China’s Market is More Complex than it First Seems

 By Henry Srebrnik, [Moncton, NB] Times & Transcript

There is no doubt that President Xi Jinping is changing China in significant ways, with a view to make its political system more robust, effective and powerful. He is also increasingly projecting China as a leading player on the world stage. But has he made the Chinese political system more resilient and thus more enduring? Some don’t think so.

Desmond Shum, who knows the ways of China’s rulers, has now written a story of “wealth, power, corruption and vengeance in today’s China.” His new book, Red Roulette: An Insider’s Story of Wealth, Power, Corruption, and Vengeance in Today’s China, doesn’t paint a pretty picture.

Shum was born in Shanghai, spent his boyhood in Hong Kong and studied in the United States. He describes his personal experience working in senior roles in Chinese companies and the guanxi (influence and connections) such people need with the Chinese government and the ruling Communist Party to ensure business dealings succeed.

 

The book relates the widespread and systemic corruption, through personalized social networks of power, that permeates the party’s relationship with private business and the resulting high level of influence it exercises. It’s a political system that mouths Communist slogans while the families of senior officials gorge themselves at the economic trough.

 

“Much of what I put in the book is baked into the system,” Shum told Charlie Campbell, the East Asia correspondent for Time magazine in an interview last October.  “It’s in the DNA of the party-state; it won’t change, it cannot change.”

 

He pointed to the Communist Party’s celebrations on the 100th anniversary of the founding of the party last July 1. There were seven busloads of “red aristocracy” watching the parade. These people are general citizens, without specific titles, who make no particular contribution to society. “The only reason they got invited and sit next to the President is bloodline.”

 

In 2002, when Shum met Whitney Duan Weihong, his ambitious future wife, he was impressed by her mastery of guanxi. Her most important connection was to Zhang Beili, the wife of the soon-to-be premier Wen Jiabao. Duan’s goal was to amass a fortune by becoming Zhang’s intimate and business fixer. With Duan, and under the umbrella of her holding company Great Ocean, Shum “joined the system and thrived inside it.”

The premier’s wife got 30 per cent of profits from her and Duan’s “joint” ventures, but seldom put up 30 per cent of the capital. Shum and Duan ran the ventures and worked to obtain the voluminous permits required. Zhang’s interest was the lubricating oil with party officials. It was for this that she got her cut.

As manager of the National Gemstone Testing Center in Beijing and the China Mineral and Gem Corporation, Zhang was in a pivotal position to facilitate or deny entry by global diamond firms such as Cartier or De Beers into the regulated Chinese market.

Zhang was not alone in amassing wealth. When he was the head of the government between 2003 and 2013, Wen Jiabao was considered to be one of the most powerful men in the world. His relatives accumulated shares in banks, jewelers, tourist resorts, telecommunications companies and infrastructure projects, sometimes using offshore entities.

The holdings included a villa development in Beijing; a tire factory in northern China; a company that helped build some of Beijing’s Olympic stadiums; and Ping An Insurance, one of the world’s biggest financial services companies. An October 2012 New York Times article which reviewed corporate and regulatory records indicated that the prime minister’s relatives controlled assets worth at least $2.7 billion.

As for Duan, she became one of the wealthiest women in China. She and Shum rationalized their good fortune. “We thought our wealth could foster social change. We were wrong,” Shum laments. Then the wheel of fortune turned. With the coming to power of President Xi in 2012, the “connections” dried up.

Shum and his wife divorced in 2015 and Shum left for England with their son. Two years later, the authorities came for Duan. She was “disappeared” from her grandiose Beijing office in 2017 and sentenced to life imprisonment for corruption. She has since contacted her ex-husband from her hidden jail, via telephone, just once.