THE PEOPLE’S REPUBLIC OF GRAFT
A corruption case in China sheds rare light on the nexus between business elites and officials at the highest level, with the trail leading to the doorstep of a former prime minister
A corruption case exposes the nexus between entrepreneurs and high-level party officials in China
On a recent evening, the lobby at the Bulgari Hotel, a luxurious new glass and steel building that sits in the heart of Beijing on the banks of the Liangma river, was bustling with activity. The latest addition to Beijing’s growing list of elite luxury hotels was launched last September, backed by one of the Chinese capital’s most influential—and richest—power players. Over the past decade, everything that 51-year-old billionaire businesswoman Duan Weihong touched seemed to turn to gold, as she acquired a vast portfolio of prime properties across Beijing through her Great Ocean Group, or Taihong. Duan’s close relations with the Communist Party of China (CPC) elite was an open secret but never fully detailed, part of the opaque business-politics nexus that greases the wheels of the Chinese economy.
Then out of the blue, Duan disappeared. She was missing at the September unveiling of the Bulgari Hotel. Two months earlier, CPC politburo member Sun Zhengcai—the party chief of Chongqing who was widely seen as a potential long-term successor to President Xi Jinping—had been removed from his post by Xi. Sun, incidentally, was like Duan a Tianjin native and later served as the party boss of the Beijing district of Shunyi at the time when Duan’s real estate business had expanded to the Chinese capital and acquired vast tracts of land in the same district.
On May 8, Sun was sentenced to life in prison, accused of taking bribes exceeding 170 million yuan (around Rs 180 crore). The court found that between 2002 and 2017, “Sun had taken advantage of various posts to help certain units and individuals in project bidding/ approval, enterprise operation and personnel promotion and arrangement, and accepted money and property worth over 170 million yuan, either by himself or with ‘certain affiliated persons’”. It was apparent the reference
was to the politburo member’s longtime associate, Duan.
That corruption has proliferated unchecked in China, particularly since the boom-time unleashed by the economy’s opening in the early 1990s, is no secret. Less known, however, are the mechanics behind it. The nature of corruption in China and India is starkly different: the CPC, governing a one-party state, has been careful to weed out the petty, everyday kind of bribe-taking that is still rife in India— for licences, having an electricity connection fixed and so on.
Yet, the scale of graft in China dwarfs India’s levels of corruption, on account of both the five-times-larger economy and the opacity with which the politics-business nexus operates in an authoritarian state with a vast censorship apparatus. Chinese authorities estimate that 800 billion yuan (around Rs 8.5 lakh crore) may have been taken out of the country as ill-gotten wealth, as a central bank report noted (before it was taken down from its website). The Rs 11,000 crore estimated to be owned by Indians in Swiss bank accounts is quite modest in comparison.
Duan Weihong’s rags to riches story offers a rare granular look at how the politics-business nexus in China operates. Duan was only 26 when she opened a real estate brokerage in the port city of Tianjin in 1996, which she named Taihong.
Real estate firms at the time needed close relations with government officials to expand business. Duan entered the Beijing real estate market the same year Sun was appointed the party boss of Shunyi, one of the capital’s 16 districts, in 2002. She moved Taihong’s headquarters to Beijing and began acquiring land in Shunyi. When the Beijing government signed a deal the following year to build an airport city with Sinotrans, Sun, as the new district party chief, cancelled the contract, instead awarding it to Duan’s company.
An investigation by Chinese financial magazine Caixin in May documented how Taihong then expanded rapidly, leveraging Duan’s connections to acquire stakes in several state behemoths that were in the early 2000s preparing for IPOs in Hong Kong. The Caixin report was published online but promptly taken down, perhaps unnerving authorities for its expose of this carefully constructed system of graft.
Duan’s acquisition of shares in government-run insurance giant Pingan transformed her fortunes from a medium-sized real estate broker to one of China’s richest women. As Caixin reported, at the time of Pingan’s June
800 YUAN BILLION MAY HAVE BEEN TAKEN OUT OF CHINA AS ILL-GOTTEN WEALTH, SAYS A CENTRAL BANK REPORT
2004 IPO, Taihong’s 160 million shares were valued at 3.25 yuan a share. By the end of 2007, the share price was 46.79 yuan. Duan made a killing. The same year, she announced her arrival to the world through a donation to Harvard University, which established a scholarship in her name at its prestigious Fairbank Center for Chinese Studies.
Sun wasn’t the only politician Duan cultivated. Taihong offered shares to the relatives of then premier Wen Jiabao, who also hails from Tianjin and served as the prime minister until 2013. Through Taihong, Duan allowed Wen’s family to acquire lucrative shares in Pingan before its mega $1.4 billion IPO. As The New York Times reported, the Wen family’s stocks—he himself did not own them and there was no evidence of either his involvement or illegality—were valued at $2.2 billion by 2007.
Duan’s close ties to the Wen family were seen as giving her immunity. By going after Sun, Xi has ended that—and in the process, shed an uncomfortable spotlight on a corruption trail that not only ensnared a serving politburo member in Sun, but now leads to the doorstep of a former premier. Xi has already shattered the unwritten protocol governing the CPC by going after People’s Liberation Army (PLA) generals and serving politburo members. Whether he will take the probe even further is unclear. Xi’s corruption crackdown is aimed at burnishing the party’s legitimacy. He would, however, risk eroding it by exposing the family of one of China’s most recognisable leaders of the past few decades.
When Xi took over as general secretary in 2012, he identified corruption as the biggest threat to the party. In the five years since, he has unveiled a sweeping corruption crackdown that has purged tens of thousands of officials—and served the dual purpose of eliminating scores of rivals, leaving him, as some have described it, ‘president for life’. The crackdown has made an impact, using ‘shock and awe’ to strike fear in officialdom.
At the same time, it has done little to deal with the core of the problem: dismantling the systems and opaque structures in place that have allowed corruption by the politics-business nexus to proliferate and officials—or their families—to amass hundreds of millions of dollars in assets. Duan is far from alone. There are dozens of high-ranking officials across China whose families have similarly leveraged connections to build huge fortunes during China’s boom-time years.
That Duan’s rags to riches story—and the powerful friends she made along the way—still remains hidden from public view in China, and out of bounds for its media, underscores the party’s reluctance to confront this systemic rot. Doing so would perhaps raise difficult questions to which China’s ruling party may have no answers.