Page 1 of
2 Insider trading, Chinese
style By
Peter Lee
Regarding the epic financial
machinations allegedly practiced by the family of
Chinese Premier Wen Jiabao, his supporters can
draw consolation from the fact that the Wen family
compares favorably to the Bo Xilai family in the
matter of financial sophistication, investment
success, and in not murdering its financial
adviser.
They may also be heartened by
the thought that China's tycoons are achieving
parity with the West in best practices of
legalized insider trading and self-dealing.
There is another group that
definitely feels thrilled and empowered by the New
York Times' blockbuster revelation concerning an
alleged US$2.7 billion nest egg possessed by
Premier Wen
Jiabao's family. [1] That
group is not China's dissidents. It is Western
print journalists, who feel under siege around the
world, and especially in China. The Guardian's
media critic, Michael Wolff, took it to the next
level, calling the revelations the biggest thing
since the Pentagon Papers:
The New York
Times' unraveling of the holdings of the Chinese
premier, Wen Jiabao, and his family may be its
most direct challenge to a sitting government
since its publication of the Pentagon Papers in
1971. Arguably, its forensic accounting will be
even much more damaging and potentially
transformational to the Chinese government than
its seminal revelations about the roots of the
war in Vietnam were to the Nixon government.
As
with the Pentagon Papers, the Times now faces
the concerted wrath of the government it has
challenged. The Nixon administration took the
Times to the US Supreme Court in a move that
threatened to criminalize the company. The
Chinese government has cordoned off the Times'
digital reach into China and, effectively,
declared it persona non grata in one of the
world's most significant markets. In other
words, it's a great day. [2]
Easy,
tiger.
Actually, I think David
Barboza's expose of wealth aggrandizement by the
extended friends and family of Wen Jiabao might be
the biggest thing in journalism since ... the
Guardian's unconscionable butchering of the
WikiLeaks release, but that's another story.
In
the matter of the Pentagon Papers, the New York
Times defied the advice of its lawyers and
published the purloined documents at considerable
legal risk without checking in with the US
government. President Richard Nixon did not learn
of the leak until he opened his morning paper.
The
US government then tried to impose prior restraint
- getting a court injunction to force the Times to
stop publishing the ongoing expose - only to be
rebuffed by the Supreme Court. The court, however,
did not remove the New York Times from legal
jeopardy, affirming for the most part that that
the paper could be prosecuted after the fact for
revealing state secrets under the Espionage Act
(something that the Nixon administration
considered but didn't pursue). Instead, infuriated
by the leak, Nixon set up the "Plumbers"
(leak-stoppers) covert operation that burgled the
Watergate Apartments and eventually brought down
his presidency. [3]
In the Wen Jiabao matter,
Barboza collected the facts legally, and the Gray
Lady gave the Chinese government a heads-up before
publishing, as the New York Times' public editor
reported:
On Friday, I
interviewed the publisher Arthur Sulzberger Jr
about the story, the censorship and what it
means for The Times's global push.
"I'm very proud of this
work," he said of the story. "Our business is to
publish great journalism. Does this have a
business impact? Of course."
Mr
Sulzberger said the publication of the article
was preceded by "conversations with the Chinese
government to discuss it".
"They wanted to air their
concerns - which I listened to, as I should," Mr
Sulzberger said. "And eventually, we made a
decision to publish."
The Times'
foreign editor, Joseph Kahn, also confirmed
discussions with Chinese officials, and put the
scoop in the proper perspective vis a vis the
Pentagon Papers:
Mr Kahn said
that as recently as Wednesday, Mr Sulzberger and
the executive editor, Jill Abramson, met with
Chinese government representatives at The Times.
But the focus of that conversation was not about
the journalism - it was about political and
cultural differences In short, Chinese officials
were making the case that The Times not publish
the article.
"I'm gratified - there's no
other word to describe it," Mr Kahn said about
The Times's decision to publish it. "People cite
the Pentagon Papers, but that involved defying a
legal order." [4]
The New York Times
is suffering genuine and significant financial
losses from the story - one can assume its costly
Chinese-language launch has been blown out of the
water for at least a few months - and it should be
commended for running the piece, but the level of
institutional risk and political significance does
not appear to rise to a Pentagon Papers level.
Pre-warned by the Times, the
Chinese government moved into containment mode.
The Chinese Foreign Ministry issued a huffy
response that the report was a smear, the New York
Times US and Chinese-language websites were
blocked, and the word was put out to "harmonize",
ie scrub, web and blog references to the New York
Times, $2.7 billion, so on and so forth. In
addition, Western journos in China were subjected
to an aggravating slowdown of Internet service.
Within the People's Republic
of China, the report - which is inevitably
filtering through the Great Firewall - has
apparently not excited a new tsunami of disgust
against the Chinese Communist Party regime. The
response seems to have been muddled by the fact
that the article took pains not to implicate Wen
Jiabao personally, and by the fact that Wen is
regarded as a leader - albeit of suspect efficacy
- of the reformist bloc, and giving him a black
eye is considered as providing aid and comfort to
the enemies of reform.
The
fact that Wen is retiring after the 18th party
congress, to be started a few days from now, also
takes some of the heat out of the allegations.
There were even indignant accusations that the
revelations had been fed to the Times by partisans
of disgraced party official Bo Xilai seeking
revenge on Wen for his role in Bo's downfall
earlier this year.
This seems unlikely. Barboza
is a well-regarded and tenacious reporter who
spent almost a year sorting through Chinese
corporate records to get the story. Perhaps Wen's
adversaries were willing to egg him on, but, as in
the case with the Bloomberg expose on Xi Jinping
this past June (see here - for which
Bloomberg staff were reportedly subjected to death
threats by disgruntled Xi cronies - it can be
assumed he dug out the story on his own.
The
Barboza article is a fascinating expose of how the
wealth-creation sausage gets made in the People's
Republic of China, revealing how a family with
political connections and access to information
can leverage opportunities in everything from
diamond-trading to construction of wastewater
treatment plants with the help of a few
billionaire friends in the PRC and overseas.
However - barring further
revelations - it is not the devastating legal and
factual brief against Wen Jiabao that the excited
coverage might lead one to believe. The New York
Times made the understandable, if rather
questionable decision, to hang its hat on the
eye-popping figure of $2.7 billion, inviting the
inference that Wen's family exemplified official
corruption on a truly heroic scale. However, $2.2 billion of that
figure is derived from ownership of shares of
stock of Ping An Insurance imputed to members of
the Wen family, shares that were purchased by
partnerships in 2002, apparently for around $65
million, and which skyrocketed in value after Hong
Kong (2004) and Shanghai (2007) IPOs.
As
for those partnerships, the Times was
unfortunately unable to come up with a clear
determination as to whether they were simply front
companies for Wen family skullduggery or, well,
partnerships that provided privileged access for
wealth creation for PRC and foreign elites, some
of whom were members of the Wen family.
The
Times carefully characterized the partnerships as:
Partnerships
controlled by Mr Wen's relatives - along with
their friends and colleagues - made a fortune by
investing in the company before the public
offering.
Wen family fingerprints are
apparently all over these partnerships, but
nailing down issues of legitimacy and control are,
understandably, slippery issues.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
