China corruption trials risk erosion of party legitimacy

September 25, 2013 1:57 pm

China corruption trials risk erosion of party legitimacy

By Jamil Anderlini in Beijing

The criminal trials of two of China’s most notorious businesswomen have opened in Beijing and northern China just days after Bo Xilai, disgraced Communist party leader, was handed a life sentence for corruption and abuse of power. Gong Aiai, a former vice-president of a rural bank, is accused of buying fake identification to purchase dozens of properties in Beijing, while Ding Yuxin allegedly paid huge bribes to China’s former railway minister in exchange for billions of renminbi worth of contracts.As with the trial of Bo, whose downfall was partly triggered by his wife’s murder of a British businessman in November 2011, the two trials have transfixed the Chinese public with details of excess, greed and corruption.

They have also led some officials and analysts to question whether President Xi Jinping’s high-profile anti-corruption campaign is boosting government legitimacy or eroding it by exposing the scale of China’s corruption problem.

In her trial, which opened on Tuesday, Ms Ding, 58, admitted paying Rmb89m in bribes to officials, including former railway minister Liu Zhijun, who was handed a suspended death sentence for corruption in July.

Ms Ding started out as a semi-literate egg seller in northern China but thanks to her close ties to the railway minister she earned more than Rmb2bn in kickbacks by helping companies secure railway construction contracts worth nearly Rmb186bn.

Those contracts were equal to 7.5 per cent of the Rmb2.5tn that China invested in its railway system during Liu’s time as minister from 2004 until the start of 2011.

At her tribunal, Ms Ding denied state media reports she also arranged for numerous young women to have sex with the railway minister and spent millions of dollars developing television shows to provide a steady stream of young actresses for his pleasure.

Ms Gong, 49 – better known to the public by her nickname “house sister” – is alleged to have used four separate IDs to purchase more than 40 Beijing properties, including shops and apartments, with a total combined floor space of nearly one hectare and a value of Rmb395m.

She has denied the charges against her and said she did not know it was illegal to have more than one ID, according to state media reports from the court, which also began hearing her case on Tuesday.

The charges carry a maximum sentence of 10 years in prison but prosecutors have recommended Ms Gong serve just two and a half to three years for allegedly paying Rmb300,000 to buy IDs for her and her daughter to buy the Beijing properties.

Many online commentators and even state media have questioned where Ms Gong got the money to buy so many shops and apartments. The official Global Times newspaper has reported that she amassed her wealth using “loopholes in the rules regarding the transfer of state-owned assets and private lending”.

Ms Gong told the court all her money was earned legally, primarily in the coal industry, and that she also took loans from friends.

Some analysts say the exposure of so many corruption cases involving enormous sums and some of China’s most senior leaders is eroding confidence in the ruling party at the grassroots.

“In the past when people in the villages talked about corruption they usually contrasted the well-meaning central leaders in Beijing with the bad behaviour of local officials,” said Sally Sargeson, a China expert at Australia National University who has recently conducted research in the Chinese countryside.

“But the Bo Xilai trial in particular has eroded trust in the central authorities and at the local level we’re seeing increased cynicism combined with ever more incisive and persuasive jokes and rumours about China’s top leaders.”

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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