Page 2 of
2 Insider trading, Chinese
style By
Peter Lee
Around $1.3 billion of the
purported Wen family stake in Ping An is
controlled by Tianjin Taihong, which in turn is
controlled by one of the PRC's richest people,
Mdme Duan Weihong, who is in turn generally
characterized as an old friend of the Wen family
and, more specifically of Wen's allegedly
rapacious wife Mdme Zhang Beili. [5]
The
question can seriously be raised as to whether
Mdme Duan is simply a bag-woman for the Wen
family, or a close family friend who has benefited
herself - and members of the Wen family - through
a carefully constructed, morally questionable, but
legally defendable web of obligation and
opportunity.
A look at Taihong reveals
something that looks more like a plausible
business enterprise than a slush fund or cut-out.
Taihong apparently achieved considerable success
in property
management and, subsequently,
development in Premier Wen's home town of Tianjin.
Taihong's English-language name is Great Ocean
Group.
On its website,
it touts its strategic investment in Ping An
(stating that "outstanding returns ... reflect
the group's foresight and execution ability"):
In 2002, the Great Ocean Group acquired a major
share in Ping An Group, one of China's largest
insurance and financial services companies
entitling it to a seat on the company's Board of
Directors. [6]
Duan Weihong took that
seat on the Ping An (supervisory) board from 2003
through 2009.
The Ping An deal shows the
hallmarks of privileged information and access; it
does not, however, exhibit significant signs of
interference by the Wen family to assure Ping An's
success. The Great Ocean investment occurred in
2002. The lifting of restrictions on domestic
insurance operations - which paved the way for
highly successful IPOs by Ping An and other
insurance companies - did not occur until 2004.
Spotting Ping An as an up-and-comer would not have
been extremely difficult, even without the help of
a high ranking communist official.
By
2002, Morgan Stanley and Goldman Sachs had already
been strategic investors in Ping An for eight
years; in 2002, HSBC also put in another $600
million (it would subsequently buy out Morgan
Stanley and Goldman Sachs for $1 billion).
The
company had employed McKinsey and Co to advise it
on its business operations, staffed its company
through a well-known European headhunter, and in
2005 it was named one of Asia's best managed
companies by Euromoney magazine. It subsequently
achieved the distinction of serving as subject of
a fawning case study by a leading Western business
school.
In short, Ping An's primary
identity is as a private company backed by
international financial muscle, not a sclerotic
state-owned-enterprise relying on government
favoritism and protection. Therefore, the
corrupt-dealing framing provided for the Times
article is, perhaps, not completely apt to the
Ping An situation:
As prime
minister in an economy that remains heavily
state-driven, Mr Wen, who is best known for his
simple ways and common touch, more importantly
has broad authority over the major industries
where his relatives have made their fortunes.
Chinese companies cannot list their shares on a
stock exchange without approval from agencies
overseen by Mr Wen, for example. He also has the
power to influence investments in strategic
sectors like energy and telecommunications.
Investing in Ping An prior to its IPO
and sensational run-up in stock price was
something of a no-brainer.
Of
course, getting an opportunity to invest prior to
the IPO is something else.
It
would perhaps be most informative to ask Ping An's
hard-charging boss, Peter Ma, or strategic
investors Morgan Stanley, Goldman Sachs, and HSBC
- all of whom had seats on the Ping An board - to
provide some context as to how Taihong/Great Ocean
was privileged to get a sweetheart pre-IPO deal.
Mdme Duan married a Hong Kong
investment banker, Desmond Shum, who perhaps
provided the deal-making expertise to enable Great
Ocean to leverage its Ping An windfall into a very
successful foray into active, managed investment:
the construction of the massive freight logistics
center at Beijing Airport, the "Airport City
Development Limited" or ACL, with a total
first-stage investment of 4 billion yuan (US$640
million). Mr Shum served as vice chairman and
chief executive officer for the project, which was
completed in 2007. [7]
In
2011, Great Ocean sold its 40% interest in ACL to
Singapore's Global Logistic Properties Ltd for
around US$270 million (the New York Times may be
in error here by imputing the full $400 million
proceeds of the sale to Great Ocean; the shares of
another company, "Trade Year Properties Limited,"
amounting to 15% of ACL, were also sold to Global
Logistics as part of the deal).
Interestingly, the Times did
not choose to impute the ACL deal to Wen-related
shenanigans, even though the high profile and
highly political deal (involving approvals by the
Ministry of Commerce, the Civil Aviation
Administration of China, the Beijing municipal
government, the General Administration for Customs
- which "consult[ed] eight ministries and
commissions" - the National Resources Development
Council, and the State Council) would seem to
welcome influence peddling in a way that the
largely opportunistic and passive Ping An
investment did not.
In true nouveau riche style,
Mdme Duan has turned to high-profile philanthropy
to enhance the reputation of her enterprise. Great
Ocean established the Kai Feng charitable
foundation, which funded the construction of
Tsinghua University's new library and, in 2012,
sponsored the Yehudi Menuhin violin competition in
Beijing. Under the sobriquet of the "Whitney and
Desmond Shum Fellowships", the family funded a
program to send two Harvard graduate students to
China each year to pursue research in the social
sciences.
Mdme Duan blotted her tycoon
copybook, however, with a flustered response to
the most damning piece of evidence unearthed by
Barboza: apparently part of Taihong/Great Ocean's
stake in Ping An was held in the name of Premier
Wen's ancient mother.
Apparently not aware that the
correct response to dangerous and intrusive
inquiries from the press is "Talk to my lawyer",
Mdme Duan provided a novel explanation:
"When I
invested in Ping An I didn't want to be written
about," Ms Duan said, "so I had my relatives
find some other people to hold these shares for
me."
But it was an "accident",
she said, that her company chose the relatives
of the prime minister as the listed shareholders
- a process that required registering their
official ID numbers and obtaining their
signatures. Until presented with the names of
the investors by The Times, she said, she had no
idea that they had selected the relatives of Wen
Jiabao.
It can be assumed that the
purpose of this legerdemain was not to enrich Wen
Jiabao's oblivious mother. Perhaps the motive was
to park some shares in the name of a clueless
retail investor - one who would not be subject to
the lock-up obligations imposed on strategic and
institutional investors in the Ping An IPO - for
prompt disposition at a favorable price.
In
any case, the case of granny's Ping An shares -
which had a value of $120 million in 2007, though
it is unclear that they are still in her name -
would be an interesting area of exploration for
China's securities regulators, if they decided to
pursue it.
Of course, if the way the
case plays out is that Mdme Duan takes the rap for
parking the shares, the Wen family will be
shielded from complicity and the matter will be
recast as a securities enforcement matter. It may
be that this is how things will turn out, and the
Wen family will face no criminal consequences -
and Wen Jiabao will not be subjected to Party
disciplinary action.
Judging from the long list of
business ventures described by Barboza - which
even absent the Ping An shares amount to interests
amounting to hundreds of millions of dollars - the
greedy members of Wen Jiabao's immediate family
(led by Wen's wife, brother, and son) were careful
not to demand or take payoffs as a condition for
deploying political influence. No "pay for play"
in other words.
Instead, the currency
employed was that of shared opportunity, mutual
obligation, and the promise of future cooperation.
Nor did the immediate family
hold assets in their own names - high party
officials are required to disclose their own
assets and those of close family members -
allegedly relying instead on the good offices of a
network of trusted relatives and associates.
In
other words, the Wen family appears to have
navigated the loopholes, opportunities, and
perilous shoals of personal enrichment in an
adroit, legalistic, and politically astute fashion
that would be recognized and admired immediately
by their spiritual brothers and sisters across the
sea: the robber barons of Wall Street and the
London bourse.
Whether Wen Jiabao and the
CCP will see fit to untangle this web in the
interests of transparency, decency, and the
Party's political viability is an interesting
question.
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
