BY EVA CHENG
According to the US business magazine Forbes, "There has probably never been a better time for capitalists in modern China", and China's "long-awaited admission soon to the World Trade Organization will galvanize the economy more comprehensively than anything undertaken by the Beijing government since the late Deng Xiaoping launched his open-door policy in 1978."
In a feature article on "China's 50 richest entrepreneurs" run its November 27 edition, Forbes claims that "Economic liberalization has profoundly changed China for the better ... The state still occupies the commanding heights of the economy, but beneath the clouds, it is the private sector that makes China's economy tick."
These comments certainly reflect the US capitalist rulers' endorsement of China's ongoing process of capitalist restoration and their acute awareness that China's impending entry into the WTO will give that process a critical boost. But so keen was Forbes to promote its thesis that China has never been better off, thanks to "economic liberalisation" and the "private sector" (read: capitalist mode of production), the magazine massaged statistics to "prove" its point.
Forbes lumped together indices in the growth of very different things — assets (presumably gross), net assets and market capitalisation — in order to demonstrate that the "average" Chinese citizen is now able to "make it" (acquire considerable personal wealth) thanks to the pro-capitalist policies of Deng and current Chinese President Jiang Zemin.
According to Forbes, some among the richest 50 Chinese citizens made their fortune through traditional activities well within the reach of small producers, such as producing seeds or animal feed, breeding animals or manufacturing auto parts, furniture, sweaters or air-conditioners. Others achieved millionaire status simply by trading (read: speculating) — in real estate or construction materials.
The whiz kids surfing on the crest of the "new economy" also form a solid contingent, enriching themselves through designing software, telecommunications equipment or providing internet portal services.
The examples which Forbes chose to highlight seemed to confirm the "free market" myth that anyone, even in today's highly monopolised capitalism, can still "make it" into the ranks of the top capitalists.
The only exception in the list is Rong Yiren (China's vice-president from 1993 to 1998) and his family. The Rong family are China's richest "entrepreneurs" according to Forbes. The magazine bases this ranking solely on the 18% of shares owned by Rong's son, Larry Yung, in the Hong Kong-listed CITIC Pacific company.
Rong certainly has amassed considerable wealth since Deng Xiaoping invited him in 1979 to form the state-owned China International Trust and Investment Corporation. But what Forbes listed in its latest survey is just a tiny slice of the fortune held by the Rong family/clan, which comprises more than 200 members (including some outside China).
In addition to grossly underestimating of the actual size of the Rong family fortune, by not examining how the Rong clan re-emerged as capitalists (the Rongs were a leading capitalist family prior to the coming to power of the Chinese Communist Party in 1949) Forbes was able to hide the cronyism and officially sanctioned private theft of state assets that has greased the path to enrichment of a key component of China's fledgling capitalist class. This is the select group made up of the sons and daughters of top Chinese Communist Party (CCP) officials — commonly referred to by ordinary people in China as the "princelings".
The princelings
The most critical flaw of the Forbes survey is its failure to even try to identify this crucial group of capitalists, who often take the appearance of being key executives in enterprises which are nominally state owned or only partially privatised.
Maintaining a link to political power is key to the princelings' success as capitalists. That link is often provided through one or more family members, but some princelings hold political positions concurrently with executive power in enterprises. Looting the state assets they manage is still the key mechanism for acquiring capital for most of China's new capitalists.
No-one can present a balance sheet on how the spoils of this theft of state assets have been laundered and into what companies controlled by which CCP official or their relatives. But enough of it has happened — and it is of such a scale — that even the CCP has been forced to publicly acknowledge this phenomenon.
Beijing's late 1992 constitutional amendment to officially declare that its goal is the creation of a "market economy" and Deng Xiaoping's January 1992 endorsement of the capitalist-dominated special economic zones (SEZs) in southern China as the road that the rest of the country had to follow, unleashed an unprecedented frenzy of speculative swindles and embezzlements of state assets, propelled by the princelings.
'Draining' state assets
In 1994 the Chinese government revealed that state assets were vanishing at a rate of 100 million yuan a day, and that state assets valued at 500 billion yuan (US$60.25 billion) had been embezzled and looted in the previous decade. Vice-premier Zhu Rongji warned at the time that if the "drainage" of state assets continued "there will be no more socialism to speak of". Despite this warning, the rate at which state property was "disappearing" increased to the officially admitted figure of 300 million yuan a day in late 1995.
The Chinese government wasn't shy about admitting that CCP officials were the chief culprits in the "drainage" of state assets into the "private sector", but it tried to put the problem down to a few "bad apples". It even admitted that leakages often occurred when the accounting "wasn't done properly" when joint ventures with foreign capitalists were formed. However, the idea that asset-stripping on the scale that the regime itself acknowledged was the result of mere oversight or incompetence by a few "bad apples" was hardly believable.
It was well-known that many CCP officials who managed state enterprises deliberately deflated the asset contribution of their enterprises in joint ventures, while inflating the book contribution of the foreign partners, leaving these CCP officials to pocket the difference.
Laundering or investing the spoils of such swindling overseas isn't difficult as many such transactions involved the overseas offshoots of Chinese state firms. These offshoots are clustered most densely in Hong Kong from where, as is well-known within the business circles there, much of these laundered spoils found their way back to China as "foreign investment". The bulk of the foreign investments in China originated from Hong Kong-registered entities.
The princelings in business, whether they are acting as mere front persons or not, are only the most visible representatives of the growing layer of CCP "cadres-turned-capitalists". Their significant influence and widespread corrupt practices have attracted a great deal of public anger. There was widespread applause when a 1988-89 anti-corruption campaign targetted Kang Hua Enterprise, the business empire headed by Deng's eldest son Deng Pufang. With its hundreds of subsidiaries, Kang Hua Enterprise was also a feeding ground for numerous other princelings.
The protest movement in early 1989 targetted the princelings' business scams as a prime concern. In the wake of the regime's massacre of worker-student protesters in June that year, the Chinese authorities made considerable noise about cracking down on the princelings' activities. However, in 1992 the regime made a sharp turn toward promoting private entrepreneurship. That same year Deng's other son, Deng Zhifang, became head of Four Seas Real Estate and CITIC.
Four Seas is formally an arm of the Shanghai municipal government but is widely known in Hong Kong business circles to be a conduit through which the younger Deng managed his extensive business interests in Beijing, Shanghai, Hainan island and Hong Kong. The CITIC turf was shared with another super-princeling, Wang Jun, the son of military leader Wang Zhen. Wang senior had pivotal influence in the military and was a close associate of the Deng Xiaoping.
Like Kang Hua Enterprise, CITIC was only one carriage in the gravy train that a whole network of princelings boarded.
Jiang Zemin's 1995 clampdown on Shougang, a major steel-making state conglomerate based in Beijing which was headed by Zhou Guanwu, the father of Deng Zhifang's close business crony Zhou Beifang, was a dramatic move to tackle another super-princeling. But while Deng Zhifang has adopted a lower profile since then, there are no signs he has withdrawn from "entrepreneurial" activity.
These high profile cases are just the tip of the iceberg. A more detailed picture of the princelings' activities can be found in, for example, The Chinese Communist Party 'Princelings', a Chinese language book published by the Times Publisher in Taiwan. Co-authored by He Pin and Gao Xin, who left China only in the 1990s, the book was issued in a second edition in 1997 after 10 printings.
He and Gao list more than 200 princelings, their positions in the government or the army and their relationship to senior CCP officials. The cases of 25 such families are featured. While not every one of them was known to be involved in business, enough of them have done so, especially in scandalous activities, that more general observations can be drawn.
Among the more notorious examples are:
* Wang Bing, another son of Wang Zhen, who masterminded a high profile kidnapping of another princeling in June 1995 in the Shenzhen SEZ to resolve a money dispute arising out of a corruption scandal in the early 1990s involving a chain of key state firms such as the China Ocean Petroleum Corp, China Ocean Helicopters Corp (which is owned by six major state firms including CITIC) and Dong Hui Industrial Share Co (headed by the wife of long-time Guangdong governor Ye Xuanping, the son of Marshal Ye Jianying). The kidnapped victim was Chen Xianxuan, the husband of a grand-daughter of a senior CCP official. The scandal was speedily concluded by an "internal disciplinary action" for the people involved.
* Wang Jun, a senior military officer to whom Rong Yiren only relinquished control of CITIC in 1993. Wang Jun is widely believed to have been managing his private business interests mainly through CITIC Shenzhen, formally a CITIC subsidiary which had led the frenzy of real-estate speculation in the SEZ since the mid-1980s.
* Chen Weili, a daughter of Chen Yun (a CCP Politburo member since the 1930s), was also at the centre of a scandal. After raising close to US$30 million in loans from the Chinese government, she founded China Venturetech Investment Corp in the early 1990s and was involved in a chain of high profile takeovers in Hong Kong. But in June 1993 an investment firm which Chen Weili headed, Standard Financial Co, was sued in New York for allegedly defrauding the investors. It was reported to have offered a compensation package of US$16 million to settle the dispute but was rejected.
* He Ping, a son-in-law of Deng Xiaoping, headed the Poly Corp, a key business arm of the Chinese military which takes prime charge of nearly all its arms trading. Hand in hand with fellow princelings such as Deng Zhifang and Wang Jun, He Ping was centrally involved in a number of high profile corporate takeovers in Hong Kong in the early 1990s. In 1995, he joined a Hong Kong property conglomerate Sun Hung Kai as vice-chairperson.