‘SOFT POWER’ OFFENSIVE
How a murky Chinese company linked to the People’s Liberation Army set up shop in B.C.
One evening in downtown Vancouver last November, some of B.C.’s political and business elite rubbed elbows with executives of one of China’s largest state-owned corporations, China Poly Group.
They were celebrating the launch of a boutique art gallery by one of China Poly’s many subsidiaries, Poly Culture Group, which operates the third-largest auction house in the world.
Under the watchful eye of Vancouver police in tactical gear, attendees admired four rare bronze zodiac heads — a tiger, monkey, ox and pig — that had once adorned the Summer Palace in Beijing.
It was the first time these cultural relics — looted following the palace’s destruction by British and French forces in 1860 — had been displayed outside China since their repatriation.
The opening of a gallery and North American headquarters here by Poly Culture was the culmination of intense behind-thescenes courting by local politicians — especially Liberal MLA Teresa Wat, then B.C.’s international trade minister — and was hailed in government documents as a major economic win and “significant day for British Columbia in its relationship with China.”
But at a time when Canada’s review of foreign investments has come under increased scrutiny — such as in the case of Anbang, an opaquely structured insurance corporation with links to China’s leading families and military figures — questions abound about the long-term investment plans by Poly Culture and China Poly Group, a company with deep military roots and a controversial past.
Founded in the early 1990s, China Poly Group boasts $95 billion in assets, according to Fortune magazine, and 76,000 employees in 100 countries. It operates in many industries, including arms and explosives, real estate development, arts and culture, infrastructure building and resource extraction.
The company’s opaque organizational structure has led to questions about how its different entities relate to each other, and who’s in charge. A 2013 New York Times article said China experts were not sure “how Poly functions as a corporation, how power is shared internally, to whom its executives are really accountable or how its revenues and benefits are distributed.”
In the mid-1990s, its arms division, Poly Technologies, was investigated in connection with a massive international weapons-smuggling case in the United States. In 2013, the U.S. government sanctioned the division, alleging it violated sections of the Iran, North Korea and Syria Nonproliferation Act. The U.S. ended its sanctions against Poly Technologies in 2015.
Hundreds of provincial and Canadian government records obtained by Postmedia through freedom-of-information requests show some Canadian officials were alerted last year to a media report highlighting accusations that China Poly has “earned a reputation for bending the rules” and “providing arms to despots.”
But that media report did not appear to give officials any pause as Poly Culture finalized its plans to set up in Vancouver.
Briefing notes show that if a reporter were to ask Wat about China Poly Group’s defence activities, she was advised to say its entry into the B.C. market was “exclusively” for arts and culture purposes. But other records obtained by Postmedia showed Poly Culture’s mandate in B.C. includes “scoping out” investment opportunities and potential real estate deals.
National security experts say Canadian officials should proceed with caution.
“Canadians generally, including all governments and the private sector, should treat our relations with China and Chinese companies differently than we do with companies from other countries,” Richard Fadden, director of the Canadian Security Intelligence Service from 2009 to 2013, said in an email.
Without referring specifically to China Poly Group, Fadden said that Chinese companies were more likely to be “up to something that we would not approve of ” than “virtually any other country.”
“I am suggesting that more due diligence is warranted,” Fadden said.
Postmedia asked Wat — who judged Poly Culture’s launch in B.C. as so important that she urged then-premier Christy Clark to make time to meet the parent company’s chairman — to sit for an interview for this story.
Wat, who is now the B.C. Liberal critic for trade, requested emailed questions instead.
In a response that did not answer detailed questions posed about China Poly Group’s background and her role in the deal process, Wat said: “In my capacity as B.C.’s minister of international trade, I regularly met with local and international corporations. … Poly Culture Group is one of the numerous corporations that I had meetings and conversations with as part of these efforts.”
Representatives of Poly Culture North America did not respond to written questions to discuss its current and future plans in Canada, citing the need to obtain approval from the parent company in Beijing. But earlier in the year, they told Postmedia they looked forward to contributing to economic development and cultural prosperity between Canada and China. Poly Culture, they said, will always abide by laws and “uphold Canada’s high standards of business practices.”
COURTSHIP BEGINS
Records show China Poly Group’s path to B.C. started in 2014 when Wat met with Poly Culture’s general manager, Jiang Yingchun, in a meeting “facilitated by Bank of China in Vancouver.”
In early 2015, Poly Culture registered as a business in B.C. and eventually set up a temporary headquarters in Richmond, in the same office building and on the same floor as Wat’s constituency office.
During a spring 2015 trade mission to China, Wat visited the Poly Art Museum in Shenzhen. In November of that year, Wat and then-premier Christy Clark visited China Poly Group’s Beijing headquarters — a 110-metre skyscraper featuring an enormous glass-curtain wall and triangular footprint.
The 2013 New York Times article highlighted the novel fact that visitors to Poly’s imposing tower could “shop for a painting on the third floor or a missile system on the 27th.”
Clark and Wat’s visit did not include the 27th floor, according to their itinerary.
It did, however, culminate with a visit to the 29th-floor ceremony room to witness the signing of a memorandum of understanding between Poly Culture and HQ Vancouver, the provincially and federally funded office that has played a role in bringing several Chinese companies to Vancouver.
“We often talk about our business ties, and how important that is. Well, our cultural ties are just as important,” Clark gushed in a YouTube video posted at the time.
That same month, Jimmy Mitchell, vice-president of AdvantageBC, a little-known provincial tax rebate program, emailed Poly Culture executives to inform them that he and AdvantageBC president Colin Hansen would be travelling to Beijing and were interested in “furthering our discussion about Poly Culture’s ongoing business planning for North America via Vancouver.”
Poly Culture executives agreed to meet, records show.
Mitchell declined to talk to Postmedia about that or subsequent meetings.
Hansen did not respond to an interview request. Postmedia has previously reported on concerns that B.C. taxpayers are subsidizing offshore companies through the AdvantageBC program, while program directors refuse to identify which companies have obtained tax advantages.
Poly Culture previously informed Postmedia it had not received any tax credits from AdvantageBC, but did not respond to additional questions for this story.
CHAIRMAN AND THE GENERAL
China Poly Group’s roots can be traced directly to Deng Xiaoping, the Communist leader of China from the late 1970s through the 1990s, who is credited with reforms that ignited an unprecedented wealth boom in the country.
Deng’s son-in-law, He Ping, a former army general, was made general manager of China Poly Group when it formed in 1992.
(Chinese companies are more likely to be) up to something that we would not approve of (than) virtually any other country. I am suggesting that more due diligence is warranted.
Today, he serves as honorary chairman and in corporate photos, he can be seen next to the current chairman, Xu Niansha.
A former Chinese navy captain and real estate developer, Xu is also a member of the foreign affairs committee of China’s top political advisory body, the National Committee of the Chinese People’s Political Consultative Conference.
Slogans and symbolic images feature prominently on China Poly Group’s website. One poster shows a red ribbon flowing past a ship’s wheel toward a large hand that is placing black and white circular pieces onto different parts of the globe. It’s a depiction of Go, an ancient Chinese strategy game in which the goal is to acquire land and surround your opponent’s territorial markers with your own.
Another section of China Poly Group’s website features articles designed to draw inspiration from the Red Army’s famous “Long March” in the 1930s.
China Poly Group and Poly Culture appear eager to help the Chinese state achieve its expansive One Belt, One Road project, company documents indicate. Announced in 2013 by China’s president, Xi Jinping, the plan aims to connect China with Asia, Africa, the Middle East and Europe through roads, shipping lanes, pipelines and other large infrastructure projects — all in an effort, some analysts suggest, to extend China’s reach as a dominant global power.
A Poly Culture investor report says that one month before the company’s new Vancouver gallery was opened, in October 2016 Xu Niansha visited Poland with a Poly theatre executive to explore cultural projects in response to China’s “national construction policy of One Belt One Road.”
Another China Poly Group subsidiary deeply involved in that effort is Poly Technologies, a backbone of the company formed in 1984 as the arms-manufacturing wing of the People’s Liberation Army.
A 2015 company news release said Poly Technologies was involved in a US$184-million deal to construct rubber plants in Uzbekistan — which sits in the “heart of the coverage area of the One Belt, One Road initiative.”
While marketing materials tout Poly Technologies’ “strong brand image and reputation globally,” that hasn’t always been the case.
In 1996, Poly Technologies and another Chinese state-owned company, Norinco, were linked to an undercover sting that saw 2,000 AK-47 assault rifles smuggled into the port in Oakland, Calif., allegedly to arm street gangs.
Chinese government officials and executives of both companies strongly denied at the time any connection to the case.
The Times reported then that Poly Technologies was selling $2 billion to $3 billion worth of military equipment annually and that its customers included Iraq, Iran, Pakistan, Syria, Saudi Arabia and Myanmar.
In the end, three people were convicted including a former official with Norinco and a former official with Poly Technologies, U.S. authorities said in 2005.
The case also stirred a political scandal in 1996, the Times reported. Poly Technologies’ chairman Wang Jun, the son of a Red Army leader closely associated to Mao Zedong, was discovered to have met with U.S. president Bill Clinton in the White House while the smuggling investigation was still underway.
In 2013, Poly Technologies was in the headlines again when it was sanctioned by the U.S. State Department, which alleged Poly sold items in contravention of a weapons proliferation ban involving Iran, Syria and North Korea.
The company issued a statement at the time saying it had neither helped any country to develop banned weapons nor had it breached United Nations Security Council resolutions.
Before making its move to Canada, Poly Culture went public on the Hong Kong Stock Exchange in 2014.
The company prospectus emphasized a “clear delineation” between it and other China Poly Group companies. It also noted that Poly Technologies had withdrawn its 32 per cent stake in the company.
CORPORATE PLANS
But records show some Canadian government bureaucrats were still scratching their heads over Poly Culture’s organizational structure.
In February 2016, a senior business officer with Western Economic Diversification Canada seemed confused about the distinction between Poly Culture and another entity, whose name was redacted in email records secured by Postmedia.
The business officer emailed to an HQ Vancouver staff member, asking: “the *** is the Polyculture Group, is it not?”
The HQ Vancouver staff member replied: “No, *** and Polyculture are two different entities altogether.”
That same month, a briefing note advised Wat that if she was asked by reporters about China Poly Group’s defence activities, she should answer, “the new head office coming to Vancouver is exclusively related to Poly Culture’s arts and culture activities.”
Other records, however, strongly suggest that Poly Culture’s plans in Canada extend beyond arts and culture.
Greg D’Avignon, CEO of the B.C. Business Council, for instance, described the company this way in a lunch invitation to local business leaders and China Poly Group executives: “As the only corporation set up by Poly Group in North America, Poly Culture North America will also help Poly Group expand and develop its business, including culture and arts business, real estate development, and other possible industries across North America.”
In fact, documents show that another China Poly Group subsidiary, Poly Real Estate, sent a small delegation to B.C. in spring 2016 to meet Wat.
An April 10, 2016 email says three Poly Real Estate delegates were seeking Canadian visas for the visit, and that the China Poly Group chairman, Xu Niansha, and the Poly Culture CEO, Jiang Yingchun, were “already there.”
“According to the agenda, the delegation will be meeting minister Teresa Wat for dinner, and make a few site visits to ***,” the email says.
Wat did not respond to questions about whether the dinner took place or what Poly Real Estate’s interests were in Canada.
The fact that China Poly Group’s real estate arm was sending representatives to B.C. at the same time its cultural arm was finalizing a deal in B.C. seems to align with the company’s investment strategies.
Poly Culture’s 2016 annual report touts the term “cultural real estate.”
“For (China) Poly Group, it is always dedicated to the merger between real estate and culture,” the report says, noting that the addition of a cultural property, such as a theatre, to an area can enhance the commercial value of nearby real estate.
While Poly Real Estate’s activities in Canada appear now to be limited, it has established a huge footprint in Australia. The company “swept into the Australian real estate market” to develop property in Sydney and Melbourne in late 2014 and has “outlined an ambitious growth strategy for Australia aimed at making it the third biggest property developer here,” The Australian reported in 2015.
Last fall, Peter Cai, a research fellow at the Lowy Institute for International Policy, wrote a column suggesting political and business leaders should exercise caution at the rise of China’s “soft power” in Australia.
(Poly Real Estate) swept into the Australian real estate market (and has) outlined an ambitious growth strategy for Australia aimed at making it the third-biggest property developer here.
It is a political reality, he wrote, that most Chinese entities have either formal or informal connections to the ruling Communist party and most of the time this is not a problem.
“Politicians and business people should be alert but not alarmed.”
CLOSING THE DEAL
In August 2016, Wat travelled to China for a vacation and ended up staying there until early November. Government emails say that she had fallen in Zhuhai, a city near Hong Kong, and needed time to recover in hospital.
From Zhuhai, just weeks before the official launch of Poly Culture’s art gallery in B.C., Wat sent an email to Clark’s staff urging Clark to meet again with China Poly Group’s chairman.
“It is now confirmed that … Chairman Xu will visit Van(couver) Nov. 30 and would like to meet with PCC (then-premier Christy Clark),” Wat wrote on Oct. 25. “I strongly suggest that PCC meet Xu after the cabinet meeting on Nov 30. even for just 20 minutes.”
Wat wouldn’t tell Postmedia why she felt the meeting was so important. Clark, who had also met Xu in Beijing in 2015, did not respond to requests, either while she was premier or after, for an interview about China Poly Group.
Days before she returned to B.C., Wat was pictured Nov. 1 with Canadian business delegates at the China International Aviation and Aerospace Exhibition in Zhuhai. Among the wares on display, according to Chinese media reports, were armoured vehicles and missile systems built by Norinco and China Poly Group, a past event sponsor.
HIGH-LEVEL MEETINGS SOUGHT
Records show China Poly Group executives sought meetings with Canadian federal officials, including the minister of international trade, in the lead-up to the November 2016 launch in Vancouver.
“HQ Vancouver has expressed an interest in the (federal Greater China office) involvement in the Poly Culture visit, as they believe it will have a positive impact on bilateral relations,” wrote Christian Hansen, a regional director for Global Affairs Canada, in an Oct. 5 email.
Emails exchanged between Global Affairs Canada staffers showed the three-day visit by China Poly Group executives was billed as an “opportunity to explore other significant investment opportunities in Canada for Poly Group.”
But the emails also show the federal government was carrying out “due diligence” on the company. As part of the information gathering, bureaucrats were trying to determine the company’s “size, presence outside China.”
A 2013 online article by Public Radio International — titled “China’s Poly Group: The most powerful company you’re never heard of ” — was flagged by HQ Vancouver and circulated among federal staff in the due diligence process.
The article begins with a suggestive image: “Picture the China Poly Group Corporation as the first of a set of Russian nesting dolls,” the article says. “Each of the larger wooden baubles represents a new line of diverse subsidiaries that shield its cloistered, princeling controlled core.”
The report goes on to highlight the company’s arms exports “to troubled spots such as Myanmar or Zimbabwe” and quotes an expert saying that Poly Technologies “has been on Amnesty (International)’s radar for a long time because of their arms shipments to conflict zones, especially Africa.”
Global Affairs Canada wouldn’t comment on how staff reacted to the article, saying only that “due diligence is always carried out … when it comes to investments in Canada made by foreign investors.”
A federal official later said on background that an initial national security screening was conducted by Ottawa on Poly Culture and it was judged that a more in-depth national security review was not required.
The official seemed surprised that Postmedia was asking questions about China Poly Group’s presence in Vancouver.
“It’s just an art gallery,” the official said.
In an interview Derek Scissors, a China expert at the conservative American Enterprise Institute, said: “Do (China Poly Group) have a lot of non-military businesses? Yes. But they are still connected to the People’s Liberation Army. That is fact.”
“It is a legitimate question to ask if Poly knows how to be a good Canadian business. And do they know how to follow Canadian laws?” Scissors said. “If you are concerned about national security with a Chinese company, you’re right. Because if your superior in the party says, ‘you need to do this,’ you do.”
Ottawa’s review process was questioned in a recent case involving a Chinese company’s takeover of Vancouver high-tech firm Norsat International, which sells satellite-communications systems to the U.S. military. U.S. officials slammed Ottawa’s approval, saying it raised national security concerns. The Globe and Mail reported that Fadden, the former CSIS head, said he would have recommended a full-fledged national security review in the Norsat case. Ottawa maintained that only an initial national security screening was required.
AFTER THE DEAL
In the months since the launch of Poly Culture’s art gallery in Vancouver, Poly Culture has signed an agreement with the Vancouver Symphony Orchestra to develop joint programs.
The company has said it is keen to build a large art centre and develop filmmaking partnerships.
Meanwhile, its parent company continues to make headlines, most recently in connection to the highprofile disappearance of a Chinese billionaire, Xiao Jianhua.
In January, Xiao, who has Canadian citizenship, was abducted by Chinese police from his home in a Hong Kong hotel. He has not been seen or heard from since.
In April, the Wall Street Journal reported that firms linked to the “formidable arms-trading conglomerate, China Poly Group Corp., executed at least three recent transactions involving the billionaire.”
And in late July, the South China Morning Post reported that Xiao was involved in a multibilliondollar investment in 2016 that was routed through a number of companies, including Cayman Island-registered Pohua JT. That company is 32 per cent owned by Poly Longma, a unit of China Poly Group, the Morning Post reported, and “the remainder of Pohua JT is linked to Xiao.”
Global Affairs Canada officials said they are monitoring Xiao’s case.
Bruce Ralston, the B.C. NDP’s newly installed minister of jobs, trade and technology, declined an interview request for this story. In a statement, he said the government will conduct a review of HQ Vancouver, the publicly funded program that played a key role behind the scenes to bring Poly Culture to Vancouver.
Meanwhile, a government official recently announced where John Horgan, B.C.’s new premier, will be visiting for his first overseas trip: China.
Do (China Poly Group) have a lot of non-military businesses? Yes. But they are still connected to the People’s Liberation Army. That is fact . ... If you are concerned about national security with a Chinese company, you’re right.