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| Party leader Hu Jintao and the new members of the Politburo in 2007 |
SHANGHAI — The
Hollywood studio DreamWorks Animation recently announced a bold move to crack China’s tightly protected film industry: a
$330 million deal to create a Shanghai animation studio that might one day
rival the California shops that turn out hits like “Kung Fu Panda” and “The
Incredibles.”
What DreamWorks did
not showcase, however, was one of its newest — and most important — Chinese
partners: Jiang Mianheng, the 61-year-old son of Jiang Zemin, the former
Communist Party leader and the most powerful political kingmaker of China’s
last two decades.
The younger Mr. Jiang’s coups have included ventures with Microsoft
and Nokia and oversight of a clutch of state-backed investment vehicles that
have major interests in telecommunications, semiconductors and construction
projects.
That a dealmaker like Mr. Jiang would be included in an undertaking
like that of DreamWorks is almost a given in today’s China. Analysts say this
is how the Communist Party shares the spoils, allowing the relatives of senior
leaders to cash in on one of the biggest economic booms in history.
As the scandal over Bo Xilai continues to reverberate, the authorities
here are eager to paint Mr. Bo, a fallen leader who was one of 25 members of
China’s ruling Politburo, as a rogue operator who abused his power, even as his
family members accumulated a substantial fortune.
But evidence is mounting that the relatives of other current and
former senior officials have also amassed vast wealth, often playing central
roles in businesses closely entwined with the state, including those involved
in finance, energy, domestic security, telecommunications and entertainment.
Many of these so-called princelings also serve as middlemen to a host of global
companies and wealthy tycoons eager to do business in China.
“Whenever there is something profitable that emerges in the economy,
they’ll be at the front of the queue,” said Minxin Pei, an expert on China’s
leadership and professor of government at Claremont McKenna College in
California. “They’ve gotten into private equity, state-owned enterprises,
natural resources — you name it.”
For example, Wen Yunsong, the son of Prime Minister Wen Jiabao, heads
a state-owned company that boasts that it will soon be Asia’s largest satellite
communications operator. President Hu Jintao’s son, Hu Haifeng, once managed a
state-controlled firm that held a monopoly on security scanners used in China’s
airports, shipping ports and subway stations. And in 2006, Feng Shaodong, the
son-in-law of Wu Bangguo, the party’s second-ranking official, helped Merrill
Lynch win a deal to arrange the $22 billion public listing of the giant state-run
bank I.C.B.C., in what became the world’s largest initial public stock
offering.
Much of the income earned by families of senior leaders may be
entirely legal. But it is all but impossible to distinguish between legitimate
and ill-gotten gains because there is no public disclosure of the wealth of
officials and their relatives. Conflict-of-interest laws are weak or
nonexistent. And the business dealings of the political elite are heavily
censored in the state-controlled news media.
The spoils system, for all the efforts to keep a lid on it, poses a
fundamental challenge to the legitimacy of the Communist Party. As the state’s
business has become increasingly intertwined with a class of families sometimes
called the Red Nobility, analysts say the potential exists for a backlash
against an increasingly entrenched elite. They also point to the risk that
national policies may be subverted by leaders and former leaders, many of whom
exert influence long after their retirement, acting to protect their own interests.
Chinese officials and their relatives rarely discuss such a delicate
issue publicly. The New York Times made repeated attempts to reach public
officials and their relatives for this article, often through their companies.
None of those reached agreed to comment on the record.
DreamWorks and Microsoft declined to comment about their relationship
with Mr. Jiang.
A secret United
States State Department cable from 2009, released two years ago by the
WikiLeaks project, cited reports that China’s ruling elite had carved up the
country’s economic pie. At the same time, many companies openly boast that
their ties to the political elite give them a competitive advantage in China’s
highly regulated marketplace.
A Chinese sportswear company called Xidelong, for example, proudly
informed some potential investors that one of its shareholders was the son of
Wen Jiabao, according to one of the investors. (A private equity firm, New
Horizon, that the son, Wen Yunsong helped found invested in the company in
2009, according to Xidelong’s Web site.) “There are so many ways to partner
with the families of those in power,” said one finance executive who has worked
with the relatives of senior leaders. “Just make them part of your deal; it’s
perfectly legal.”
Worried about the appearance of impropriety and growing public disgust
with official corruption, the Communist Party has repeatedly revised its ethics
codes and tightened financial disclosure rules. In its latest iteration, the
party in 2010 required all officials to report the jobs, whereabouts and
investments of their spouses and children, as well as their own incomes. But
the disclosure reports remain secret; proposals to make them public have been
shelved repeatedly by the party-controlled legislature.
The party is unlikely to move more aggressively because families of
high-ranking past and current officials are now deeply embedded in the economic
fabric of the nation. Over the past two decades, business and politics have
become so tightly intertwined, they say, that the Communist Party has
effectively institutionalized an entire ecosystem of crony capitalism. “They
don’t want to bring this into the open,” said Roderick MacFarquhar, a China
specialist at Harvard University. “It would be a tsunami.”
Critics charge that powerful vested interests are now strong enough to
block reforms that could benefit the larger populace. Changes in banking and
financial services, for instance, could affect the interests of the family of Zhu
Rongji, China’s prime minister from 1998 to 2003 and one of the architects of
China’s economic system. His son, Levin Zhu, joined China International Capital
Corporation, one of the country’s biggest investment banks, in 1998 and has
served as its chief executive for the past decade.
Efforts to open the power sector to competition, for example, could
affect the interests of relatives of Li Peng, a former prime minister. Li
Xiaolin, his daughter, is the chairwoman and chief executive of China Power
International, the flagship of one of the big five power generating companies
in China. Her brother, Li Xiaopeng, was formerly the head of another big power
company and is now a public official.
“This is one of the most difficult challenges China faces,” said Mr.
Pei, an authority on China’s leadership. “Whenever they want to implement
reform, their children might say, ‘Dad, what about my business?’ ”
There
are also growing concerns that a culture of nepotism and privilege nurtured at
the top of the system has flowed downward, permeating bureaucracies at every
level of government in China. “After a while you realize, wow, there are
actually a lot of princelings out there,” said Victor Shih, a China scholar at
Northwestern University near Chicago, using the label commonly slapped on
descendants of party leaders. “You’ve got the children of current officials,
the children of previous officials, the children of local officials, central
officials, military officers, police officials.We’re talking about hundreds of
thousands of people out there — all trying to use their connections to make
money.”
To shore up
confidence in the government’s ability to tackle the problem, high-ranking
leaders regularly inveigh against greedy officials caught with their hand in
the till. In 2008, for instance, a former Shanghai Party secretary, Chen
Liangyu, was sentenced to 18 years in prison for bribery and abuse of power.
One of his crimes was pressing businessmen to funnel benefits to his close
relatives, including a land deal that netted his brother, Chen Liangjun, a $20
million profit.
But exposés in the foreign press — like the report in 2010 that Zeng
Wei, the son of China’s former vice president Zeng Qinghong, bought a $32
million mansion in Sydney, Australia — are ignored by the Chinese-language news
media and blocked by Internet censors.
Allegations of bribery and corruption against the nation’s top leaders
typically follow — rather than precede — a fall from political grace. Mr. Bo’s
downfall this spring, for instance, came after his former police chief in
Chongqing told American diplomats that Mr. Bo’s wife, Gu Kailai, had ordered
the murder of Neil Heywood, a British businessman, in a dispute over the
family’s business interests.
Evidence has surfaced of at least $160 million in assets held by close
relatives of Bo Xilai, and the authorities are investigating whether other
assets held by the family may have been secretly and illegally moved offshore.
Wen Jiabao, the prime minister, responded by demanding a more forceful
crackdown on corruption. Without naming Mr. Bo by name, People’s Daily, the
official Communist Party newspaper, denounced fortune seekers who stain the
party’s purity by smuggling ill-gotten gains out of the country.
Some scholars argue that the party is now hostage to its own unholy
alliances. Cheng Li, an expert on Chinese politics with the Brookings
Institution in Washington, said it would be difficult for the Chinese
government to push through major political reforms aimed at extricating
powerful political families from business without giving immunity to those now
in power.
And with no independent judiciary in China, he said, party leaders
would essentially be charged with investigating themselves. “The party has said
anticorruption efforts are a life-and-death issue,” Mr. Li said. “But if they
want to clean house, it may be fatal.”
Chinese tycoons have also been quietly welcomed into the families of
senior leaders, often through secret partnerships in which the sons, daughters,
spouses and close relatives act as middlemen or co-investors in real estate
projects or other deals that need government approval or backing, according to
investors who have been involved in such transactions.
Moreover, China’s leading political families, often through
intermediaries, hold secret shares in dozens of companies, including many that
are publicly listed in Hong Kong, Shanghai and elsewhere, according to
interviews with bankers and investment advisers. Lately, the progeny of the political
elite have retooled the spoils system for a new era, moving into high-finance
ventures like private equity funds, where the potential returns dwarf the
benefits from serving as a middleman to government contracts or holding an
executive post at a state monopoly.
Jeffrey Zeng, the son of the former Politburo member Zeng Peiyan, is a
managing partner at Kaixin Investments, a venture-capital firm set up with two
state-owned entities, China Development Bank and Citic Capital. Liu Lefei, the
son of another Politburo member, Liu Yunshan, helps operate the $4.8 billion
Citic Private Equity Fund, one of the biggest state-managed funds. Last year,
Alvin Jiang, the grandson of former president Jiang Zemin, the former Communist
Party leader and president, helped establish Boyu Capital, a private equity
firm that is on its way to raising at least $1 billion.
Most recently, with the Communist Party promising to overhaul the
nation’s media and cultural industries, the relatives of China’s political
elite are at the head of the crowd scrambling for footholds in a new frontier.
The February announcement of the deal between DreamWorks and three
Chinese partners, including Shanghai Alliance Investment, was timed to coincide
with the high-profile visit to the United States of Xi Jinping, China’s vice
president and presumptive next president. The news release did not mention that
Shanghai Alliance is partly controlled by Jiang Zemin’s son Jiang Mianheng. A
person who answered the telephone at the Shanghai Alliance office here declined
to comment.
Zeng Qinghuai, the brother of Zeng Qinghong, China’s former vice
president, is also in the film business. He served as a consultant for the
patriotic epic “Beginning of the Great Revival.” The film exemplified the
hand-in-glove relationship between business and politics. It was shown on
nearly 90,000 movie screens across the country. Government offices and schools
were ordered to buy tickets in bulk. The media was banned from criticizing it.
It became one of last year’s top-grossing films.
Scholars describe the film industry as the new playground for
princelings. Zhang Xiaojin, director of the Center of Political Development at
Tsinghua University, said, “There are cases where propaganda department
officials specifically ask their children to make films which they then
approve.”
Zhao
Xiao, an economist at the University of Science and Technology in Beijing,
said, “They are everywhere, as long as the industry is profitable.”
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