The Chinese roulette of fortune: when the Communist Party official is also a millionaire businessman and investor

The best posh parties in Shanghai are organized by the Italian Consulate. In the last one, they rented an old European-style palace at the foot of the Bund, the central walkway next to the Huangpu River that divides the financial capital in two.. Appetizers and an open bar of good Tuscan wine were plentiful.. In one room there was a cellist and in another a DJ playing techno. Business was done in the garden, where foreign businessmen, Chinese millionaires and senior officials of the Communist Party (CCP) gathered in groups.

At that party there was a tall guy who was hanging around all the circles. On his first business card he appeared as the owner of a company that sells wines from Shandong, on the east coast, the wine-growing area par excellence of China.. His second card was that of a CEO of a company that manufactures robots to care for the elderly in nursing homes and hospitals.. He also said that he was an investor in a pharmaceutical company and a video game company.

With the joy of the free flow of alcohol helping to loosen his tongue, Liu, as this businessman's last name was, also kept another, more sober card in his jacket pocket, that of a senior CCP official in the Anhui government. , a province in eastern China. Additionally, Liu is one of nearly 3,000 delegates who meet annually in the Chinese Parliament.

His trip to Shanghai was to make good business contacts while taking advantage of the Italian Consulate's party.. He was not the only party worker at that event who was there not because of his public position, but because of his private business.. “Everything is connected here,” acknowledged another CCP member who was invited as a partner in an important real estate agency.

The next day, Liu, the one with the wines and robots, returned to his office in Hefei, the capital of Anhui, which was one of the pioneer cities in investing in private companies, especially in technology related to semiconductors and artificial intelligence.. The city government is also involved in the automotive industry. At the beginning of the pandemic, it acquired 17% of Nio, a large electric vehicle manufacturer that was not going through its best moment.

In 2021, this company recovered by selling more than 90,000 cars and making a profit. It was then that Hefei, like a greedy private investor, dumped almost his entire stake in Nio, earning five times more than his initial investment.. Hefei has also used investment funds it finances to buy its stake in foreign companies such as Dutch chipmaker Nexperia.

The local governments of China, which control land sales, have been strengthening ties with private companies since the years of the country's opening up using a simple recipe: offering them very cheap land, subsidies and tax exemptions that attract companies to their domains. , and then invest in them. A report carried out jointly by researchers from the University of Chicago, Tsinghua University (Beijing) and the Chinese University (Hong Kong), which analyzed more than 37 million companies registered in the Asian country, discovered that many of them had as owners or maximum shareholders to more than 40,000 state agencies, from the central Executive to city and town governments.

“In 2019, of the 7,500 richest individual owners, almost half had at least one company that included a state agency among its investors. The trend results in companies that are not fully state-owned but not truly private companies either.. “It's this murky gray area, which I think is the dominant corporate structure in China today,” explains one of the researchers, Professor Chang-Tai Hsieh of the University of Chicago.

Hsieh gives a clear example: of the six largest new electric vehicle companies in the country, five have local governments as minority investors, while other majority investors are companies that are in turn owned by these same administrations, where officials who work They also have their businesses and investments in the private sector.

A pit of corruption

All this has been a pit of corruption within the CCP. Many wealthy bosses use their influence to prosper in business, or encourage their children to do so on their behalf.. But Beijing cannot exactly be said to turn a blind eye: since President Xi Jinping came to power in 2012, a vast anti-corruption campaign has claimed at least one and a half million officials at all levels.. The movement of money coming out of CCP cadres, as the officials who manage party affairs are known, which are also state affairs within the Chinese one-party system, is increasingly controlled.

A few days ago, the agency that prosecutes corruption, the Central Commission for Discipline Inspection, prohibited officials from investing in private equity funds, which usually require minimum investments of one million yuan (128,000 euros).. “The objective is to address the innumerable risks of corruption that accompany cadres who indirectly take shares of companies. The practice, which would make them indirect shareholders of companies, is essentially similar to illegally managing a company and should be addressed accordingly,” reads the published report.

State media said authorities had uncovered cases of officials providing benefits to groups they had invested in through these funds, including helping companies sell shares on public markets.. “They made huge profits after the company went public,” he continues.. Last year, the party already required senior officials and their families to report any investments or positions they held in the private sector.. The wheel of fortune that Chinese officials played no longer spins as much as before.