory approvals in either the U.S. or Eastern Europe.
“A more equitable globalization’s” dark underbelly
A regulatory approval is, however, needed for another attempted CEFC investment, the planned purchase of a controlling stake in another Czech financial group, the J&T, which runs its own bank with subsidiaries in several European countries. The transaction was cleared last year by the European Central Bank (ECB), but in November, the Czech National Bank (CNB) surprisingly refused to grant approval on the grounds that CEFC failed to clarify the origin of its funds. CEFC’s ownership structure and financing are indeed murky, but that didn’t stop the ECB from granting its approval. It is not clear whether the CNB’s surprising move could be connected to CEFC’s corruption scandal in New York, or to the more general recent misgivings about the solvency of high-flying Chinese investors like Hainan Airlines (HNA).
It remains to be seen how much the corruption case against Patrick Ho will impact CEFC’s fortunes as the trailblazer for the Belt and Road Initiative throughout the world. Its business in Eastern Europe, which now spreads to Slovakia, the Ukraine, and Georgia, does not seem to be much affected. That may change if the court proceedings lead to new revelations about the company’s practices in target countries. There are indications that Patrick Ho’s case may be connected through Sam Kutesa’s wife to the corruption scandal of the previous UNGA President John Ashe. Bribing two UNGA Presidents in a row would appear like too much of a coincidence; rather, it would seem to suggest a trend.
Just a few days before Ho’s arrest in New York, CEFC co-sponsored the setting-up of a new “Institute of Belt and Road & Global Governance” at Fudan University in Shanghai (to be directed by Fudan’s Party Secretary). At the event, CEFC President (and its Party Secretary) Chen Chauto (Chen Qiutu) declared that “BRI and the concept of building a community of shared future for mankind, as China’s wisdom for the world, is now reshaping the global political and economic structure and facilitating new global governance.” One can’t help but wonder about the connection between the “new global governance” and the series of corruption cases at the U.N.
For his part, Patrick Ho had been promoting Xi Jinping’s Belt and Road Initiative in the media and at public events as “a pathway to more equitable globalization.” He may yet come to epitomize its darker underbelly.