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    Greater China
     Oct 31, 2012


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.

Notes:
1. Billions in Hidden Riches for Family of Chinese Leader, Yahoo! Finance, Oct 26, 2012.
2. The New York Times' China coup, The Guardian, Oct 26, 2012.
3. Rethinking the Pentagon Papers, National Affairs, Summer, 2010.
4. 'Great Journalism' That Has Unwanted Business Impact in China, NYT, Oct 26, 2012.
5. The Wen Family Empire, NYT, Oct 25, 2012.
6. Strategic China Investment, Great Ocean Group.
7. Airport City Development Lid, DocStoc.
8. China's Ping An Insurance kicks off Shanghai IPO, Reuters, Feb 1, 2007.

Peter Lee writes on East and South Asian affairs and their intersection with US foreign policy.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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