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Open Letter: Call for Investigation Into HNA Group’s Activities in the U.S. and Probable Links With Corruption at Top of Chinese Communist Party
China Human Rights Accountability Center, August 15, 2017
Updated on October 19, 2017
We are writing this open letter to express our deepest concerns about the highly suspicious activities of the HNA Group (HNA) in the United States, including the lack of transparency of its ownership, the unclear nature of its plan for charity work, and allegations of large-scale corruption. Based on the mandate of the Global Magnitsky Human Rights Accountability Act, other relevant laws, and in the service of public interest, we strongly urge Congress and relevant administrative agencies to investigate and uncover the true nature of the HNA Group, its asset sources, and intended uses in the United States.
Headquartered in the capital city of Hainan Province, an island off mainland China between the South China Sea and the Gulf of Tonkin, HNA Group started in 1992 as a state-owned enterprise doing business primarily in airlines and tourism. It was re-incorporated around 2000 and began expanding its assets rapidly and mysteriously.
In the last decade alone, the HNA Group transformed itself into the largest acquirer of foreign assets in the U.S. and one of the largest worldwide. The HNA Group is heavily funded by Chinese state-owned bank loans, which have enabled it to leverage into completely unrelated business sectors. With acquisitions, its rank in the Fortune Global 500 list climbed from No. 464 in 2015 to 170 in 2017, and is projected to reach the top 100 in 2018. It is reported that HNA Group’s current total assets exceed $150 billion.
HNA’s ultimate target is to be one of the 10 largest companies in the world, according to its CEO Adam Tan. HNA’s sprawling portfolio now includes Ingram Micro, Avalon, Deutsche Bank, and Hilton Worldwide, to name a few. Its transactions and activities involve former White House Communication Director Anthony Scaramucci and other high profile luminaries including George Soros, David Cameron, and Nicolas Sarkozy. However, HNA remains behind a heavy veil, despite its incomprehensible success. It failed to make any clarifications when various journalists repeatedly raised questions about its ownership structure or how it made its fortune.
We are writing this letter out of concern over what appears to be one of the most generous donations to a U.S. foundation in the history of philanthropy, and its potential connections to unprecedented massive corruption.
On January 31,2017, New York Times first reported that HNA’s largest single shareholder was Guan Jun (贯君), a mysterious man who is alleged to be tied to China’s anti-corruption czar Wang Qishan. In June, the Financial Times also reported that Guan Jun purchased 29 percent of the company last year from Hong Kong-based businessman Bharat Bhise. Neither HNA nor Bhise revealed how the stake changed hands up to this transaction.
Only after the Chinese and foreign media began to focus on HNA’s ownership did the company finally release an open letter on July 24 to its employees, associates, and consumers; but even then, it did not list Guan Jun as the largest shareholder. When probed about the disappearance of Guan Jun’s share by a reporter from China Business Network, HNA said Guan is a “private investor” who owned some of the company’s shares, which has now been donated to the Cihang Foundation in New York.
This was confirmed by another Financial Times interview with HNA’s chief executive Adam Tan, who told the British newspaper that a Chinese citizen had donated $18 billion of the ownership of HNA—29 percent of the shares of the HNA Group of China—to a private foundation based in New York: the Hainan Cihang Charity Foundation, the company’s charitable arm in the United States. According to HNA, 53 percent of the company is owned by Cihang foundations, including a 22.8 percent stake held by a sister charity in China. The foundation registered with the New York Department of State on December 7, 2016, and it is currently applying for federal tax-exempt status with the Internal Revenue Service. The foundation says it will support a number of efforts, including anti-poverty work. Suspiciously, its three initial directors are all top executives of HNA, as reported by Wall Street Journal.
To put the size of the donation in context, a single donation of $18 billion will make the New York Cihang second only to the Bill Gates Foundation, the largest private foundation in the world. Cihang foundations — the New York Cihang and Hainan Cihang — now hold tens of billions in total assets.
What was not explained, however, was how the donor Guan Jun, a man in his 30s, acquired such a large share of one of China’s biggest companies in the first place. According to Hong Kong corporate filings, Guan Jun’s registered residential address is a simple apartment in what New York Times reporters found was a dingy, trash-laden building in Beijing, while his business address was registered in the “Oriental Aphrodite Beauty Spa”, a street-side salon in a residential neighborhood in western Beijing. Both proved to be very dubious; Guan does not appear to be the owner or resident of those locations. When asked some of these questions by the Financial Times in a telephone call, his answer was “It is inconvenient to answer any of your questions.” In a YouTube video posted after this letter was first published, Guan Jun supposedly denied his connections with government officials, but never mentioned how and when he could possibly have amassed such a princely sum of wealth. Curiously, the source of the professionally produced video was not identified, and neither was the video acknowledged by HNA.
In the interview with the Financial Times, Tan made the surprising admission that Guan, and another shareholder, Bharat Bhise, had never really owned the shares, “but had just held the stake for us.” This claim is inconsistent with the HNA spokesperson’s statement. It remains to be examined how these shares were obtained from HNA, a former state-owned enterprise that had undergone government-managed privatization. HNA’s true relationship with Guan Jun also remains unsettled — HNA claims he does not work for the company, but according to media reports, he serves as co-chairman with the son of HNA’s Chairman Chen Feng in a peer-to-peer financing platform owned by HNA. Recent New York Times Reported that shares that Guan Jun held originated from companies affiliated with Chen Feng and his family.
Doubts about the company’s unclear ownership structure and allegations of corruption have recently caused Bank of America to decide not to do any business with the Chinese conglomerate. Meanwhile, the European Central Bank is reportedly investigating HNA’s nearly 10% stake in Deutsche Bank. Goldman Sachs, longtime partner of HNA, recently suspended its IPO work for a HNA unit on due diligence concerns.
On top of this, the New York Attorney General pointed out that the group had not registered in the state as a charity, as required by law, and asked it to do so within 20 days or explain why it has not done so. HNA argued that it was not required to register by Executive Law because it did not intend to raise funds from third party, after the first explanation that the foundation couldn’t register because it hadn’t yet received its federal 501(c)(3) status, a tax exemption of nonprofit organizations, which is pending.
More recently, in September, the Swiss Takeover Board (Übernahmekommission) requested HNA to explain its ownership structure. It is concerned that HNA is a “white glove” that holds wealth for the powerful.
Although Chinese citizens are effectively prohibited from asking questions about HNA and its business and political affiliations, there is little doubt that this conglomerate needed close ties with senior leaders of the Chinese Communist Party to achieve such spectacular growth. There is no other possible explanation for how HNA could obtain a seemingly unlimited line of credit from all major state-owned financial institutions in China. Most Chinese people are prohibited from knowing the nature of the HNA transactions. Those who are aware of the hidden fact are outraged by such an abnormal transfer of assets — possibly a grand embezzlement of public wealth — but they are too afraid to protest or speak up because they fear the potential backlash from the individuals who genuinely control the HNA assets, who are likely connected to the very top of the communist regime.
For Congress and the administration, HNA’s unprecedented, massive corruption and dubious transfer of large assets to a U.S.-based “charity” should sound an alarm: Cihang foundations control over 53% of HNA, making Cihang a shell holding company of HNA, one of the top companies in the world, not a charity.
We suspect that HNA’s largest shareholder Guan Jun may have acquired his 29.5% share ownership by siphoning off public assets through government-manipulated privatizations, because public records provide no evidence that he purchased these shares fairly.
Consistent with Guan Jun’s murky identity, only very high level political privileges can explain why HNA was able to grow at a parabolic rate, fueled by bank lending and easy access to hard currency, despite China’s tight capital controls. HNA’s chairman of the board, Chen Feng was a former PLA officer, worked under Wang Qishan for a project of the now defunct China Agriculture Trust Investment Co., and has “been a delegate to three national congresses of the Chinese Communist Party since 2002, spanning the presidencies of Jiang Zemin, Hu Jintao and Xi Jinping”, as reported by Nikkei. HNA’s business took off when Wang Qishan became Hainan’s Party chief in 2002. In Chen Feng’s most recent public appearance, he accompanied Xi Jinping on Xi’s state visit to the U.K in 2015, where he was received by then-Prime Minister David Cameron on the same stage with Xi. HNA filed a lawsuit in New York in Augustus 2017, denying allegations that Wang Qishan or his nephew Yao Qing is the controlling shareholder of HNA Group, directly or indirectly. Public records found online show that Yao Qing has several transactions with HNA subsidiaries and affiliates.
HNA bypassed scrutiny while acting as a state sovereign investment company. On the other hand, given the opacity of the ownership and its special connections, we are concerned that it could very well be controlled by individuals and families connected with the top of the Chinese Communist Party (CCP), operating through a shadowy Guan Jun. Cihang will provide a shelter for CCP leaders’ families to retain their wealth, which they could only have obtained through corruption. Cihang may thus become a beachhead for the CCP to influence the U.S. government and public.
If this is the case, such an entity would be liable for examination per the Global Magnitsky Human Rights Accountability Act, passed in December 2016 (NDAA 2017, section 1261-1265) as the law aims at sanctioning officials or their senior associates who have committed “expropriation of private or public assets for personal gain, corruption related to government contracts or the extraction of natural resources, bribery, or the facilitation or transfer of the proceeds of corruption to foreign jurisdictions.”
Therefore, we ask the U.S. Congress and the administration to support the following:
- Conduct an independent investigation into all transactions and assets held by HNA and its U.S. -based business affiliates in connection with alleged corruption by CCP leaders;
- Conduct an independent investigation of the source of funding for HNA and Cihang’s U.S. operations in connection with alleged corruption by CCP leaders;
- Hold an open hearing through the U.S. Congress regarding the above investigations;
- Suspend approval of HNA’s application for the tax-exempt status until the completion of the above investigations;
- Suspend approval of all HNA’s business mergers and acquisitions in the United States until the completion of the above investigations;
- Audit HNA’s U.S.-based companies, NY Cihang Foundation, and Guan Jun’s donation and suspend their operations in the U.S. until the completion of the above investigations.
China Human Rights Accountability Center
Contact: Fengsuo Zhou, Email: email@example.com
The China Human Rights Accountability Center was formed in January 2017 by a network of Chinese activists, primarily based in the U.S., to promote and assist the implementation of the Global Magnitsky Human Rights Accountability Act.
Financial Times: HNA chief shrugs off regulatory and ownership concerns
Financial Times: Who owns HNA, China’s most aggressive dealmaker?
Financial Times: Goldman Sachs suspends HNA work on due diligence concerns
Financial Times: ECB probes HNA and Qatar Stakes in Deutsche Bank
Financial Times:Former HNA shareholder denies Beijing ties
New York Times: Behind an $18 Billion Donation to a New York Charity, a Shadowy Chinese Conglomerate
New York Times: HNA dealing with Scaramucci, first report of Guan Jun
New York Times:Mounting Questions About Who Controls HNA, a Top Chinese Conglomerate
Regulatory filing of AID in Hong Kong, a HNA shell lists Guan Jun as shareholder
Wall Street Journal: HNA has deepened the uncertainties around the New York foundation that is its biggest shareholder by changing its reason for not registering yet with the state.
Bloomberg:Bank of America Halts Deals With HNA Amid Debt Concerns
Wall Street Journal: HNA’s Biggest Shareholder Doesn’t Really Exist Yet
Bloomberg: Don’t fly in the dark, HNA
Bloomberg: HNA’s NYC Charity Owner Told by A.G. to Register With State
Bloomberg:HNA is not going to raise funds in New York State
HKEJ:The ties that bind: HNA’s Chen Feng and his rise to power
Fortune: You’ve Never Heard of HNA Group. Here’s Why You Will
Global Magnitsky Human Rights Accountability Act
Nikkei:Questions mount over HNA’s financial engineering
Why HNA is on a buying binge?
Hainan Cihang registration at New York Department of State.
Cihang’s tax filing, 2016
Video appearance of Guan Jun, HNA’s main shareholder.
HNA lawsuit against Guo Wengui
By He Qinglian, published: September 30, 2015
A flood of commentary has come out since the release of the long-anticipated Guiding Opinions on Strengthening and Reform of State-Owned Enterprises (《中共中央、国务院关于深化国有企业改革的指导意见》; “SOE Reform Program” or “Program” hereafter), jointly issued by the Central Committee of the Chinese Communist Party and the State Council. Some say that the Program is aimed at expanding and strengthening SOEs, while others say that the government is using market forces to promote privatization. That the same plan can yield two radically different suppositions is due to the Program’s strong “Xi Jinping quality”: It tries to combine the governance characteristics of both Mao Zedong and Deng Xiaoping and gain some advantage from both sides, thereby introducing a whole bunch of mutually contradictory formulations.
Key Points of the Program
The SOE Reform Program is 10,141 characters long and comprises 30 opinions in eight sections. It makes its purpose clear from the very outset: “SOEs are owned by the people as a whole . . . and are an important material base and political foundation for the development of our party and state.” This message infuses the Program throughout. Below are a few of its key points that must not be overlooked:
I. A highlight of the Program is the mixed-ownership system. Pundits have different opinions about this system based on their different understandings of the word “mixed.” Some (including foreign experts) see the word “mixed” and believe that the plan encourages privatization. But the original language in the Program says: “Actively encourage ownership diversification through introduction of other state-owned capital or various types of non-state-owned capital. State-owned capital may retain absolute or relative majority share positions, or it may be a [non-controlling] equity participant. Encourage the integrated companies to go public.”
The drafters of the Program seemed to worry that people would not fully understand their meaning, so they made a special point of noting in Opinion 2 (under the “General Principles” section): “Public ownership occupies the dominant position. It remains the basic economic system, the key point for consolidation and development. The non-public sector occupies a subordinate position.” “Upholding and improving the basic economic system are the fundamental requirements for deepening SOE reform that must be grasped.”
So, “mixed ownership” means that private companies can make cash purchases of shares in SOEs and become shareholders. But since the equity allocation ratio is based on the state-owned capital being the controlling party, private companies can only remain in a subordinate role, without any decision-making power or right to a say in matters. To prevent the public from getting the wrong idea, after releasing the program the Xinhua News Agency promptly issued a piece entitled “We Must Unequivocally Oppose Privatization” (《须旗帜鲜明反对私有化》).
II. The Program calls for fostering “market-oriented management mechanisms” while strengthening the Party’s leadership. Marketization is mentioned a total of 14 times, as if it were a theme of the Program. But in Opinion 24 it says: “Give full play to the key political role played by the Party organization within SOEs. Unite the goals of strengthening party leadership and improving corporate governance. Put a general requirement for Party-building work into the corporate charters of SOEs and clarify the statutory role of the SOE Party organization in the corporate governance structure.”
“Party leads everything” was the lifeblood of political and economic life during the Mao era. “Marketization” has been the theme of SOE reform ever since Deng Xiaoping took over. When Zhao Ziyang was General Secretary, he worked very hard to separate government from enterprise in the hopes that it would bring an end to the misadministration that came when the party managed companies. Originally, he even planned to build on his successes in this area and promote separation between the party and the government, but all of those efforts went down the drain after the events of June 4, 1989.
More than 60 years of Communist rule has shown that, under Party control, SOEs can use the Party’s support to grow large but not strong. This is because, growing strong means that a company increases its operational capabilities and management capacity, achieves a reasonable input-output balance, and gains market share through competition, rather than monopoly. These are precisely the things that it is impossible for Chinese SOEs to achieve.
III. Private companies with “great development and growth potentials” will become the primary target of SOE enterprise reform. Opinion 18 of the Program states: “Encourage state-owned capital to pursue various ways of investing in non-state-owned companies. Fully realize the capital operation role of state-owned investment and operations companies and use market forces to make quality investments in non-state-owned companies with great development potential and strong growth in the key sectors of public services, high-tech, environmental protection, and strategic industries.”
In other words, private companies with weak prospects can rest easy that SOEs won’t come knocking at their door. But if you’re a private company with high efficiency and good market prospects, the SOEs won’t even knock—they’ll come right in and purchase some of your shares or shell resources. There will be nowhere to hide.
Why Do the Chinese Authorities Insist on Making SOEs Big and Strong?
You can tell what a government considers its key interests to be by looking at the companies it chooses to support. Take, for example, the acquisition of the largest American pork processor, Smithfield Foods, by China’s Shineway Group. With a total of 48,000 jobs at stake, including around 1,300 newly added jobs, local residents and governments all welcomed the deal and didn’t care that the new owners were Chinese.
In China, the private sector has long provided more employment opportunities for Chinese people than SOEs. According to official statistics for 2007, SOEs accounted for only 9.2 percent of industrial jobs, compared to 44.4 percent for the private sector. In January 2011, the All-China Federation of Industry and Commerce published a report indicating that small and medium enterprises accounted for more than 99 percent of all Chinese companies and accounted for more than 70 percent of urban employment and 90 percent of newly added jobs. In 2014, the State Administration for Industry and Commerce announced that sole proprietorships and private companies accounted for approximately 90 percent of all new urban jobs nationwide.
As foreign investors have begun to leave China, rural-based laborers are returning to the countryside in great numbers and more than half of all university graduates are forced to return home and live off their parents. In principle, the government ought to encourage development of the private sector and make raising the employment rate its primary consideration. So why do the authorities instead want to make SOEs, which account for comparatively fewer jobs, “big and strong” and adopt a “reform” strategy of “advance the public sector and diminish the private sector”? It is based on the following two considerations:
- As the economy has begun to slide, the Chinese government is facing an enormous financial dilemma. Private companies already represent the largest share among all Chinese companies when it comes to number of enterprises, assets, or main revenues, whereas SOEs are at a disadvantage on all accounts. But when it comes to the share of taxes paid to the state, private companies paid only 13.0 percent in 2012, according to official figures, compared to 70.3 percent paid by SOEs. As original sources of tax revenue increasingly dry up, the fact that SOEs are the main pillar of public finances is a sufficient reason for the government to make such efforts to support them. Whether or not SOEs can increase the employment rate is not among the government’s primary concerns. Premier Li Keqiang has already told the hundreds of millions of unemployed to follow a path of starting their own businesses.
- Restructuring and listing is the Program’s ultimate goal. Currently, there is a very high rate of debt among SOEs. At the end of July 2015, the average asset-liability ratio among Chinese SOEs was 65.12 percent, with the overwhelming majority of those debts owed to state-owned banks. This kind of relationship between banks and companies ensures that if SOEs cannot perform better, the state-owned banks will also collapse.
Over more than two decades, the main way that SOEs have gotten out of their difficulties has been to follow the brilliant idea of former Premier Zhu Rongji, who first allowed SOEs to raise money by going public. But today this idea seems to have lost its magic, and the national team appears stuck after being forced by the government to take part in efforts to save the stock market. So, the SOE Reform Plan is only an attempt to come up with a new tactic: have SOEs reform and, after mixing ownership with private companies, “encourage restructuring for going public.” After the assets have been restructured, the companies can go to the markets to float IPOs under a new name.
Does the Private Sector Want to “Mix” with SOEs?
This talk of a mixed-ownership system is something the public is familiar with, having first appeared in the 2014 Guiding Opinions on Deepening State-Owned Enterprise Reform (《深化国有企业改革的指导意见》) and the public consultation draft of the Guiding Opinions on Improving the Forms of Realization of Public Ownership (《关于完善公有制实现形式的指导意见》). But private companies are not in the least bit enthusiastic. In my earlier article, “SOE Reform: Government and the Private Sector Each See Things Differently,” I explained how private companies commonly perceive “mixed ownership” as a trap. They believe that if they take part in a mixed-ownership company, the private company can’t get a controlling stake so it’s very likely to be neutralized and, in the worst case, caught with no means to defend itself.
Wanda Group Chairman Wang Jianlin (王健林) told the Sina website: “If I’m going to ‘mix,’ the private company definitely needs to have a controlling share, or at least I want relative control . . . If the SOE has the controlling share, isn’t that the same as me helping out the SOE by giving it money? Wouldn’t that be crazy of me to do? I can’t do that kind of thing.”
In the article Mixed-Ownership: Six Big Risks for Private Companies Investing in SOEs (《混合所有制：民企参股国企的六大风险》), the author got several private entrepreneurs to share their opinions about the mixed-ownership system. The main risks they raised were: (1) the people with responsibility over state assets were not actually required to take responsibility; (2) concern about loss of state-owned assets will become a high-tension line used to keep private-sector shareholders under control; (3) state-owned shareholders are much more powerful than private-sector shareholders, making it difficult to cooperate; and so on. The point is that private companies cannot cooperate with SOEs, because for them “cooperation” means getting caught in a trap.
It’s clear that even if private companies don’t want to “mix,” the government is determined to “mix” them. Chinese private entrepreneurs have weathered many storms over the years, and as soon as they saw the government getting ready to position itself for mixed ownership, they started “investing overseas” in great numbers. As the saying goes: “Of the 36 stratagems, fleeing is best.” Since August of this year, Beijing has imposed stricter foreign exchange controls. Rather than targeting those small holders of foreign exchange, the controls are aimed at those rich businessmen who are trying to transfer their assets overseas. “Shorting China” is becoming an up-and-coming crime.
To put the private sector at ease and keep them from seeing the government as the wolf dressed up in Grandma’s clothes, Opinion 16 of the Program states: “Uphold the principle of implementing policy according to location, according to industry, according to company. Decide whether to remain independent, take a controlling share, or make an equity investment based on what is appropriate. Don’t make arbitrary matches between companies or try to apply mixed ownership across the board. Don’t set timetables; move forward when the time is ripe. Reform must be carried out in accordance with law and regulation, in strict accordance with procedure, and in a transparent and fair manner. Ensure protection of the rights and interests of the various investors in mixed-ownership enterprises and root out state-owned asset loss.”
The real problem is that the Chinese government has always treated law as something used to constrain the people. Private entrepreneurs know what’s really behind this kind of reform intended to “preserve the leading position of the state-owned sector” and “root out state-owned asset loss.” Under this kind of “reform,” just watch and see whether the private companies that SOEs have taken a fancy to can avoid becoming “Little Red Riding-Hoods.”
He Qinglian (何清涟) is a Chinese economist who lived in China before 2001. In her bestseller The Pitfalls of Modernization (《现代化的陷阱》), she argues presciently that, as the power of local governments grows, officials who have favored reform would come to oppose further reform because it would limit their ability to trade power for money and money for power. The book was banned in China, Ms. He was forced into exile. In 2006, she published China Shrouded in Fog (《雾锁中国》) which studies how the Chinese government manipulates and, to some degree, controls overseas Chinese-language media. Ms. He lives in New Jersey with her family.
What’s the Murderous Intention Behind “Don’t Let Li Ka-shing Run Away”?, Xiao Zhonghua, China Change, September 19, 2015.
中文原文《何清涟：国企改革方案的风，姓私还是姓公？》, translated by China Change.
By Xiao Zhonghua, published: September 19, 2015
“Everyone understands that, in China, the real estate business is closely entwined with power, and it has no way to succeed without the backing of political connections. Therefore, wealth generated from real estate is not wealth generated completely from the market economy. [He] can’t exit just because he wants to.” – Luo Tianhao, Don’t Let Li Ka-shing Run Away
An expert at Xinhua News Agency’s “Outlook Think Tank” (瞭望智库) recently published a brilliant essay entitled “Don’t Let Li Ka-shing Run Away.” This piece has caused quite a stir in public opinion in China and beyond. As an economist who understands a thing or two about how economics works, I lament the woeful standards at Chinese think tanks and can’t imagine how such a low-quality think tank can influence and undermine China’s political and economic policy decisions. I also can’t help but speak a few words of conscience on behalf of Li Ka Shing, China’s wealthy, the Chinese economy, and China’s proletariat.
I. Who Is Running Away and Why?
Is Li Ka-shing the only one [exiting China]? Of course not! There’s no question that foreign investors are pulling out in great numbers and that domestic capital is also fleeing on a large scale. Besides being the nature of capital to chase profits, it’s also beyond dispute there are also outflows of dirty money. However, not all of the money that is leaving China is dirty.
How do we judge whether money is clean or not? If we were to say that all commercial interests with political backing are dirty, then what about all of China’s state-owned enterprises? They’re all monopolies with strong political backing, so their money is the dirtiest of all.
Naked exchanges of power for money and vice-versa are of course violations of Chinese law, so you can just launch legal proceedings and carry out investigations. If you find political rent-seeking or graft, you can make arrests, hold trials, and confiscate the illegal proceeds. Those sorts of people couldn’t run away if they wanted to, since they can always be captured and brought back, can’t they? The whole world is opposed to serious corruption and economic crimes. Aren’t we always having people arrested and brought back to China?
But isn’t it brazenly ridiculous to say that, because Li Ka-shing was a real estate developer in China and China’s real estate market “works so closely with the authorities” that you can’t get anything done without “political resources,” therefore he can’t “come and go as he pleases”? No matter what you do in China, can you get anywhere without official approvals? With the possible exception of North Korea, China is the hardest place to do business because you can’t get permission to operate or access to markets without political ties. This has been especially true over the past two decades or so. What do you think all those myriad administrative reviews and approvals are for? How did it get to the point when a new government wants to greatly streamline administration and decentralize power, there are suddenly millions more administrative reviews and approvals?
How can you pin the faults of the political authorities on the people doing business in China? You rapaciously expropriate from them while they’re in business. Then you don’t permit them to spend their hard-earned cash, so that they lack the freedom even to put their capital in play?
When your governments and officials want to get rich, you make some property deals. You make these deals without the least bit of moderation, coaxing, tricking, or forcing developers into doing the deals. Then, when those deals run into trouble, it all becomes the developers’ fault?
For many years, local officials have described their governments’ so-called investment policies with a very vivid saying: “trick-hold-chew” (or PBK for 骗、抱、啃). First, you trick them into coming. Then you hold on to them for dear life. And finally you chew them to death. Isn’t this a realistic portrayal of how property development has worked in China, along with all sort of other industries?
You shouldn’t use your power in such willful and capricious ways! When power is used too willfully, business will suffer. Today’s businessmen, no matter whether they represent foreign capital or domestic capital, are all starting to flee. That’s because the authorities are acting too capriciously. The terrorist methods used in Chongqing under the guise of “singing red songs and fighting organized crime” led thousands of business leaders to flee abroad overnight. Isn’t this enough of a lesson for you?
I’m guessing that the most important reason why businessmen—especially China’s own businessmen—are pulling out of China is not because they’re pessimistic about China’s economic prospects. Rather, it’s because they have no confidence in the direction China’s political and economic policies are headed and there’s a spreading fear of the authorities.
In fact, our political and economic policies swing periodically from left to right, and from right to left, with no one able to make head or tail of things. This is not good. I don’t think it takes any great wisdom to understand that when people are uneasy, change is inevitable.
II. Why Won’t You Let them Run?
Are you trying to attack the local landed gentry and divide up their land, like during the period of land reform? I sense that, deep down, that’s what you want to do, and you’re accomplishing to different degrees.
You’ve basically accomplished your goal already. The stock market collapse has basically destroyed the middle class, while the truly powerful and wealthy have emerged without a scratch. But I believe that’s not enough for you, so is it your next step to introduce “mixed ownership” reforms and use “public-private partnerships” to go down the old path towards communism, like you did in the late 1950s? I doubt I’m the only one speculating and worrying about this. Businessmen are all shrewd people—who can’t see that there’s something fishy going on here?
I don’t know whether or not Li Ka-shing is willing to let you “mix” with his companies, but I would never allow it. I’d rather run my company into the ground, close up shop, and go home, even though I know you’d never even have any interest in a small enterprise like mine. The simple reason is that I’ve observed your abilities and what you’ve done over the years, and I know the wolfish nature of “public-private partnerships” and what the inevitable outcome will be.
Rather than carrying out forward-looking reform of the existing system, you instead go backwards in time and loot the people’s wealth. This is not the correct path of a ruler—it’s an evil path, a road to ruin.
Don’t blame me for presuming to speculate about the “emperor’s intentions.” You don’t give a good explanation for the new “Guiding Opinions on State Enterprise Reform,” while at the same time sounding the battle standard of “Don’t let Li Ka-shing run away.” Did you really think people wouldn’t jump to conclusions about what you’re up to?
III. Preventing Them from Running Will Just Make Them Run Faster
You’ve always believed yourselves to be extremely clever and that your grip on power permits you to do whatever you liked. But let me tell you, as soon as this brazen slogan of “Don’t let Li Ka-shing run away” left your mouth, everyone could clearly see the murderous intentions lurking behind it. If they don’t run now, it’ll be too late for them! So, China’s wealthy will do everything in their power to flee abroad. If you don’t believe me, just wait and see!
Of course, you can try raiding underground banks and imposing strict restrictions on foreign exchange to block the rich from fleeing. But today China’s economy is already completely integrated with the world economy, and it’s not such a simple matter to block foreign capital from pulling out or domestic capital from fleeing.
And the currency wars are just about to break out, if they haven’t already. I dare to predict that China will definitely lose badly in the currency wars and that the Renminbi will suffer deep devaluation versus the US dollar. We’re talking an exchange rate of 10 or even more than 20 yuan to the dollar when all is said and done. Again, if you don’t believe me, just wait and see.
My prediction doesn’t require the intervention of hostile external forces or Soros-types. It’s based on recognition that the rich who hold 80 percent of China’s wealth have begun to grow alarmed at your threats and mistaken actions and have begun to flee abroad. Li Ka-shing is only one of them.
You, not others, will always be the source of your own ruin.
IV. Aren’t You Ashamed for Making Businesspeople Fulfill Government Responsibilities?
The Xinhua think tank’s brilliant essay said that entrepreneurs like Li Ka-shing ought to take on two great “unfulfilled missions” of “giving consideration to the people’s livelihood and giving back to the poor,” on the one hand, and “doing more good deeds and operating social enterprises” on the other. I’m truly dumbfounded to see such ignorant talk come out of a state think tank.
The mission of a company is to do business, earn profits, take care of its employees, and pay taxes—that’s it. Taking care of employees and paying taxes counts as “giving consideration to the people’s livelihood and giving back to the poor.” As to whether or not to engage in charity or operate social enterprises, this doesn’t count as a company’s mission; it’s only a moral choice and ethical act taken by a company when it’s capable of doing so. Please remember, ethics and morality have never been duties, let alone a mission. Rather, they’re ideals to be pursued, and sometimes people achieve the ideal and other times they don’t.
Governments, on the other hand, are duty-bound to “give consideration to the people’s livelihood and giving back to the poor,” as well as invest in charity and social enterprises. Government has both a political responsibility and a social responsibility to do these things. What do governments do with the taxes that they collect from companies and citizens? Companies and citizens use their tax payments to fulfill their political and social responsibilities, whereas governments use their economic policies to develop the livelihood, charity, and social enterprises that they’re entrusted to take care of on behalf of companies and citizens.
How can a government be so shameless as to collect taxes without fulfilling its responsibilities, instead talking big and pushing all these responsibilities on companies?
All of these increasing burdens are making it harder and harder to run a company in China. There are so many gaps in the social security system, so you keep raising the social security levies every year, shifting all the burden on companies. When there’s inflation, you increase salaries for civil servants, forcing companies to raise wages as well, so the burden of inflation gets shifted to companies, too. Taxes only go up, never down. Even if you don’t threaten them, under such serious economic conditions it’s impossible for private companies to bear all these burdens. They can’t continue on, so their only choice is to flee. At a time like this, if you’re still thinking about plundering private enterprise, there’s only own road left for the future and that’s to go back to a planned economy.
Of course, perhaps that’s just what you’re hoping to accomplish . . .
Xiao Zhonghua (肖仲华) is an associated professor at Wuhan University of Technology.
Li Ka-shing’s moves on China reveal good timing, WSJ, September 6, 2015.
Online criticism of Li points to break-up with leadership, South China Morning Post, September 18, 2015.
中文原文： 肖仲华《“别让李嘉诚跑了”暴露了什么样的杀机？》, translated by China Change.
China Change, published: July 10, 2015
Before China’s recent, painful reckoning with the share markets, official media channels were abuzz with the limitless prospects for bountiful equity prices well into the future (“decades,” one optimistic commentator intoned.) Now, as retail investors grapple with their losses, and the full extent of the rout continues to play out, China Change here translates excerpts from Party media that helped to talk up the disastrous rally. – The Editor
We’re in an era of great change, and we can’t limit ourselves to the confines of the stock market to understand stocks. To grasp the future development of the stock market, we should see it from the national strategic perspective, and place it in the overall plan of the Chinese dream.
Looking at the stock market from a historical perspective, one should be able to see that our country’s economy and social system are facing a profound transformation. Domestic problems are intertwined and complicated. There is an enormous latent financial crisis, and the stock market must bear the great mission of dissolving this risk. Its role is to gain time for the comprehensive deepening of reform and the upgrading and transformation of the macro-economy. It serves the national strategy of China as a rising great power.
The importance of the stock market’s strategic position is ever increasing in our national strategy, and the government further recognizes its importance with every passing day. [….] With funds rushing in from society, the stock market already possesses the three key ingredients: “strategic need + policy dividends + capital boost.” Going forward, we must resolutely have a positive outlook on the stock market, and investors will be able to look forward to a stock investing opportunity of historic proportions.
— Shanghai Securities Journal, November 20, 2014.
“In 1948, when America rolled out the Marshal Plan, the American dollar gradually became an international currency. From the 1930s, American stocks saw a 75 year bull market! Over the following decades the Chinese stock market will also have ample foundation and conditions to gradually relish the fruits of the great rejuvenation of the Chinese nation —“the China Dream.”
This time around, the bull market is not a “speculative market” but a “confidence market.” The enormous dividends wrought by the deepening of China’s reform and opening will be enough to support a long term, stable, and growing bull market.
China needs a bull market that surges forth and unfolds on a massive scale. In the 1990s, the A market shouldered the task of state-owned enterprise reform; in the beginning of this century, it carried the great mission of banking reform; and now, it has hoisted the great banner of bringing China through the middle-income trap—honor permits no turning back.
—People’s Daily Online. “The ‘China Dream’ of A Stocks Calls for a Long Bull Market.” December 8, 2014.
“‘Reform Bull’ or ‘Leverage Bull’, there is truth in both. This market rise is a result of high expectations for the dividends of reform and opening up, a result of favorable policies piling atop one another. It is inevitable, and it is reasonable.”
—Xiao Gang, chairman of China Securities Regulatory Commission, March 11, 2015.
“Confidence is more important than gold.” Zhang Qun (张群), chief market strategist in the market research team at CITIC Securities, believes that the stock market reacts before the real economy in general. Currently, measures to comprehensively deepen reform are being carried out expeditiously, and the Two Sessions [i.e. the annual assemblies of the National People’s Congress and the Chinese People’s Political Consultative Conference] have drawn the blueprint for this year’s economic development. All of these factors are injecting market confidence in the stable and healthy operations of the Chinese economy. In addition, financial leverage is also playing an important role in bringing up the stock market as large quantities of funds are being invested.
—Xinhua, March 30, 2015.
The stock market hike conveys an important signal: Chinese economy is still maintaining a stable growth momentum, and its fundamentals haven’t reversed as a result of slowing down. The surge of confidence in the stock market has excited the entire society’s faith in development, and it allows the people to view the new phenomena under the new norm [i.e. China’s hoped-for ‘new economic normal’ of less fixed asset investment, more innovation, and more domestic consumption] with peace and optimism.
People’s Daily online. March 30, 2015
We unanimously believe that the sudden drop in the stock market imposes enormous financial risks. On the less damaging side, it could lead to the “sudden death” of the stock market and cause severe casualties among the newly emerging middle class who are the nucleus realizing the China Dream. If it becomes more serious, it could trigger doubts about the China Dream, and social instability. It absolutely must not be taken lightly.
[Among our recommendations] Immediately form the Central Government Financial Committee, and establish a joint command comprised of one bank (POBC), three commissions (CBRC, CSRC, CIRC), and one office (CAC). The 1-3-1 must work as a fist under unified leadership to coordinate actions and prepare for a long-term battle. Party Central must command finance the way it commands the gun barrel. In the end, it should establish a Central Finance Commission, similar to the Central Military Commission, according to the needs of modern financial soft war.
“Five Professors Call for Rescuing the Market,” Tencent Finance. July 2, 2015
This morning, deputy minister of the Ministry of Public Security Meng Qingfeng (孟庆丰) arrived at the China Securities Regulatory Commission with an entourage trailing behind him. They will work together with the CSRC in investigating leads on malicious short selling in stocks and stock indexes in recent weeks. This shows that supervisory organs will strike hard with a heavy fist against all illegal and irregular behaviors.
Xinhua, July 9, 2015.
Plunge in Chinese Stocks Leads to Bull Market for Gallows Humor, the New York Times’ Sinosphere blog, July 8, 2015.