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Shanghai Pension Scandal: A Web of Business and Bribes

09-25 18:59 Caijing

The multi-billion yuan scandal that stretched from the mayor's office to the city's tollways is now reaching a peak as disgraced power brokers face courts in three regions.

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By the Caijing staff  

A tangled web of business cronies, nepotism and bribes is unraveling in Chinese courts as judges in three regions decide the fate of at least 30 fallen power brokers tied to the Shanghai Pension Fund Scandal. 

After more than a year of investigations, prosecutors are pressing separate cases against former Shanghai government and Communist Party officials in connection with an intricate scheme to illegally channel billions of yuan from the public fund and at least one state-run company into private interests, including real estate and tollways in China’s largest city. 

Shanghai business leaders and investors – including one of China’s richest men – are also facing charges. 

The trials began in June and picked up steam as China prepared for the National Day holiday week, which begins October 1, and the 17th Communist Party Congress in mid-October. 

The speed of the legal process underscores the central party’s highly touted efforts to root out corruption in government agencies and among its own ranks. 

Key figures in the scandal, which has led to a leadership overhaul in the Shanghai government, include the city’s former mayor and party chief Chen Liangyu and a well-connected businessman and billionaire named Zhang Rongkun, who was ranked China’s 16th richest person in 2005 by Forbes magazine. 

Chen was once considered a model for other Shanghai public officials. But he was detained in July on bribery, fraud and nepotism charges after being stripped of his high-level posts. His son Chen Weili also has been implicated. 

Sources told Caijing that investigators have linked Chen to bribes worth between 2.63 million and 4 million yuan.  

Meanwhile, Zhang has been in custody since July 2006 on bribery and other charges. Since his arrest, Zhang has apparently provided important evidence that prosecutors used to pursue charges against other business and government players. 

Others implicated in the scandal include Chen’s and Zhang’s party contacts, aides and business executives. Investigators found that two core platforms -- the public Shanghai Pension Fund and the state-owned Shanghai Electric Corp. – were illegally tapped for investment and deal-making cash. A cast of players ranging from public officials to business executives traded the public funds for power and favors. 

Caijing learned that among those charged with accepting bribes from Zhang were Zhu Junyi, former director of the Shanghai pension fund; Qin Yu, former deputy secretary of Shanghai’s Baoshan District; and Sun Luyi, former chief director of the party’s municipal office in Shanghai. 

Under the Chinese system for handling government corruption, a suspect can be investigated by party disciplinary officials as well as police before a government prosecutor takes the case to a judge. This system of “shuanggui,” or double regulations, affects party members who may be detained and interrogated before police take action. 

Investigations gathered steam in the summer of 2006. Chen’s successor, current Shanghai Mayor Han Zheng, told the Shanghai People’s Congress in a January report that investigators had uncovered seven instances of pension-fund embezzlement between 2002 and ’04 involving 3.45 billion yuan. The funds, he said, had been illicitly loaned through a trust to Zhang Rongkun, then president of tollway owner Fuxi Investment. Han also reported that all the borrowed money as well as interest – a total of 3.7 billion yuan – had been recovered. 

Investigators said Fuxi borrowed billions of yuan from the Shanghai branch of the Industrial and Commercial Bank of China (ICBC), which managed the pension fund. The cash allowed Fuxi to gain control of some 200 kilometers of Shanghai tollways, including sections of the Huhang and the Jiajin “super highways.” The deals helped Zhang earn the nickname “the highway baron.” 

Zhang’s company was also involved in the shady restructuring of Shanghai Electric in 2004, investigators said. Fuxi allegedly borrowed money from the target company and then used that cash to buy a majority stake in the same company. The next year, the revamped electric company’s initial public offering on the Hong Kong exchange raised even more cash. 

Several investment firms and individuals with stakes in Shanghai Electric fell into disrepute with Zhang as details of a web of illegal financial schemes came to light.  

Meanwhile, Chen’s alleged wrongdoing has been connected to a network of officials who used their access to government funds to invest in the hot market for real estate in Shanghai. For example, Wang Zheng served as vice chairman of the Huawen Group, which allegedly borrowed 1 billion yuan from a Shanghai public annuity fund but, according to Caijing sources, returned the money after the pension fund scandal erupted. 

Investigators found that Huawen took over a local property owner named New Huangpu Group in two transactions, including the purchase of a minority stake from a state agency. The deal gave Wang a platform for extending Huawen’s real estate ambitions. 

Chen’s role in the web of bribery and embezzlement is expected to become clear after his trial begins. A date has not been announced. 

Some information of the ex-mayor’s activities was released in July by the official Xinhua news agency, which interviewed Associate Secretary of the party’s Central Commission Xia Zanzhong. The report said Chen is accused of six major crimes: 

·       Endangering the pension fund by funneling money from the Shanghai pension bureau to illegal entrepreneurs and their related companies. 

·       Helping business contacts illegally acquire rights to buy shares in state-owned enterprises, resulting in substantial losses to the state. 

·       Abusing his position to benefit relatives, friends and aides. He’s charged with bending rules to win city approvals for projects, city fund allocations and business contracts. He’s also accused of issuing illegal decisions about land use. 

·       Nepotism, by helping relatives illegally profit from business operations. 

·       Using his position to secure sexual favors.  

·       Protecting aides and associates who committed serious violations of party discipline rules.   

Xia said the scandal and the official investigation should serve as a warning to other officials against using party and government positions for personal gain. Chen’s “behavior totally betrayed the party principles and ideals that a Communist Party member and leading official should have,” Xia said. “His outlook on the world, life and values gravely degenerated.’ 

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