HONG KONG, September 17 (Reuters Breakingviews) – In 2017, “Whitney” Duan Weihong, one of the richest women in China at the time, disappeared from her Beijing office without a trace. For years, no one knew whether she was alive or dead until her ex-husband Desmond Shum told reporters in early September that she had called him and asked him not to publish his book. He pressed the button anyway. “Red Roulette: An Inside Tale of Wealth, Power, Corruption, and Vengeance in China Today” is a story of the dysfunctional but profitable relationship between China’s red aristocracy and the country’s nimble, greedy private companies. Shum’s story is full of warnings, devoid of heroes, and full of political dynamite.
Like so many entrepreneurs who rose to tremendous wealth after Chairman Deng Xiaoping began liberalizing the Chinese economy in the 1980s, Shum and Duan came from humble backgrounds. They met while negotiating business in Beijing, and according to Shum, their marriage was the pragmatic conclusion to a business school reconciliation analysis. Duan’s unique ability to charm senior officials helped catapult them into the financial stratosphere. “We were like the fish that brush crocodiles’ teeth,” as Shum puts it.
Her favorite crocodile was Zhang Beili, the wife of the then Chinese Prime Minister Wen Jiabao. “Aunt Zhang” helped the couple acquire a stake in Ping An Insurance (601318.SS), (2318.HK) for $ 12 million, which they sold for a profit of $ 300 million. You also received a piece of the Bank of China listing (601988.SS), (3988.HK) in Hong Kong in 2006. They financed their investments with as much debt as possible: “If you weren’t fully leveraged, you fell” behind. If you weren’t fully leveraged, you were stupid. “
While it is impossible to verify many of the juicy rumors about China’s political elite that Shum repeats, he is a plausible witness. He and Duan were eye-catching symbols of the excesses of China’s gilded age, though Shum cites the Ferraris, the $ 100,000 wine bills at Parisian restaurants, and the constant stream of gifts for connections as expenditures necessary to convince potential partners that the couple is had the will to deliver on projects.
But when the common people realized the extent to which government officials were working with party “princes” and private corporations to loot public resources, confidence in China’s Communist Party collapsed. Concerned elders raised concerns about Xi Jinping, who after his election as president launched an anti-corruption campaign that cleaned up the bureaucracy and gave examples of some famous villains.
With that, Duan’s fall from grace began. A 2012 New York Times investigation alleging the Wen family had billions in hidden assets ended Aunt Zhang’s utility. At the same time, Duan misjudged the cultivation of Sun Zhengcai, a rising party star who was once considered a potential successor to Xi, who was deposed around the time Duan disappeared.
Shum concludes that what once appeared to be the beginning of a tidal wave of reforms was the culmination of a tide that is now receding. In economic success, the CCP likes to bask in defeating entrepreneurs who know too much, like Duan, or talk too much, like Alibaba (9988.HK) founder Jack Ma. It is telling that officials are now attacking industries that have shaped so many “ordinary” billionaires: real estate, online services, entertainment, and home education. While Xi’s campaign to reduce the wealth gap in China may be necessary to restore the CCP’s credibility as a social balance, the book suggests that it will center around the royal class because the fight against corruption largely did so. This could mean that wealth and power continue to be concentrated in the hands of a few families.
The private sector is not necessarily going to shrink. But as the party takes gold stakes in private companies and catapults bureaucrats onto its boards, the voices of entrepreneurs are dampened. That has its price. For example, Shum claimed that he wanted to focus on increasing the value of the logistics hub he founded at Beijing Airport. But when officials who supported the project got caught up in Xi’s anti-corruption campaign, he was sold out. “I came to believe that a long-term business model wouldn’t work in China … If you invest $ 1 and make $ 10, you take out $ 7 and invest $ 3. But if you keep $ 10, you will likely lose it all. “
This stance has frustrated China’s economic leaders for years, but the government’s current stance is sure to make it worse. The blurring pace of change, the public humiliation of private sector champions like Ma, and the overnight destruction of entire industries like after-school tutoring can only make private capital risk averse and deter investment and research.
Xi wants to discipline, not destroy, the private sector. But constant flogging seems to lead to stagnation rather than competitiveness. China might miss the dirty little fish that the crocodiles kept clean.
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– “Red Roulette: An Inside Story of Wealth, Power, Corruption and Vengeance in China Today” was published by Scribner on September 7th.
Editing by Peter Thal Larsen and Katrina Hamlin
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