New York Times unveils hidden wealth for Chinese leaders

The New York Times’s David Barboza published an incredible story Friday, Oct. 26 on the hidden wealth of Chinese prime minister Wen Jiabao’s family. In the magazine length piece, Barboza details the power, business dealings and wealth the prime minister’s family has amassed during his political tenure.

The story is an impressive piece of journalism, especially given the Chinese government’s censorship, lack of business disclosure and that top party officials and their families are exempt from disclosing their holdings. That’s right, Barboza pieced together all the information in a country that actively hides and covers up stories.

From the story:

Many relatives of Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership, an investigation by The New York Times shows. A review of corporate and regulatory records indicates that the prime minister’s relatives — some of whom, including his wife, have a knack for aggressive deal making — have controlled assets worth at least $2.7 billion.

In many cases, the names of the relatives have been hidden behind layers of partnerships and investment vehicles involving friends, work colleagues and business partners. Untangling their financial holdings provides an unusually detailed look at how politically connected people have profited from being at the intersection of government and business as state influence and private wealth converge in China’s fast-growing economy.

Unlike most new businesses in China, the family’s ventures sometimes received financial backing from state-owned companies, including China Mobile, one of the country’s biggest phone operators, the documents show. At other times, the ventures won support from some of Asia’s richest tycoons. The Times found that Mr. Wen’s relatives accumulated shares in banks, jewelers, tourist resorts, telecommunications companies and infrastructure projects, sometimes by using offshore entities.

That is an impressively long list of industries and sectors. No one can accuse these investors of not diversifying their holdings. The story goes one to chronicle how members of the family made money and the influence they wield to get ventures through the notorious Chinese bureaucracy.

History is full of leaders and their families using power and control to amass personal fortunes. The extent to which Wen’s relatives have made their fortunes is impressive since they’ve done it during a time when China is allowing more and more private investment.

That means they’re not only manipulating the system, they’re also taking advantage of mutual funds, pensions, private equity firms, banks and other global financiers. Everyone wants a piece of China, which is poised to become the world’s largest economy and continues to post impressive growth while the rest of the globe is stagnant at best.

The Times makes it clear there is no direct link between Wen and his family’s investments. In fact, it’s unknown how much he knows, but:

Because the Chinese government rarely makes its deliberations public, it is not known what role — if any — Mr. Wen, who is 70, has played in most policy or regulatory decisions. But in some cases, his relatives have sought to profit from opportunities made possible by those decisions.

The prime minister’s younger brother, for example, has a company that was awarded more than $30 million in government contracts and subsidies to handle wastewater treatment and medical waste disposal for some of China’s biggest cities, according to estimates based on government records. The contracts were announced after Mr. Wen ordered tougher regulations on medical waste disposal in 2003 after the SARS outbreak.

In 2004, after the State Council, a government body Mr. Wen presides over, exempted Ping An Insurance and other companies from rules that limited their scope, Ping An went on to raise $1.8 billion in an initial public offering of stock. Partnerships controlled by Mr. Wen’s relatives — along with their friends and colleagues — made a fortune by investing in the company before the public offering.

Much of that money for the Ping An IPO came from outside investors. It’s hard to compete on a field that’s so obviously tilted in favor of the home team.

But it’s not just foreign investors who are being harmed. It’s also the Chinese people in general. Many families still struggle to make ends meet while their leaders as amassing vast personal fortunes. As China modernizes and their economy grows, the once communist country is quickly creating the world’s widest income gap.

Using influence, information and connections to grow wealthy is as old as time. What’s concerning for investors and foreign businesses is that they can’t be sure of what they’re getting into and who actually owns it. It’s also concerning for a global economy that there’s a huge income and wealth gap being created in the world’s second-largest economy. It’s a shaky foundation in an already uncertain world.