Yaxue Cao, April 2, 2021
(Continued from Part One)
Arrest; from ‘Grain Banks’ to community financing
In April 2003, about a month after Sun Dawu’s speeches at Peking University and China Agricultural University, he was called to Zhongnanhai once more. This time it was to South Zhongnanhai, housing the Central Committee of the Chinese Communist Party (CCP), where several officials studying rural policy heard his briefing. The officials did not introduce themselves, and Sun did not know who they were. He generally reiterated what he had said in his speeches at the two universities in March — that there was too much government control and that the peasants were excessively restricted in their economic activity. He advocated abolishing the agricultural tax (which would be abolished in 2006).
On the morning of May 27, 2003, Sun Dawu was at the Dawu School for the regular school board meeting, held every Tuesday. He received a call from a vice chairman of the Chinese People’s Political Consultative Conference (CPPCC) branch in Xushui County, who said that the new Party Secretary of the county wanted to invite Sun Dawu to lunch. Sun rarely had meals with county leaders. After hanging up, he left the meeting to go to the county seat and brought his articles on the three agricultural issues with him, ready to talk to the new Party secretary of Xushui about his ideas.
As soon as Sun Dawu entered the lobby of the Hong Yan Hotel (鸿雁大酒店), where the lunch meeting was to be held, he was surrounded by several people and then dragged to the Criminal Police Department of the Public Security Bureau.
Two hours later, more than a dozen cars arrived outside the Dawu Group Finance Department. Twenty to 30 police officers, uniformed and plainclothes, went in and first confiscated everyone’s cell phones, turned the indoor security camera to face downward, disconnected its power supply, and unplugged the landline telephones. They took away Dawu’s director of finance, the vice chairman and vice general manager of the Group, and a number of financial officers and secretaries. Within the next 24 hours, almost all of Sun Dawu’s family, including his older son and brothers, were arrested, and his wife (we later learned) escaped in slippers by hiding in the trunk of a car; Dawu Group was subject to search and seizure, including computers, books, cash, banking documents, meeting records, and vehicles; Sun’s home was sealed for investigation. A team of more than 30 people from various departments of the Xushui County government formed a “Stability Work Group” (“稳定工作组”) and was stationed at the Dawu Group. It was personally headed by a deputy secretary of the county’s party committee named Zhang Haibo (张海波).
Forty-eight hours later, the families of those arrested were notified by the Public Security Bureau of their detention, saying that they were suspected of “illegally absorbing public deposits.” Chinese state media reported that July that “since 1993, the Dawu Group has been openly absorbing public deposits in disguise from people in and around villages and towns without the approval of the People’s Bank of China and in violation of the relevant provisions of the Banking Law of the People’s Republic of China and the Measures for the Suppression of Illegal Financial Institutions and Illegal Financial Business Activities (i.e., Decree 247 of the State Council). It has been preliminarily ascertained that since July 1, 1995, the Dawu Group has absorbed a total of 181,167,000 yuan of public deposits.”
To explain Sun Dawu’s “crime,” one must start with Dawu’s “grain bank” concept. In a 2013 interview with Hexun.com, Sun described the community financing model that the Dawu Group had created starting in the 1990s. He said that when Dawu Group started, there was no credit union or financial institution in its vicinity, as it was in a remote part of the county and far from town. Nor could the company get a bank loan. But it needed working capital for business development, meanwhile, surrounding villagers and Dawu workers had an annual surplus of grain that could not be sold. Dawu needed grain to produce feed and other products, but did not have sufficient liquidity to buy the grain.
After discussing this matter with local farmers and Dawu workers, they came up with a deal whereby the farmers and workers would “lend” the grain to Dawu for six months, after which the lender could either get their grain back, or sell it to Dawu. If the market price at the end of the six months was higher than it was at the beginning, then Dawu would buy the grain stored by the villagers at the higher price. If the price had fallen, Dawu would honor the original market price at the start of the agreement. Farmers who needed to buy chicks, piglets, seeds, or feed from Dawu could directly exchange their grain for these materials.
The farmers could either withdraw the money they got from the grain, or deposit it with Dawu, which would become a loan to the company. Dawu provided IOU receipts and paid interest at the same rate as the local credit union. Dawu employees could also save their surplus money in the group. By 2003, the sum balance of the Dawu lending accounts was around 35 million yuan, with about 3,000 lenders, who held the entirety of Dawu Group’s debt. For comparison, the Dawu Group’s fixed assets totaled more than 100 million at the time, so it could manage its debt and was never in arrears. The prosecution’s claim of “illegal deposits of 180 million yuan” was the total transactions of this borrowing mechanism from 1993 to 2003, not the current balance at the time. Sun Dawu was accused of “disrupting financial order.”
At the Xushui County Detention Center, Sun Dawu firmly pleaded not guilty, and was held as a felon in a six-square-meter cell in solitary confinement. He argued that to commit a crime, there must be the will to commit the crime, the act of committing the crime, and consequences of committing the crime. But none of the three were present in the charges against him. There were no plaintiffs and no victims.
At that time, the whole society, especially the public intellectual circle in Beijing, the legal profession, and private entrepreneurs in many provinces, including Du Runsheng (杜润生), Yao Jianfu (姚监复), Jiang Ping (江平), Mao Yushi (茅于轼), Li Changping (李昌平), Hu Xingdou (胡星斗), Liu Chuanzhi (柳传志), all reacted strongly. They criticized the government’s ambiguous regulations, as well as its harsh stance on private enterprise, as though entrepreneurialism carried some inherent “original sin.”
Market-oriented media outlets, such as Southern Metropolis Daily and Southern Weekend, provided independent and detailed coverage of Sun Dawu’s arrest. Three lawyers from Gongmeng (公盟, the Open Constitution Initiative), Zhu Jiuhu (朱久虎), Xu Zhiyong (许志永), and Zhang Xingshui (张星水) acted as Sun Dawu’s lawyers, making several trips to Dawu Group to investigate and collect evidence. They visited a few dozen farmers from seven or eight nearby villages, all of whom expressed trust in and praise for Sun Dawu, except for one person who said he “didn’t know.” Later, it was found the one person who declined to express an opinion was a village cadre, and may have found it politically inconvenient to do so.
The lawyer proceeded to sort through the 3,000 active lenders, separating the Dawu employees, their relatives, Dawu customers, and other people with a “specific social relationship with Dawu” from the rest. The lawyers concluded that deposits by these people could not be regarded as illegal.
At the same time, various government officials went to the detention center to persuade Sun Dawu to plead guilty. When the lawyers went to see the judge, the latter also urged the lawyers to persuade Sun to plead guilty. However, the lawyers decided to plead not guilty for Sun following the investigation and evidence.
In the initial indictment against Sun in September of that year, the prosecutor charged him with two counts of “illegally absorbing public deposits,” as well as “illegal possession of ammunition,” the latter charge being based on the discovery of several bullets in Sun’s home. It turned out that these were left over from Sun’s target practice as a former soldier. The prosecutor later dropped the charge.
As he languished behind bars, Sun Dawu only hoped to regain his freedom as soon as possible, to continue working and not to let Dawu Group go to waste. His attitude began to soften, and he was released from solitary confinement and placed in a cell called “Devil No. 1” with 23 other prisoners, six of whom were on death row.
On October 30, 2003, Sun Dawu was tried. In the courtroom, he cried twice. Before the trial, he made a compromise and agreed to remain silent during the trial. But when the prosecutor said that the “IOUs” issued by the Dawu Group to the borrowers were evidence of illegal deposits, he couldn’t help but say, “Those are IOUs, not deposit notes, can’t any of you read?” At this point the prosecutor said in a stern voice, “Sun Dawu, how dare you speak! Your wife is arrested at-large, your two brothers are still in custody, and your parents are elderly people in their 80s!” This time Sun Dawu buried his face in his hands and sobbed. As the lawyers described to the court the local people’s support for Sun Dawu, Sun again wept.
In the end, Sun Dawu was convicted of illegally absorbing more than 13 million deposits from 611 farmers and sentenced to three years in prison with a four-year reprieve. He accepted the terms offered by the authorities and did not appeal, as it was the deal he had agreed to. Sun told the court, “I’m not guilty, but will submit to the law.” Sun Dawu was released the next day, having spent 158 days in detention.
Was Sun Dawu really put in jail because of “illegal absorbing deposits”? An interview conducted by a Southern Metropolis Daily reporter showed a different story: people believed that Sun Dawu was arrested and convicted for his independent expression and maverick attitude. Officials in Xushui flatly denied this claim. But after Sun Dawu was released, the county party secretary and officials from various departments involved in the lawsuit invited him to dinner. The county party secretary admonished him to “treat the lawsuit correctly” (meaning harbor no resentment), “go back and continue to do a good job with the business” (meaning the government did not want to destroy Dawu), and “refrain from speaking to the media” (meaning keep quiet).
From beginning to end, Sun Dawu did not know who wanted him in jail and who was responsible for getting him there. He didn’t want to know either. It didn’t matter to him, what mattered was that he would be able to continue running the Dawu Group for the benefit of the community and society.
In the years to come, Sun reiterated time and again that he was imprisoned in 2003 because his comments annoyed the powers-that-be, and that the government can make anyone a criminal as long as it so desires.
‘Xianghe’: a closer look at Sun Dawu’s vision
As I was reading about Sun Dawu, mainly his speeches, articles and interviews, one term caught my attention because of its high frequency of occurrence: xianghe (祥和), a Chinese word that may be understood as “peacefulness” or “serenity,” but carries the literal meaning of “auspicious harmony.” What exactly did he mean by xianghe?
“I want to build a paradise (世外桃源) where people can live together peacefully (祥和).” (Speech at China Agricultural University, 2003)
“The Dawu Group has created such a large fortune on a barren land, and now, 4,000 to 5,000 people live here peacefully (祥和). (Speech at Nankai University, 2004)
“Sharing or communalizing the means necessary for living under private ownership can protect the fairest kind of competition between people; those who have the ability can earn 10,000, and those who don’t might only earn 1,000, but there should be no big difference in their basic standard of living. This is what I understand by common prosperity. In such a harmonious (祥和) world, not only is everyone equal before the system and the law, but everyone is equal before morality as well.” (Guest talk on Sina Online Program in 2003)
“My ideal of doing business is to have peace and harmony (祥和) from top to bottom, and allow everyone to be happy. Entrepreneurs should be worried about the country and the people, and the value of the enterprise should be reflected in terms of the maximal service it can render to this society, providing the best products and offering the best services.” (Ibid)
“At Dawu Group, we have never given targets or set goals, to the managers of the subsidiaries or factory managers, nor has it engaged in goal-based contracting, yet the enterprise has thriving in peace (祥和).” (2004 Nankai speech)
“Dawu Group has developed to today thanks to the guiding principles of the enterprise’s operation. The surrounding areas are serene (祥和) and safe, there is not a single poor person in these dozen or so villages.” (Sina Online)
“The combination of traditional Confucianism, modern rule of law, and the socialist idea of shared wealth, these three form my philosophy on management. …I would like this society to be happy and peaceful (祥和), I love this society, I love this country, and I love all people.” (Speech at Peking University, 2003)
The host at Sina Online said, “People who have been to the Dawu Town feel that the local people seem very happy and kind (祥和).” (Sina Online)
Sun Dawu has been to Europe once. While touring the presidential palace in the Netherlands, he was there just in time to watch the ceremony of the president receiving a foreign leader: the flag raising, the national anthem of both sides, and the review of the honor guard. “What touched me most was that the workers who were painting the walls about 30 meters away did not turn their heads to watch and kept working as though nothing was going on. That society was so peaceful and content (祥和). ….That’s respect for labor. The President receiving foreign guests is a kind of labor, and the workers painting the walls are also engaged in labor. Labor is equal.” (Speech at the Agricultural University)
In concrete practice, how did Sun Dawu achieve this state of xianghe that’s reflected in the operation of his business, in the community, and even in the appearances of people working and living there?
In the early 1990s, Sun Dawu proposed that the guiding principle of the Dawu Group was “not to aim for profit, but place development as the main goal, with common prosperity as the destination.” Despite not being focused on pursuing profit, until 2003 the Dawu Group never experienced a business loss among its 17 subsidiaries. Product sales had been smooth and stable for nearly 20 years. Only in 2003, the year he and corporate executives were arrested, did Dawu Group lose 5.8 million yuan because of disruption.
The K-12 Dawu School, established in 1998, has more than 2,000 students enrolled. The free technical school of Dawu trains students from all over the country, driving the development of thousands of chicken farmers and their farms around the country. With 1,000 beds and 32 departments, Dawu Hospital is a not-for-profit hospital, providing services at a very low charge and in some cases, for free.
Although Dawu Group is a family business, Sun Dawu has repeatedly said that private enterprise is merely a means of production and operation, through which to create social wealth and serve the community. By contrast, government officials are the ones who seem to harbor an ingrained disdain and prejudice toward private business. When Sun Dawu raised his lawsuit against the Land Bureau, the bureau officials threatened to bulldoze the Dawu Group. In response, Sun Dawu said, “I’m not scared even if you take dynamite to blow us up.” The reason he said this is because he believes that the Dawu Group belongs not just to him, but to society as a whole.
After his release from prison in 2003, Sun Dawu began to implement the “constitutional system of private enterprise” in the Dawu Group. It could be summarized in six Chinese characters as “private-ownership, open governance, and co-prosperity” (私有、公治、共享) that cover the issues of ownership, governance, and supervision, a balance of three powers.
The Board of Directors (董事会) is responsible for corporate decision-making, and its members are elected by the Group’s employees through three procedures: preliminary election, second round of election and final election, and all employees have the right to be elected as directors in the preliminary election. The Council (理事会) is elected by the Board of Directors and consists of the General Manager, the Deputy General Manager and the Chief of Staff. The Supervisory Board (监事会), mainly composed of members of the Family Council and the Labor Union, formulates corporate regulations and supervises their implementation. The joint meeting of the three councils is the highest authority of the Group. For years, Sun Dawu has assumed the role of the Director of the Supervisory Board.
Although the property rights of the Group belong to the Sun family, they are not divided and quantified to each family member, but passed on by the family as a whole. Family members receive monthly living expenses two to three times the average salary of the Group and enjoy benefits such as housing, medical care, schooling, expenses for overseas trips, and startup funds in the event they wish to start a new business. However, they are not automatically granted the privilege of serving on the Supervisory Board, Board of Directors, or as Council members. If they are interested in participating in management, they must stand for election just like any other employee. All employees of the Group have the right to vote and stand election in the labor union.
Employees of the Dawu Group enjoy lifetime employment. Unless they voluntarily resign or are terminated for serious misconduct, they may work until retirement and enjoy generous benefits, including pension and health care. Salaries and benefits for top-level employees cannot exceed 10 times that of ordinary staff.
Sun Dawu is well aware of his company’s roots. In his words: “We are in a rather isolated place, and the surrounding rural areas are relatively poor where Dawu is the only large enterprise, so for everyone’s sake, I have had to walk the road of common prosperity. Dawu has relied on the support of villagers, on everybody’s support to get to where it is today, so I think the road we’ve taken is the right one.”
2020, not the future Sun Dawu envisioned
According Chinese media reports, around 1 am on November 11, 2020, six buses, loaded with SWAT equipped with machine guns, police dogs, and ladders, entered the Dawu residential area. The SWAT arrested the entire team of executives of Dawu Group, including his wife, his two sons, and their wives. The communication signals were cut off. In some cases, the SWAT pried doors open to get into people’s homes. In the morning when employees came to work, a government “work group” called managers of Dawu subsidiaries to a “meeting” and arrested them on arrival. A total 28 executives of the Group and its subsidiaries were taken away in the two waves of arrest. The Group’s General Manager, Liu Ping (刘平), on a business trip to Hainan Province, was also apprehended on the same day.
Dawu Group’s bank accounts, and even the employee canteens’ cash deposits for food purchases were frozen.
During the day on the 11th and the days following, every building and every road entrance and exit, even the public toilets, were guarded by plainclothes police.
On the same day, the Gaobeidian Public Security (高碑店市公安局) issued a brief announcement: “Per investigation, Sun Dawu and others of Hebei Dawu Agricultural and Animal Husbandry Group are suspected of picking quarrels and provoking disturbances, and of sabotaging production and business operations, and other law-breaking crimes. On November 11, 2020, the public security organ criminally detained Sun Dawu and others according to the law. Presently, the case is under further investigation.” The city of Gaobeidian is a county-level municipality of the city of Baoding.
So far, of the 28 detained, it’s said that three have since been released and seven have been placed under “residential surveillance at a designated place.” They are: Sun Dawu (the Director of the Supervisory Board), Sun Meng (孙萌, Chairman of the Board of Directors), Sun Erwu (孙二午) and Sun Zhihua (孙志华), Liu Ping, Jin Fengyu (靳凤羽, deputy General Manager of the Group), and Ji Weilian (纪玮莲, secretary of the Group’s general office). The 18 others have been formally arrested.
Ostensibly, the sweeping arrests had to do with a land dispute between Dawu Group and a state-owned farm. Chinese media said that, years ago, Langwuzhuang, where Dawu Group is located, contracted 740 mu land to the state farm, but the state farm in fact has been using over 2,000 mu of the village’s land. The parties have had arguments over the land use for years, and later, the village contracted the land to Dawu Group’s seed production company. In June and in August, 2020, Dawu workers and personnel from the state farm twice had confrontations.
A Beijing lawyer told the media that the two charges announced by the police seem to point to the two incidents, but it’s unlikely that police would arrest so many people for these charges, and also seal, confiscate or freeze Dawu Group’s nearly entire assets.
So far only Sun Meng has met with a lawyer twice, and others have been denied the right. The lawyer who met with Sun Meng did not disclose anything about the case.
Following the arrest of Dawu Group’s entire management, the local government quickly sent a “Work Group” to Dawu, headed by local officials and state-own business managers, and took over the operation of the company, including the school and the hospital. Dawu’s Group’s new in-construction projects have been suspended, and at least 900 employees have been placed on leave.
When Sun Dawu was jailed in 2003, Dawu had operated for 18 years; when Sun Dawu was again arrested in late 2020, nearly another 18 years had passed. In the second 18 years, Dawu Group had enjoyed two-digit annual growth, its subsidiaries grew from 17 to 28, and its assets grew more than tenfold.
However, what has not changed is the way the government apprehended people: sudden arrests, asset freezing, and government takeover, except the second time around, it came more forceful, more terrifying, and it was carried out in the dead of night.
People at Dawu might have been living in an auspicious peace, or xianghe, but that doesn’t seem to be the case with Sun Dawu himself. In the 2012 interview with Tencent Finance, he said, “I often feel a sense of indignity and insecurity. I’ve gone to a lot of places where other private entrepreneurs also shared the same feelings, that is, they also felt a sense of indignity, and they feel unsafe. The milieu around us is such that you want to be a clean person but you are just unable to be; you want to be a good person, but you just can’t.”
In July 2015 when a large number of human rights lawyers were arrested, Sun Dawu who had an affinity to rights defense lawyers because of the 2003 incident, wrote an article titled “What Can You Do in the Face of Terror.” He said, referring to his own sudden arrest in 2003, “If Sun Dawu is the one who committed a crime, why did they need to arrest so many other people? What effect were they trying to achieve by making the atmosphere so terrifying?”
“I also feel [fearful]. The terror comes from being afraid, from knowing that one is innocent but that one must bear the responsibility of being convicted. You don’t know when or how you might be punished or how serious the punishment might be. These are all unknowns, and terror comes from the unknown.”
Indeed, without a system to protect them, it’s hard to overstate the extreme vulnerability of private enterprises in China. At its roots, the Leninist CCP has probably always regarded private businesses, especially large ones, as alien existence, which it let grow during the years of development, but can criminalize or delegitimize any time if the Party so chooses.
Sun continued, “[w]hen we are faced with terror, what can ordinary people do? Opening one’s eyes in horror and letting out a cry is both animal instinct and what remains of modern people’s conscience. Even more, it is the last recourse of humans seeking to survive — freedom from fear.”
When Sun Dawu was released in 2003, he was greatly encouraged when he saw the outpouring of support for him and moved by the Dawu community’s trust in him. Instead of feeling defeated, he felt strengthened and hopeful. “I’m not alone as long as there is support.”
Today, the support is still there, judging from the fact that the news of Sun Dawu’s arrest sent shock waves on Chinese social media. But today is vastly different from 18 years ago. Gongmeng, which aspired to promote constitutionalism in China, has long been dismantled in 2009; Xu Zhiyong is in prison again, and the other two of Sun’s defense lawyers have pretty much disappeared from the public scene; a large number of human rights lawyers have been disbarred or imprisoned; the words “election” and “constitutional democracy” have become taboo; the thought leaders from all walks of life who spoke up for Sun in 2003 have been largely silent this time around; Sun Dawu’s Weibo account where he has voiced himself over the recent years was no more, and Dawu’s WeChat public account stopped refreshing. Premier Li Keqiang said last year that there are 600 million Chinese with a monthly income of less than 1,000 yuan (USD$150), and needless to say, poverty is concentrated in rural areas. A new law stipulates that the position of village head must be assumed by the village’s Party secretary. Village autonomy? Who would ask a question like that in 2021? The trend is tighter and more advanced control, not the opposite.
Sun Dawu case will go down as a landmark. In 2003, the country’s rulers seemed to feel they still needed private entrepreneurs like Sun Dawu. They may look at them differently now. One would think that Sun Dawu and the Dawu Group is a great window that showcases China’s reform era, but it’s becoming increasingly questionable what one sees through that window.
In any case, this is not the future Sun Dawu has envisioned, and certainly not the dream of xianghe he dedicated himself to achieving.
Sun Dawu: A Chinese Agricultural Entrepreneur’s 36-year Dream in the Era of Reform and Opening Up (Part One)，Yaxue Cao, March 30, 2021.
Yaxue Cao edits this website. Follow her on Twitter @YaxueCao.