The Son also Rises: nepotism doesn’t disappear in China, it just gets a promotion

The Son also Rises: nepotism doesn’t disappear in China, it just gets a promotion

Monday, 13 May, 2013, 12:00am

News›China

CHINA BRIEFING

Wang Xiangwei xiangwei.wang@scmp.com

The history of graft in China has come full circle amid reports of children of powerful officials stepping into their parents’ shoes

Throughout Chinese history, the expression ya nei originally meant palace guards but later referred generally to children of government officials. In traditional Chinese opera and drama, they are immortalised as the worst of the worst – vile, violent and corrupt. Dressed in silk and drooped in gold, ya nei roamed the streets, beating people for no particular reason or kidnapping young girls and forcing them to become concubines. They usually escape punishment thanks to their powerful fathers and relatives. Today, such characters may go by a different name, guan er dai – the second-generation government officials, or princelings, particularly those of top mainland leaders. While they may no longer go around beating people or abducting girls, they invariably take advantage of their parents’ power and influence to enrich themselves or their families. Judging by the rising number of reports in state media, the guan er dai are now using their nepotistic connections for what is termed “riding a rocket” – being promoted rapidly through government or party ranks to fill positions that, usually, have been vacated by their parents.Not surprisingly, such cases have not escaped the attention of the mainland’s feisty and tenacious internet community. In the latest example, as reported by the South China Morning Post yesterday, a 29-year-old deputy county chief in Jieyang, Guangdong, was demoted to a clerk after internet users exposed how his father, who held the post before him, may have had a hand in his son’s fast-track promotion.

At least three other cases in Hunan were exposed online during the past week.

Even state media have labelled such blatant cases of nepotism as nothing more than officials treating their positions as hereditary titles to be passed on to their children.

Riding the rocket is just the latest form of rampant official corruption permeating the Communist Party at a time when its new leadership, including President Xi Jinping, warn that it could lead to the party’s demise.

Precisely how to tackle graft involving the children of officials has become the main stumbling block to the party’s efforts to rid itself of graft. It doesn’t help that most cases of official corruption involve the spouses and children of corrupt officials.

A cursory look at how the children of officials have benefited from nepotism throughout the history of the People’s Republic makes interesting reading.

In the early years, when the country was recovering from years of civil war or fighting the Japanese, the guan er dai had little to show for themselves even though many attended elite schools and had enough to eat from special supplies while the rest of the country was short of food. The People’s Liberation of Army appeared to be their preferred choice of career.

They would later suffer dearly – for example, by being thrown out of their homes – after their parents were purged during the 10-year Cultural Revolution.

But, after Deng Xiaoping launched his policies of opening up and reform in the late 1970s, many children of officials joined their ordinary peers to seek places at universities at home and abroad.

In the early 1980s, well-connected children saw lucrative opportunities as the country made its painful transition from a planned economy to a market-based one. They would use their parents’ connections to buy goods at government-fixed prices and resell them at the higher market prices. Such rampant profiteering partly contributed to the public discontent that prompted massive demonstrations in the summer of 1989 and the subsequent bloody crackdown on June 4.

The political and commercial fortunes of the guan er dai declined once again following Deng’s decision to shut down some companies run by children of senior officials – including of his own son – and ban them from entering business.

But, after Deng put the economy back on track following his famous southern tour in 1992, the guan er dai returned with a vengeance, with many emerging as middlemen for Hong Kong and overseas companies looking to expand on the mainland.

After China started to reform its state-owned sector and float key state firms in Hong Kong, the offspring of officials landed positions at American and European banks where they used their parents’ influence to seek listing mandates.

The past decade, however, has presented even better money-making opportunities to privileged children to launch private equity funds and use their parents’ connections to invest in mainland firms at lower valuations, thus locking in handsome profits after their stock-market flotations.

One of the most high-profile examples was Winston Wen Yunsong , the son of former premier Wen Jiabao , who once managed a multibillion-US-dollar private equity fund. Shortly before his father’s retirement, Winston Wen was appointed chairman of state owned China Satellite Communications. Local and foreign reports put the Wen family’s wealth at US$2.7 billion.

There have been more reports that children of senior officials have been asked to quit their lucrative banking or private equity jobs and join state firms or government departments.

That probably helps explain the surge of reports about children of officials riding the family rocket to promotion.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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