Wealth, power and corruption in China

November 11, 2021
The book focuses on relationships between party officials and private business people, which are a complex mixture of conflict and cooperation.

Red Roulette: an insider's story of wealth, power corruption and vengeance in today's China
By Desmond Shum
Simon and Schuster, 2021

Desmond Shum was a businessman in China during the period of market reform. This book tells of his experiences, and gives an insight into the corruption that accompanied the process of capitalist restoration.

Shum was born in Shanghai in 1968. His father's family were landlords and capitalists. Their property was expropriated after the 1949 revolution. As a child, Shum's family lived in part of a large house expropriated from his grandfather, which they shared with two other families.

In 1989, Shum went to study in the United States. When he returned, he got a job with a private equity firm called ChinaVest.

ChinaVest took a stake in a company called AsiaInfo, which was helping build the internet in China. Working on this deal, Shum discovered that the recipe for success in business in China was “marrying entrepreneurial talent with political connections”. [Red Roulette, page 51]

According to Shum, “the families of senior officials gorged themselves at the trough of economic reforms. These sons and daughters functioned like an aristocracy; they intermarried, lived lives disconnected from those of average Chinese, and made fortunes selling access to their parents, inside information, and regulatory approvals that were keys to wealth”. [p. 53]

Shum became ChinaVest's Beijing representative in 1997. Private business ownership was booming, as was corruption.

Shum became CEO of PalmInfo in 2000, a company that ran call centres. PalmInfo merged with Great Ocean, a company run by a woman called Duan Zong, also known as Whitney Duan. Shum and Duan began dating and eventually married, and also became business partners.

Duan was a computer science graduate who had become assistant to the CEO of a real estate company run by the People’s Liberation Army (PLA), then established her own real estate company, Great Ocean. She had cultivated connections with important people, and in 2002 introduced Shum to Zhang Beili, the wife of Wen Jiabao, who later became premier of China.

Zhang had been head of the state-owned China Mineral and Gem Corporation. She invested state money in new jewellery companies, became CEO of one of them, listed it on the Shanghai stock exchange and gave herself shares in it. Her children, who had Masters of Business Administration from US universities, also went into business.

This sort of thing was common among relatives of party leaders. Shum writes: “The red aristocrats got access to monopoly businesses. An example would be the contract to provide a kind of mineral water, called Tibet 5100, on China's high-speed rail network. That reportedly was landed by relatives of Deng Xiaoping, who paid next to nothing for the rights to bottle the water in Tibet”. [p. 108] When the bottled water company was listed on the Hong Kong stock exchange it was worth $1.5 billion.

Great Ocean made a lot of money on deals involving the privatisation (complete or partial) of state assets. Duan made use of her contacts to get approval for the listing of the Bank of China on the Hong Kong stock exchange. As a reward, Great Ocean was given the opportunity to buy 3 million shares, which went up 15% on the first day of trading.

Some government officials were pushing for much more extensive privatisation of China's economy. According to Shum, “They seemed to understand that state-owned enterprises couldn't survive in the long term because of their inherent inefficiencies.” [p. 171]

However, others wanted to retain a strong state sector of the economy. Their position was strengthened by the 2008 global financial crisis, which showed the instability of the free market model.

Shum says: “The Chinese government responded to the crisis with a massive stimulus that was far more effective than anything tried in the West. The Chinese government distributed this stimulus via the state-owned sector, which was ordered to put the money to use. Instead of trying to convince entrepreneurs to invest, the Party directed state-owned firms to pour money into infrastructure.” [p. 195]

The success of this policy strengthened the case for retaining a strong state sector of the economy. As Shum says: “The Great Recession that rocked the US economy in 2008 helped convince Communist officials that China's system was superior and gave them the self-confidence to become more assertive on the global stage.” [p. 196-197]

The New York Times ran an article in October 2012 on the wealth of Wen Jiabao's family, which was estimated at $3 billion. Bloomberg ran a similar story in June 2012 on the wealth of Xi Jinping's relatives.

These disclosures occurred in the context of a power struggle for leadership of the Communist Party (CP) between Xi Jinping and Bo Xilai. Shum suspects that Bo's allies leaked information about the wealth of Wen's and Xi's families to the Western media.

After becoming leader of the CP in December 2012, Xi Jinping launched an anti-corruption drive. The families of leading officials were pressured to donate their assets to the state, in return for a guarantee against prosecution.

Others were treated less leniently. Thousands of criminal investigations were launched by March 2013. The campaign continued: “By 2020, China's authorities had investigated more than 2.7 million officials for corruption and punished more than 1.5 million, including seven national-level leaders and two dozen generals.” [p. 253]

Shum claims the anti-corruption campaign was “more about burying potential rivals than about stamping out malfeasance”. [p. 259]

Undoubtedly the removal of Xi's rivals and enemies was one motive, but that does not seem sufficient to explain the scale of the campaign. Another motive may be to placate popular anger over corruption and win popular support for Xi and for the CP.

There was rising discontent amongst ordinary people about corruption and growing inequality. This led to numerous strikes and protests (something Shum does not mention).

Xi's anti-corruption campaign was partly a response to this discontent.

But while trying to win popular support with his anti-corruption campaign, Xi also stepped up the repression of dissent. Shum notes that freedom of speech and judicial independence were said to be “Western values”. [p. 253]

Tensions rose between Shum and Duan over control of Great Ocean, leading to their eventual divorce. Shum moved to England with his son in 2015. Duan stayed in China.

In 2017, she was arrested — though abducted might be a more accurate word, since she was taken away with no information given to family, friends or associates, and held for years at an unknown location. At the time of writing Shum did not know if she was alive or dead.

The book concludes with Shum saying he has “chosen the Western world over China” because of the former's supposed support for “basic dignity and human rights”. [p. 283] This ignores the vast range of crimes committed by Western governments, both at home and abroad.

The US, for example, has one of the highest rates of imprisonment in the world. Prisoners are disproportionately African-Americans and other oppressed groups. Australia jails its Aboriginal population at a horrific rate.

The US, with Australian support, invades other countries, imposes economic blockades, sponsors military coups and supports dictatorial regimes. Western powers violate human rights around the world.

Shum ignores another similarity between China and the West. Under both systems, workers are exploited by a wealthy minority. In my view China, like the West, is capitalist.

It is true that there are significant differences between China and Western countries such as the United States, Europe and Australia. China has a strong state-owned sector of the economy while the West has adopted the neoliberal model, privatising state-owned enterprises.

But while China's state-owned enterprises are important, they employ only a minority of China's workers. Most workers are employed by private capital. They are exploited by both Chinese and foreign capitalists. Many Chinese workers produce goods transnational corporations such as Apple, often in terrible conditions.

Shum shows the corruption that pervades the Chinese state apparatus. But the only reliable way to counter this is for the workers to be organised to combat corruption in their workplaces and communities.

The book focuses on relationships between party officials and private business people, which are a complex mixture of conflict and cooperation. But it makes no mention of unions, nor of workers taking independent action to defend their rights. (There are in fact many strikes in China, but the official trade union federation, under the control of the Communist Party, tries to discourage them)

Shum is mistaken in his equation of the “Western world” with “basic dignity and human rights”. Nevertheless, the book is useful in exposing the corruption associated with the restoration of capitalism in China.

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