In today's China, all corruption is relative.
Yes, the demise of Politburo member Bo Xilai has captured international headlines for exposing how political power and family money melded together in Chongqing, his mist- and smog-shrouded pocket of southwest China. While Bo was reviving Maoist nostalgia on his official's salary of about $1,600 per month in a country whose per capita income ranks 121st in the world, his son was renting a presidential-style suite at Oxford and driving a Porsche at Harvard. Bo's elder brother adopted an alias to control $10 million worth of shares at the Hong Kong-listed subsidiary of a state-owned bank. And Bo's wife, Gu Kailai, stands accused of being involved in the murder of her English friend Neil Heywood after a falling out over money.
Yet in a Communist Party notorious for nepotism and which refuses to subject itself to any law, the Bo family's known financial antics were in fact relatively modest. Two of his wife's sisters are worth upwards of a combined $126 million, according to a Bloomberg investigation. But the fortunes of other powerful political clans almost certainly extend into the billions, as a months-long investigation into the business dealings of one of China's most prominent families makes clear. Through years of influence-peddling and investing, multiple sources close to him say, the son of a former Chinese vice president managed to place himself at the center of a variety of lucrative deals across all aspects of China's economy, from coal mines to the stock market to shopping malls, amassing so much money he ended up buying a $32 million family mansion in Australia.
And his success exemplifies the ability of regime insiders to work the system for their own personal gain -- and make a mockery of the legal system in China. Although the private wealth of the party's princelings -- the well-connected sons and daughters of top officials -- is usually well-concealed, they are increasingly dominating the market for blocking and lubricating the arteries of public- and private-sector wealth. Stock exchanges double as vehicles for converting family political capital into cash, which can be re-converted into political power, sometimes by means as blatant as "auctioning" official positions for sale. State-owned enterprises and bureaucracies can be ruled like personal fiefdoms, with contracts allocated to relatives and useful friends, while entrepreneurs shift their profits and loyalties in exchange for regulatory protection.
Some of China's most respected public intellectuals are warning that society and economy are being held hostage to the wealth-maximizing requirements of the political elite. These warnings echo privately in business circles, too, where entrepreneurs continue to be enthralled by the prospects of short-term profits but increasingly alarmed about their personal and financial security. Officials in developed countries, and even Chinese entrepreneurs themselves, report a steep increase in business people and capital leaving China. "Nine out of ten of my business clients are in the process of applying to emigrate, if they haven't already," one of China's most successful investment bankers told me last week (he is in the process of emigrating to Canada). Executives at state-owned companies have grown incapable of acting in the interests of their companies, he says, and China's entire system of allocating resources "is malfunctioning."
Of all the inside deals that abound in China, few compare in scale and audacity to the clandestine privatization scheme that Chinese journalists uncovered in 2007. Caijing magazine discovered that 92 percent of the shares in the state-owned power generating company Luneng, with net assets valued at $9.47 billion, had been secretly transferred the previous year to two unknown private companies for $478 million. When Chinese leaders learned the identities of the princeling children involved, they pressured the magazine's publisher and editor and forced a follow-up article to be recalled as soon as it hit newsstands. Documents cited by Caijing suggest the handful of new owners might have received a windfall gain in the vicinity of $9 billion from the deal.
Foreign Policy has learned that the most sensitive individual involved was Zeng Wei, the then 37-year-old son of former president Jiang Zemin's right-hand man Zeng Qinghong. While details of profit shares, valuations of Luneng assets and debts, and the identity of several other leading families remain disputed, Zeng Wei's involvement has been confirmed by a person integral to the original investigation, business and social acquaintances of Zeng Wei who count themselves as friends, and a recently retired senior official closely acquainted with Zeng Qinghong. The transaction was subsequently unwound but no senior figure on either side of the transaction, including the current head of China's electricity grid company, ranked no. 7 on the Forbes 2011 list of the world's largest corporations by revenue, is known to have faced disciplinary action. Exactly what happened to the $9 billion remains unknown.
It's hard to overstate how crucial Zeng Qinghong was to the ruling elite at the time his son was involved with these machinations: That same year, he brokered the surprise deal that installed Xi Jinping as the president-in-waiting, a masterwork of consensus-building among warring party factions. In 2008, just months after the Xi deal was presented to the Chinese public as a fait accompli, Zeng's son Zeng Wei paid $32 million for a home with a nine-car garage in Sydney, the most egregious confirmed example of a princeling flaunting his wealth. According to a family friend of Zeng Qinghong, the notoriety of his son's financial dealings -- and not only regarding the power company Luneng -- was one factor in his decision to retire after he handed the vice presidency to Xi in 2007. Although Zeng had reached the semi-official retirement age of 68, he also declined the customary honorary positions and confined his power-broking role to giving personal advice only to Jiang Zemin, says the family friend.
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