Chinese tycoon Liu Han testified in court that he owed a chunk of his fortune to deal-making with government officials more than a decade ago, shedding light on a corruption probe that has roiled the highest echelons of power in China.

Tycoon Liu Han Testifies on Past State-Brokered Deals in Sichuan Province

Transcript Offers Rare Look at How Investments Were Allegedly Structured


May 8, 2014 12:24 p.m. ET


Liu Han, center, denied charges he ran a mafia-like organization. Xinhua/Zuma Press

SHANGHAI—A Chinese tycoon shed fresh light on a corruption probe that has roiled the highest echelons of power for more than a year, saying during his trial that he owed a chunk of his fortune to deal making with government officials.

Denying charges in court last month that he ran a violent mafia-like organization, Liu Han said his mining and industrial conglomerate, Sichuan Hanlong Group, is a legitimate enterprise that supported national policy, according to a transcript of his statement to the court reviewed by The Wall Street Journal.

In the transcript, Mr. Liu said that more than a decade ago he made investments—valued initially at around $150 million—brokered by top Sichuan province policy makers into government-controlled businesses for mutual benefit.

Sichuan province was then led by a Communist Party figure on the rise, Zhou Yongkang, who has since seen many associates jailed in a sweeping corruption probe.

Mr. Liu’s testimony provides a rare peek into how deals in Sichuan allegedly were structured.

Variously defiant and boastful, according to the transcript of the closed-door proceedings, Mr. Liu denied the criminal allegations. The magnate alleged the charges were “manufactured” to frame him and he said that after his arrest in March 2013, he was tortured in three Chinese prisons. Chinese government bureaus didn’t respond to questions about Mr. Liu or the corruption investigation. Authorities have repeatedly said no one is above the law.

Mr. Liu asked the court, “Are these orders from above?”

The sudden arrests a year ago of some of southwestern China’s wealthiest and most charismatic private tycoons—including Mr. Liu—coincided with the downfall on corruption charges of several government officials based there. Though government authorities provided little explanation for detaining the entrepreneurs, the targeting of people who became extraordinarily wealthy around the time Mr. Zhou headed the Communist Party in Sichuan suggested to outside observers and many Chinese that the once-senior politician was in trouble.

The anticorruption drive appeared to kick off in Sichuan in late 2012, just as Xi Jinping took the helm of the party, timing that injected a politicized tinge to a process that enjoys popular support but has also left officials and businesspeople uneasy about who might be targeted.

Mr. Liu’s previously unreleased testimony appears to clarify the origins of his government links—and the possible reason for his subsequent undoing. The testimony doesn’t specifically name the former politician Mr. Zhou but Mr. Liu makes clear he dealt with the province’s senior leaders—lingdao in Chinese—who reported to the party chief. The tycoon said that he made millions trading commodity futures, and that senior authorities in Sichuan negotiated deals for Mr. Liu to pump cash into ailing state-run companies to defuse protests by unpaid workers and in return gave him ownership stakes.

Near the end of 2002, government records show a Sichuan court transferred to Mr. Liu a stake it valued at $13 million in a struggling local chemical producer,Sichuan Jinlu Group Co. 000510.SZ +6.60% Mr. Liu told the court that around the same time he pumped cash into Jinlu, authorities leaned on him for investment in government-run producers of wine, pharmaceuticals, hydropower and natural gas, plus a resort called Four Girls Mountain. Government records valued those transactions over $130 million. “These were all very urgent projects for the government,” Mr. Liu said at his trial, according to the transcript. “Some reports said there were 200,000 protesting on the street. So the city leaders asked me to help. To be honest I wasn’t interested. But in order to help out the government I agreed. “Still, Mr. Liu said the deals were done on business terms, not to buy influence. “I never had any money-power deal with government leaders,” he said.

Mr. Zhou’s distinction as Sichuan’s top official from 1999 to 2002 was to blend tough policing and improved social services to limit unrest by workers then being sidelined by China’s transition to a market economy from central planning. In late 2002, the party promoted Mr. Zhou into its central leadership.

The two had a “good relationship,” one of Mr. Liu’s top lieutenants said this week. “Zhou was looking out for a long time for Mr. Liu,” he said.

The roundup of people linked to Mr. Zhou, including a son and other family members, began shortly after he retired in late 2012 as one of China’s most senior leaders, and it appears to define the anticorruption drive. Mr. Zhou hasn’t been accused of wrongdoing. He and has family couldn’t be reached to comment.

Mr. Liu’s arrest in March 2013 dealt a blow to his growing international profile, helped by his bids over $2 billion for mining investments in Australia, Africa and the U.S. Chinese prosecutors later charged that he was the kingpin of a criminal gang that for two decades engaged in racketeering, gambling, assault, extortion, gunrunning and murder. According to the testimony, Mr. Liu exclaimed in court, “Overnight, I became the leader of a mafia-style criminal gang charged with over 10 crimes!” The three-week trial grouped 36 defendants, including members of Mr. Liu’s family. It wrapped up April 19; verdicts are pending. Details of the court proceedings haven’t been made public. Mr. Liu, jailed since March last year, can’t be reached. He vehemently denied participating in organized crime, according to multiple sources, including tersely worded notices issued by the court.

As measures of the trial’s sensitivity, it was held 750 miles from Mr. Liu’s Sichuan base in Hubei province’s Xianning People’s Intermediate Court, which was surrounded by a phalanx of police. Only bits of coverage have appeared in China’s major media and Internet censors quickly deleted the text of a rebuttal by Mr. Liu’s lawyer of the indictment after it appeared.

“I’m responsible for an organization, an organization under the party and government’s leadership with normal operations,” Mr. Liu testified, according to the transcript. “How could normal operation activities be mafia? The facts—including the prosecutor’s evidence—show that we are not a so-called front business to breed gangsterism.”

In his defense, Mr. Liu challenged the character of the prosecution’s star witness, a once-trusted employee named Sun Xiaodong. Mr. Liu said that he hired Mr. Sun as his chauffeur in the mid-1990s and eventually cut him into his businesses—for a time Mr. Sun was president of Hanlong—but the man later turned on him. Mr. Sun wasn’t reachable to comment.

The text illustrated Mr. Liu’s bravado. He noted that while amassing an initial fortune in futures trading, “I never lost.” He told the court that a parade of his cars—Bentleys, Ferraris and Jaguars—would be “spectacular.”

But the case appeared to take its toll on him. Two days before the trial concluded, court photos published in Chinese media showed Mr. Liu crying uncontrollably.

The Chinese prosecutors aren’t the first to identify Mr. Liu as a rough character. A former Hanlong executive in 2012 called Mr. Liu a frightening “warlord” from China’s “underworld” during an Australian court case, which didn’t implicate Mr. Liu or his business. In Mr. Liu’s Sichuan hometown of Guanghan, residents describe Mr. Liu as a member of a traditional pao-ge brotherhood, saying he is feared and admired.

Over the years, Mr. Liu said during his testimony, he and his family members were victims of thugs, kidnapping, shootings and explosions. But to dispute allegations he participated in a murder, Mr. Liu said none of those threats drove him to violence, so how could he kill a person “who wasn’t my enemy at all?”


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 (, 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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