James T. Areddy in Shanghai and James V. Grimaldi in Washington
The Wall Street Journal
December 27, 2012
When the Communist Party elite gathered last month to anoint China’s new leaders, seven of the nation’s richest people occupied coveted seats in Beijing’s Great Hall of the People.
Wang Jianlin of Dalian Wanda Group, worth an estimated $10.3 billion and the recent buyer of U.S. cinema chain AMC Entertainment Holdings, took one of the chairs. So did Liang Wengen, with an estimated fortune of $7.3 billion, whose construction-equipment maker Sany Heavy Industry Co. 600031.SH +2.31% competes with Caterpillar Inc. CAT -0.01% Zhou Haijiang, a clothing mogul with an estimated $1.3 billion family fortune, also had a seat. As members of the Communist Party Congress, all three had helped endorse the new leadership.
For years the Communist Party in China filled key political and state bodies with loyal servants: proletarian workers, pliant scholars and military officers. Now the door is wide open to another group: millionaires and billionaires.
An analysis by The Wall Street Journal, using data from Shanghai research firm Hurun Report, identified 160 of China’s 1,024 richest people, with a collective family net worth of $221 billion, who were seated in the Communist Party Congress, the legislature and a prominent advisory group called the Chinese People’s Political Consultative Conference.
China’s legislature, called the National People’s Congress, may boast more very rich members than any other such body on earth. Seventy-five people with seats on the 3,000 member congress appear on Hurun Report’s 2012 list of the richest 1,024, which Hurun says it calculates using public disclosures and estimates of asset values. The average net worth of those 75 people is more than $1 billion.
By comparison, the collective wealth of all 535 members of the U.S. Congress was between $1.8 billion and $6.5 billion in 2010, according to the most recent analysis of lawmakers’ asset disclosures by the nonpartisan Center for Responsive Politics.
China has been grappling of late with political and social tension over its murky policy-making process and its growing income disparity. The party has been especially sensitive this year during the leadership change about revelations about fortunes amassed by the offspring of political leaders, known as “princelings,” by leaders of state businesses and by other politically connected people. Many ordinary Chinese blame high prices, poor quality food and pollution on guanshang guojie—meaning, roughly, officials in bed with businessmen.
As political families move into business, private tycoons are entering the political sphere—although precisely what is driving that isn’t clear. Other Chinese business leaders have cultivated relationships with party chiefs without entering politics themselves. But the Journal’s analysis showed that people appearing on Hurun’s rich list who also served in the legislature increased their wealth more quickly than the average member of the list.
Seventy-five people who appeared on the rich list from 2007 to 2012 served in China’s legislature during that period. Their fortunes grew by 81%, on average, during that period, according to Hurun. The 324 list members with no national political positions over that period saw their wealth grow by 47%, on average, according to an analysis the firm ran for the Journal.
It is difficult to pinpoint precisely how holding political positions advances the business interests of the wealthy, if at all. They may do better because of their political positions, or, conversely, they may owe their positions to their business success. There are a multitude of reasons for Chinese companies to be on good terms with political leaders. Chinese companies routinely do business with the government, borrow money from state banks, even negotiate their tax bills with local authorities.
The business card of Mr. Zhou, the 46-year-old president of family owned Hongdou Group Co., lists 10 political positions. The clothing magnate said in an interview that his political positions give him opportunities to mix with “diverse elites”—businessmen, politicians and military officers.
“It makes me feel good to participate in this kind of exclusive group,” he said. Every time he gets a chance, he said, he prods state leaders to cut taxes, noting that he personally pressed Premier Wen Jiabao to extend technology tax breaks to firms building brands. It is unclear whether such tax breaks were extended.
In the days of Chairman Mao Zedong, capitalists were considered enemies of the state. Some business owners were persecuted and most enterprises became government property.
That changed in the 1980s and in the early 1990s when paramount leader Deng Xiaoping was said to have declared that “to get rich is glorious.” A 2002 constitutional amendment established that the Communist Party henceforth would consider valid the contributions of private enterprise, therefore providing a place for private entrepreneurs in the party system.
These days even lesser-known multimillionaires such as property developer Shi Yingwen of Guangxi Ronghe Co., shirt magnate Li Rucheng of Youngor Group Co. and wig queen Zheng Youquan of Henan Rebecca Hair Products Inc.600439.SH -0.46% match Chinese mayors and generals in political rank. Self-made men and women serve in the legislature alongside party-appointed chairmen of state oil companies and banks.
China’s National People’s Congress bears little resemblance to its U.S. counterpart. Legislators aren’t popularly elected but are nominated by party institutions, which sometimes vote internally on nominees. Small groups of legislators write laws in consultation with top party officials. The broader legislature invariably passes them.
Political analysts sometimes describe China’s legislative seats as ceremonial because of the limited power of officeholders. Nevertheless, Dow Jones Watchlist, a sister publication of the Journal that provides financial institutions with a global database of government officials, characterizes more than 150 people on Hurun’s Rich List as “politically exposed persons” under international standards. Global anti-money-laundering conventions call on international banks to scrutinize transactions involving such individuals, their families and close associates.
Hongdou Group’s Mr. Zhou was invited into the party congress before his father retired from the legislature in 2008. Over the past 30 years, his family has gobbled up farmland near Wuxi to expand the company. The facilities now include more than 100 Hongdou-owned factories, including one of Asia’s biggest suit factories—and a hall honoring Communist leaders.
Hongdou was the first private company in China to win approval to launch a financing arm, and top party officials have supported its industrial push into Cambodia. Party leaders have adorned Zhongnanhai, the party’s Beijing leadership compound, with trees from Hongdou’s horticultural division, bolstering its claims that the plants provide therapeutic benefits.
In conversation, Mr. Zhou drops the names of top leaders, including Premier Wen, incoming president Xi Jinping and current President Hu Jintao. A quote from Mr. Wen adorns a full wall of Hongdou’s headquarters. Mr. Zhou says of his political activity: “I’m just trying to act as a representative for private entrepreneurs.”
Guo Guangchang, another member of the National People’s Congress, spent 20 years building China’s biggest private financial conglomerate, Shanghai-based Fosun Group. His fortune is estimated at $2 billion.
In March, he met with Mr. Xi, who was named China’s next leader last month. He pressed for expanded protection in China’s courts for insurers, more government investments into private-equity firms and increasing the scope of lending by nonbanks, according to a summary of his presentation on the company’s website. “Guo Guangchang expressed hope for more substantive initiatives in the liberalization of financial services and in reducing the tax burden of enterprises and individuals,” the website said.
Although it isn’t clear whether Mr. Guo’s efforts led to official changes, the fact that state media reported him airing views directly to Mr. Xi suggests that officials looked upon them favorably.
Mr. Guo and more than a dozen politically connected business leaders contacted by the Journal, including those mentioned in this story, either declined to comment on their government posts or didn’t respond to requests for comment. Questions about the political activities of the wealthy sent by the Journal to the National People’s Congress and other Chinese government and party organizations elicited no response.
Beginning as a tailor’s apprentice for his father in the 1970s, Gao Dekang built an apparel business and an estimated net worth of $2.2 billion. He joined the National People’s Congress in 2003. A year later, China’s foreign ministry certified jackets made by his company, Bosideng International Holdings Ltd., 3998.HK -2.54% as “national diplomatic gifts.” Russia’s Vladimir Putin was one of the foreign dignitaries to receive one.
Mr. Gao has hosted President Hu at his home, according to his authorized biography. Bosideng’s latest annual report says the company received “unconditional government grants” of about $3.9 million in the year ended March 31, which it said reflected its contributions to the development of local economies.
Chinese People’s Political Consultative Conference, or CPPCC, is an advisory council to the Communist Party and the legislature. With about 2,200 members, it is intended to be representative of China’s overall population, including those who don’t belong to the party. In practice, its function is to support government initiatives.
The CPPCC is becoming more like a Chinese version the U.K.’s House of Lords—weaker than the British version but richer. Seventy-four members appeared on Hurun’s rich list in 2012. The average wealth of those 74 was about $1.45 billion.
In a recent interview with the Journal, one CPPCC member criticized the influx of business people, saying she had witnessed “shameless” appeals by CPPCC members to Mr. Xi, China’s incoming president. At a small gathering in March, she said, a media tycoon and an infrastructure developer had pressed Mr. Xi to use his muscle to fix their business problems.
Member Chen Siqiang is the chief executive and controlling shareholder of New Oriental Energy & Chemical Corp., NOEC 0.00% a fertilizer company based in Henan. In late 2010, the company, whose shares were then listed in the U.S. on the Nasdaq Stock Market, faced a cash squeeze, according to a filing made to the Securities and Exchange Commission at that time. In the filing, Mr. Chen asserted: “I will also use my political influence as a member of the National Committee of CPPCC to coordinate with government agencies and financial institutions to enforce government support.”
About three months later, New Oriental announced the government in its home region had arranged $3.3 million in new loans. Nasdaq delisted New Oriental in 2011 after its capital fell below required thresholds.
The way political appointments are made is a murky business in China, and the process can involve currying favor with more-senior officials. In recent years, prosecutors in China have accused various officials of bribing their way into government positions and have jailed some of them for such activity. None of the wealthy individuals named in this story has been accused of such activities.
A Shanghai-based consultant said in recent interviews with the Journal that securing an appointment can involve a sophisticated campaign. He said he had devised and executed a “five-year plan” to try to gain political positions for an Internet-game tycoon. “Most people think you just have to bribe them, but it is actually quite subtle,” he said about efforts to persuade government officials.
In 2007, the consultant prepared a 14-page political primer for his client and mapped alliances between certain Beijing officials and the provincial government. The consultant said he added evidence to the company’s website that it was a “good citizen” that paid taxes and donated money. He said he staged a fake Communist Party meeting at the company in order to take photos.
The consultant hosted a dinner for the assistant to a senior Beijing official. During a foot massage, he said, the secretary hinted that a modest Chinese painting in traditional style might make an acceptable gift to the boss. The consultant said he bought one for around $3,000 and sent it anonymously to the official’s assistant in Beijing. He mailed the certificate of authenticity separately to make it clear the gift was from his client.
His client was hoping to be appointed to the Communist Party Congress. In the end, he got a lesser post: a seat in a provincial CPPCC. But in the process, the consultant said, he got potentially valuable information about provincial government plans for an economic zone and technology subsidies, which the consultant claimed were worth more than the campaign’s $320,000 cost.
Mr. Zhou, the clothing magnate, concedes that some people buy their way into power but calls such episodes “isolated incidents.” He says his fellow entrepreneurs are joining political bodies “to keep pace with the direction for the country’s development. If what I’m doing complies with the government principles, then every government official will support me.”
