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 By staff reporters Wang Heyan, Zhao He Juan and Ji Minhua

The Shanghai pension fund scandal that came to light in the summer 2006 involved some 30 people including major political figures, senior managers at state-owned enterprises and wealthy businessmen. After a lengthy process spanning nearly two years of investigations and hearings, the culmination was reached March 25, the opening day of trial for Chen Liangyu.

The previous afternoon, the 61-year-old Chen was brought under guard from Beijing’s Qincheng Prison to a courtroom Tianjin. The judicial proceedings came 18 months after he fell from power for his involvement in the pension scandal and was removed from public sight after serving as a prestigious member of the national Politburo and secretary-general of the Communist Party in Shanghai.

As the most senior official among those implicated in the far-reaching scandal, Chen’s trial marked the beginning of closure for a deep scar of corruption that rocked China.

(Chen Liangyu)

The venue for Chen’s trial was in the Tianjin No. 2 People’s Intermediate Court. It can seat only about 30 people, yet some seats in the public gallery were empty. Those attending were mainly from the Central Discipline Inspection Commission, the Supreme People’s Procuratorate and the Supreme Court. Also in the courtroom were officials from the Jilin Province procuratorate, whose members of an anti-corruption bureau were first assigned to investigate Chen, before the case was later transferred to the second procuratorate division in Tianjin for charges.

Trial spectators said there were no journalists nor any members of the accused’s family. Chen’s wife, Huang Yiling, came to the courthouse but was not allowed to enter the trial room, since she has also been implicated in the crimes.

Chen took his place on the defendant’s stand at nine o’clock in the morning in a dark blue suit, without tie. Now removed from his position of power, he still cut a spirited figure, despite a touch of gray at the temples.

The prosecution set out charges under three categories: accepting bribes, abuse of power, and dereliction of duty. There were four charges of taking more than 2.39 million yuan in bribes. He also faced two counts of abuse of power and a single charge of dereliction of duty.

By five o’clock that afternoon, the process was complete. The head of a panel of judges announced a recess but did not issue a verdict. His possible sentence was uncertain. Among others tied to the scandal who have already been tried, however, three previously received sentences of life in prison.

The next day, Chen was escorted back to Qincheng Prison.

One person in the court described Chen as calm and in good spirits through the proceedings. He also cooperated with the prosecutor when some aspects of the charges were laid against him. The general thrust of the defense set out by his lawyer was a plea for clemency, based on the argument that complex, causal factors were behind the defendant’s actions.

Bribes and Perks

Chen was the most senior official ever to be tried at the Tianjin court, and only the second member of the Politburo to be tried by any court for criminal corruption since the late 1970s. The other was former Beijing Party Secretary Chen Xitong.

The prosecution charged Chen with accepting bribes, personally or through his family, mainly in return for assisting with approvals for development projects, allocating government funds, arranging business cooperation partners, intervening in land planning, and awarding official promotions.

The four specific charges of bribe-taking were: accepting bribes on five occasions from Hong Kong businessman Yang Songcai valued at HK＄ 230,000 and 100,000 yuan. In return, Chen used his official powers to assist Yang’s Hong Kong Caijie Investment Co. Ltd. to profit from an investment in the Shanghai Minjiang Hotel renovation project.

Caijing learned that Yang was one of a number of Hong Kong businessmen who came to Shanghai in the early 1990s seeking commercial opportunities. At that time, Chen was governor of the city’s Huangpu District, which was undergoing urban renewal. Many old buildings were being forcibly dismantled and their occupants resettled. The Minjiang Hotel was one such building. With assistance from Chen, Yang had acquired a stake in the hotel before demolition, which helped him later receive 21 million yuan through an urban renewal scheme.

The second charge of bribe-taking was that Chen had approved naming his wife Huang to a post at the Shanghai MWB Transformer and Sensor Factory, a company where Qiu Changqing was general manager. Although she didn’t actually work, she earned “wages” from Qiu totaling more than 430,000 yuan between 1996 and 2006.

The third charge was that Chen had asked former board chairman for Shanghai Shenhua Group, Yu Zhifei, to appoint Chen’s son Chen Weili as a deputy director at the Shanghai Shenhua Football Club. The son got a handsome salary, but didn’t work. Yu arranged a company credit card that Chen Weili used for personal expenses. For these perks, the bribes came to 352,000 yuan. In return, Yu’s company received fiscal support from the Shanghai municipal budget to the tune of 42.38 million yuan.

(Yu Zhifei)

The fourth charge was that Chen agreed to let Wu Minglie, a former CEO of the Shanghai New Huangpu Group, arrange an apartment trade-up for Chen’s father, Chen Genghua. The difference in value between the new and old apartments was more than 930.000 yuan. Also, members of Chen’s family traveled abroad on trips arranged by Wu, costing public coffers 342,000 yuan.

In the third of these four charges, where it was claimed Yu paid 321,000 yuan to Chen’s son, the prosecution alleged that 100,000 yuan should be considered solicited bribes. Under Chinese law, soliciting bribes carries a more severe punishment than taking bribes.

In court, Chen’s lawyer contested the allegations that the father solicited bribes from Yu before the son got a company credit card.

A court spectator told Caijing that evidence presented in court showed that after the son was appointed to the football club position, Yu once invited Chen to dinner and paid for the meal with a company credit card. Chen asked Yu whether his son had a similar card. Yu subsequently arranged for the son to receive such a credit card, which the latter happily accepted. The lawyer contended Chen merely spoke a few words -- an act he said was insufficient to be considered a solicitation.

Chen also told the court he was merely asking whether his son had such a card, and he meant nothing more. This was one of the few comments Chen offered during the court proceedings.
　　
Dereliction of Duty

The prosecution also claimed Chen used his official power to help his younger brother, Chen Liangjun, earn enormous profits from land deals. This crime was prosecuted as dereliction of duty, enabling the sibling to make a lot of money illegally.

Chen is the eldest of three brothers, while 53-year-old Chen Liangjun is the youngest. A senior cadre in the Shanghai municipal government says Chen Liangjun did not particularly resemble his older brother in appearance or personality, and was not particularly warm toward people. He took a few stabs at business, including a restaurant, but none succeeded. He later worked under Zhou Zhengyi, a private businessman involved in Shanghai’s real estate sector, from whom he learned about land and stock speculation.

Between 2002 and ’03, Chen Liangjun wanted to buy land in Gaojing Town, in Shanghai’s Baoshan District. He approached senior members of the Baoshan district government on several occasions for assistance. They, in turn, asked Chen to give a ruling on the matter. The older brother then approved the deal and allegedly said, “Handle it in line with regulations, and make sure it all happens as it should.”

The land was later sold hastily without a formal evaluation. Those involved in the deal included officials from Baoshan; Yin Guoyuan, deputy director of Shanghai Municipal Housing, Land and Resource Administration Bureau; and Zhu Wenjin, head of the bureau’s Land Use Department. The result was that 600 mu (40 hectares) of land was illegally sold to Chen Liangjun. He further received more than 100 mu (6.7 hectares) of land set aside for urban renewal, resulting in losses to the state of more than 34 million yuan. Chen Liangjun later sold the rights to the 600 mu plot, illegally earning 118 million yuan.

After the case against Chen came to light, both Yin and Zhu were arrested. Yin was charged with accepting bribes, possession of valuable assets with no clear explanation of ownership, abuse of power, and keeping a private cache of ammunition. He has, however, yet to be brought to trial. Zhu, meanwhile, has already been tried and sentenced to 15 years in prison for accepting bribes totaling almost 4 million yuan and illegally approving the leasing of land.

Chen’s little brother has also been arrested on suspicion of illegal land deals, although the case has yet to reach the courts.

During trial, Chen’s lawyer argued that the former party boss should only be held responsible as the most senior official involved in his brother’s land deals, but that his actions did not constitute dereliction of duty. The prosecution and defense argued this point for some time, with neither side conceding.

Chen then voluntarily intervened, telling his lawyer, “Don’t argue over this anymore. I should be held responsible in that business.”

Abuse of Power

Both counts of abuse of power pressed against Chen were directly linked to the Shanghai pension scandal. The first allegation was that he smoothed the way for criminally implicated businessman Zhang Rongkun to obtain 1 billion yuan in loans from Shanghai pension funds.

(Zheng Rongkun)

Jilin procurators charged that, in January 2002, Zhang tried to buy the rights to operate the Shanghai section of the Shanghai-Hangzhou expressway, which was then being sold by Shanghai Urban Investment, by inviting Chen with Wang Weigong, who was then secretary to a senior Shanghai official, to act as intermediaries. During a dinner, Zhang asked Chen to look out for his interests in the matter, and the latter expressed his support. 

After the scandal broke, investigators found Chen had violated regulations stipulating collective decision-making where major projects were concerned when he handled the sale of the operating rights for Shanghai’s highways and associated infrastructures. Chen had personally chaired a coordination meeting where he made a number of proposals quite clearly to the benefit of Zhang, including a proposal that the approval process should not be complicated, should be completed as quickly as possible, that the price for transfer of operating rights should be set low, and that the time period for Zhang’s ownership rights should be extended. This meant that the official agencies concerned were prevented from fulfilling their responsibilities, allowing state assets to be sold at a low price, costing the state some 321 million yuan.

Zhang bought the rights to operate the Shanghai section of the Shanghai-Hangzhou expressway for 1.01 billion yuan cash together with 2.19 billion yuan he borrowed. One source of his money was the Shanghai pension fund. Documents from the prosecution’s case against former head of the Shanghai Bureau of Social Security, Zhu Junyi, state that in summer 2002, Zhang was introduced to Zhu by deputy CEO of Shanghai Electric Han Guozhang and director of the Hua’an Fund Han Fanghe. In October that year, Zhang received his first loan, worth 200 million yuan, from the pension fund. Subsequently, Zhang used the highway investment to finance his business, borrowing 3.45 billion yuan in pension funds.

(Han Guozhang and Han Fanghe)

At Zhu’s trial, his lawyer argued that most of these loans were approved by Chen, and had been both discussed and agreed upon at meetings of the municipal government.

The second charge of abuse of power against Chen arose from the entrusted loan of 1 billion yuan that China Huawen Investment Holdings Ltd. obtained from the pension fund.

In early 2004, having lost to Zhang in the competition to buy rights to operate the Shanghai section of the expressway, China Huawen began working to gain access to government and business figures in Shanghai. Official investigations found that China Huawen invited Chen’s son Chen Weili to take a post in their company, in hopes of using the father’s official influence to help develop its business interests in Shanghai. Chen agreed.

Later that year, China Huawen asked the Chen Weili to help obtain a loan from the municipal social security bureau. The son then asked Chen’s secretary Qin Yu to help. Qin, with Chen’s backing, twice personally intervened in making arrangements for the loan. That December, the Shanghai municipal social security bureau, against regulations, approved a 1 billion yuan loan to a subsidiary of China Huawen.

(Qin Yu)

China Huawen subsequently appointed Chen Weili general manager of its subsidiary China Sports Media and gave him a nominal title as a deputy general manager at Hong Kong Huawen, for which he was paid a high salary. Then 33 years old, the son was getting an annual salary of 1 million yuan, of which 400,000 yuan came from China Sports Media and 600,000 yuan from Hong Kong Huawen.

With Chen Weli joined its ranks, the Huawen group saw a great change in its influence in Shanghai. In early 2005, Huawen used the loan it got from the Shanghai pension fund to launch an attempted leveraged buyout of the listed Shanghai New Huangpu Real Estate (SSE: 600638).

Before Huawen’s involvement, the New Huangpu Group had held 6.18 percent of New Huangpu Real Estate, of which 3.26 percent was held directly and 2.92 percent indirectly through a subsidiary. New Huangpu Group also managed a 35.22 percent stake in New Huangpu Real Estate on behalf of the Huangpu District State Assets Management Commission.

An announcement made by New Huangpu Real Estate on February 4, 2005, said the Huangpu District State Assets Management Commission had signed an agreement with China Huawen for a stock transfer. The State Assets Commission was to sell a 75 percent stake in the New Huangpu Group to New Huawen Investment Ltd., a subsidiary of China Huawen, for more than 361 million yuan, giving give New Huawen Investment a controlling stake in New Huangpu. On February 23, Wu joined the newly constituted board of New Huangpu Group and was appointed general manager. On December 12, New Huawen Investment bought another 18.8 percent of New Huangpu Group’s stock for 425 million yuan.

It became apparent from later criminal charges that during the leveraged buyout of New Huangpu Real Estate, then-deputy CEO of China Huawen Wang Zhi paid a massive, 10 million yuan bribe for support for Wu, who was then a member of the New Huangpu Group board and a trusted follower of Chen. This bribe, disguised as a bonus, led to Wu being sentenced to life in prison last September. An associate, Wang Zheng, was sentenced to three years in prison for corporate bribery.

After the pension scandal broke, the 1 billion yuan loan to the Huawen was repaid by guarantors and the reconstituted Huawen companies. The 3.45 billion loan made to Zhang was recovered by the sale of his operating rights to sections of the Shanghai-Hangzhou and Jiading-Jinshan highways. But it was revealed during Zhang’s trial that he still owes more than 400 million yuan to the Shanghai pension fund and in unpaid taxes for the sale of highway operating rights.

Forces Behind Zhu Junyi　　

Five days before Chen appeared in court, Zhu Junyi, former head of the Shanghai Bureau of Labor and Social Security went on trial again in the Changchun People’s Intermediate Court.

Last September, Zhu had been sentenced to 18 years after being found guilty on three charges: accepting bribes, embezzling public funds, and abuse of power. His second prosecution involved charges of abuse of power, but this time the case concerned township social insurance funds that managed under the Shanghai social security system. These funds were part of an integrated social insurance scheme comprising of basic social insurance individual accounts, which were funded through social insurance contributions and supplementary insurance payments.

(Zhu Junyi)

Zhu’s charge sheet said Shanghai’s township social insurance fund was worth more than 10 billion yuan, and alleged that in the period between May 1, 2004, and July 17, 2006, the defendant had on his own illegally put into circulation 15.85 billion yuan in social insurance funds as entrusted loans and in trust funds. About 9.8 billion yuan of this was from the township basic social insurance fund and the remaining 6.04 billion yuan came from the township insurance supplementary fund.

While these proceedings against Zhu were under way, the State Audit Office made public its 2007 Document No. 86, “Report on a Special Audit of the Financial Operations and Management of Shanghai Municipal Social Insurance Fund.” This had found that the largest sums of Shanghai social insurance money put into circulation in violation of regulations came from the enterprise annuity fund and local social insurance funds, totaling 13.27 billion yuan and 17.59 billion yuan, respectively. These accounted for 93 percent of all funds illicitly put into circulation.

Most of these funds were funneled into the real estate sector.

The State Audit Office found that, as of July 2006, more than 20.12 billion yuan from the Shanghai social insurance fund was handed out in loans to 44 real estate enterprises. These included 2.5 billion yuan loaned to 12 villa construction projects, including Yongde. Moreover, conditions on the loans were arbitrarily relaxed, with loans totaling 15.90 billion yuan provided to 36 enterprises that did not meet the conditions of the national policy for real estate development.

This external investigation indicated that between 2004 and ’05, as macroeconomic control measures were being adopted at the national level and bank lending was being restricted, the Shanghai pension fund became a major source of financing for certain real estate developers in Shanghai, as well as across eastern China. Various real estate enterprises received loans of different amounts from the pension fund, helping ease their difficulties with tight cash flow.

In court, Zhu repeatedly emphasized that all use of Shanghai pension funds -- including those from town social insurance funds -- had been approved by the Shanghai municipal government, and that he was by no means acting on his own.

Path to Power

In the 10 years during which he rose from governor of Huangpu District to a senior position in Shanghai municipality, the foundation of Chen’s political record had been his success in infrastructure construction and associated property deals. He was regarded as a staunch supporter of Shanghai’s real estate. In 2004, there were repeated rumors of a bubble in the Shanghai property market, but Chen used the opportunity of his participation in a group visit to Hong Kong to publicly refute the rumors.

In retrospect, it’s clear that the Shanghai government was not cooperating with central macroeconomic policymakers in Beijing. Chen’s use of the city pension fund to finance the real estate sector, secretly contravening the central policy he publicly supported, was to be one of the direct causes of his fall from grace.

“Bold, with a tough attitude. He could get things done, and he could also get himself into trouble.” That’s how one senior cadre at the trial described Chen for Caijing.

Apparently, this view is widely shared in Shanghai political circles. The facts of the pension fund scandal also serve to illustrate Chen’s capacity for unauthorized action and domineering behavior, which ultimately brought an end to his 30-year career in officialdom.

In the early 1990s, the municipal development was in full swing in Shanghai. With both hands, Chen grasped the opportunity to accumulate political credit as the governor of Huangpu District. He made great efforts to attract foreign investment and personally oversaw the planning for the district’s renewal. He also spared no effort in implementing a lighting project for the Shanghai Bund that did so much to quickly change the city’s image to the outside world.

(Chen Liangyu)

In just a few years, the thorough transformation of the city’s physical look became a source of political capital for Chen. His career advanced exponentially. But even while he was still governor of Huangpu District, Chen had began to show his bold propensity for an official style of using subordinates and appointing close, trusted followers. It was then that the “Huangpu Gang” began exercising a controlling influence in the Shanghai political world. It was also Chen’s habit of keeping a tight circle of personal appointees that led to his underlings ultimately being dragged down with him.

As soon as the pension scandal broke in July 2006, and agencies under the Central Commission for Discipline Inspection began their investigations, Chen was found to be involved. By September 24, Chen was in Beijing at a meeting of the Political Bureau of the Communist Party of China Central Committee. It was at this meeting that a long list of problems with Chen was announced. He was then stripped of his posts as Shanghai party secretary, member of the Shanghai municipal Party standing committee and member of the municipal Party committee. In addition, his memberships in the Politburo and CPC committee were suspended.

A year later, at a meeting of the Politburo, Chen was expelled from the CPC and removed from all official posts. The case was then handed over to the judiciary, and a detailed report of the investigation and allegations was issued.

The report referred to some matters that were not mentioned at Chen’s trial, namely “moral turpitude, use of official power to philander with women, and involvement in the exchange of sex for political favors.”

The report said that before the pension scandal broke, between 1991 and 2006, Chen used his official power to seduce women, maintaining successive improper relationships with two women, one of whom he made pregnant on three occasions, each time requiring her to have an abortion. During the same period, Chen had improper sexual relations with a number of other women. He used his official power to assist these women and members of their families with work appointments and opportunities to make money.

During the March 25 trial, Chen issued a two-minute final statement. “I have let down the Party, let down the people of Shanghai and let down my family,” he said.

Years of painstaking work and the benefits of chance meetings had brought Chen to the high office and power he craved, and put him in a position to manipulate political forces in Shanghai. Now, after forming cliques for private gain, and displaying arrogant and imperious behavior, he has wound up a common prisoner in jail, shaming his family, including some who face prison as well.

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