Death threats and dawn raids: Welcome to the anti-graft drive

A Chinese policeman patrols Tiananmen Square as China’s leaders arrive for the country’s annual congress NPC, the National People’s Congress, in Beijing

Frozen Chinese bank accounts. Top executives taken in for questioning. Reports of death threats and pre-dawn clashes between armed body guards and police in Beijing.
That’s the fallout from a corporate feud playing out in Chinese press and social media for the past two months.
On one side is Peking University Founder Group, a state-owned company that partnered with Credit Suisse Group AG in a separate securities joint venture whose chairman has disappeared. On the other side is a billionaire real estate developer and his company, Beijing Zenith Holdings Co.
The fight originates from a business dispute at their jointly owned Founder Securities Co., China’s sixth-largest listed brokerage with a market value of USD12.4 billion. Founder acquired Zenith’s China Minzu Securities Co. with stock, making the property firm into Founder Securities’ second-largest shareholder. The relationship soured as the two sides squabbled over control and terms, leading to lawsuits and arbitration.
The mutual recriminations involve allegations of corruption, denied on both sides, and reported links to powerful political backers under investigation for wrongdoing. The case illustrates how President Xi Jinping’s anti-corruption crusade is spilling over into business disputes. The Communist Party warned last month that political cliques and their corrupt business ties wouldn’t be tolerated.
“The anti-corruption campaign is the golden opportunity for companies, especially the state-run firms, to tarnish their business opponents or even political rivals,” said Zhang Ming, political science professor at Renmin University in Beijing. “The anti-graft fight in China is not yet institutionalized, but is a system based on public reporting. So it’s really easy to be used by the public as a weapon to target anyone they want.”
Founder Group’s four top executives were ordered by officials to cooperate with an investigation, its chairman stepped down and 17 of its accounts with 1.8 billion yuan were frozen by court order, the company disclosed in filings to the Shanghai Stock Exchange.
Founder Securities shares have declined about 19 percent since Dec. 8, when Zenith said it had made a report to authorities accusing Founder Group management of wrongdoing. Even so, Founder has more than doubled in the past six months because of China’s stock market boom.
The joint chairman of Founder Securities and its venture with Credit Suisse, Lei Jie, can’t be contacted, the brokerage said in a filing to the Shanghai exchange last week. Lei asked for sick leave on Jan. 12 and the firm hasn’t been able to reach him since Jan. 19, with “a certain impact on the company’s internal operations,” it said.
Founder’s acquisition of Minzu caused it to say it wanted to exit the venture with Credit Suisse, which it has yet to do. Spokesmen at Credit Suisse have repeatedly declined to comment on the venture or the dispute.
Zenith’s founder, Miles Kwok, also known as Guo Wengui, was taken in by authorities to assist the police, according to Tencent news, a major portal in China, citing an anonymous source. Zenith’s Beijing-based deputy general manager, Lv Tao, denied the report as well as Founder’s allegations against Zenith in a phone interview before his phone was switched off as of Jan. 11. Kwok couldn’t be reached for comment.
Kwok is famous for building a dragon-shaped, self-designated seven-star hotel overlooking Beijing’s iconic Bird Nest Stadium. The Hurun Report estimated his wealth at $2.6 billion, making him 74th-richest in China.
The dispute provides a possible window into how high-level political patronage in China, long helpful for doing business, can risk turning into liability.
Zenith has asserted that Founder is tied to retired President Hu Jintao’s former aide Ling Jihua, who, according to the official Xinhua news agency, is being investigated for corruption. Chinese-language media outside China link Zenith to Ma Jian, one of the country’s top spy masters that the Communist Party said is being probed for “serious law and discipline violations.”
Ma couldn’t be reached for comment, and a fax sent to the Communist Party’s Central Commission for Discipline Inspection, which said it’s investigating him, didn’t receive a reply. Ling Jihua also couldn’t be reached, and a fax sent to the United Front Work Department, where Ling was minister before his removal, wasn’t answered. Chen Xu, a Founder spokesman, said he was “not clear” about his company’s alleged political connections.
“The case suggests that there are bitter interagency rivalries within key sectors of the economy,” said Andrew Wedeman, a professor of political science at Georgia State University who studies corruption in China. “The reality is that government agencies continue to own and operate profit-seeking businesses and use their administrative powers to help their businesses earn fat and fast profits.” Bloomberg