Angered by crony capitalism in India and the power of the top 1% in the West, some analysts favour the so-called Beijing Consensus, or China’s model. Sorry, but China has as much cronyism as other countries.
A recent study in Financial Times shows that relatives galore of Chinese politicians have become millionaires. The “princelings”, as children of top Chinese politicians are called, have riches that dwarf comparable Indian princelings.
Wen Yunsong, nicknamed Winston, is the son of Prime Minister Wen Jiabao. His China Satellite Communications aims to become Asia’s largest satellite operator by 2015, with 15 satellites and annual revenues of $ 2.5 billion.
Educated in the US-like most princelings-the young man established his first company, New Horizon Capital, in the Cayman Islands, a tax haven. It raised over $ 2.5 billion from global giants like Deutsche Bank, JP MorganChase and UBS. Would this be possible for any young Chinese entrepreneur unrelated to a politician? Not a chance.
“Winston blatantly uses his political background to get deals. If Winston is bidding for a deal, we wouldn’t even try – we try to avoid competing with the big princelings.” So says a top foreign investor.
The prime minister’s wife, Zhang Beili, controls vast operations in jewellery and property. The Financial Times cites a Wikileaks document as saying the lady and her children “get things done for the right price”.
The relatives of Chinese President Hu Jintao are powerful too. His son, Hu Haifeng, was once president of state-owned Nutech which makes security scanners. After he took over, the company was granted a virtual monopoly in this market. In 2008 he moved up into Tsinghua Holdings, which controls 20 companies including Nutech.
His sister is married to Daniel Mao. This young man once headed Sina.com, one of China’s largest web portals. His personal wealth was estimated in 2003 at $ 35-60 million.
An earlier Chinese President, Jiang Zemin, has spawned millionaires too. In 2000, his son Jiang Mianheng founded Grace Semiconductor, one of China’s first microchip companies, partnering the son of Taiwan’s top tycoon. Today he heads Shanghai Alliance Investment, an investment fund with stakes in major Chinese companies.
Jiang Zemin’s grandson, Jiang Zhicheng, worked for Goldman Sachs in 2010. He now works at Boyu Capital Advisory.
Most princelings have fancy degrees from western universities. Many may be talented, but nobody believes that talent alone has explains their meteoric rise. Their family connections mattered hugely.
Top politicians claim they have no links with the businesses of relatives. But a veteran diplomat says “everything is controlled by a couple of hundred powerful families….most foreign companies are trying to hire the sons and daughters of Chinese officials so they can get access and do business.”
Multinationals often start joint ventures with the princelings, who typically hold their stakes through holding companies in Hong Kong or Caribbean tax havens. This helps hide business secrets.
Consulting fees are often paid abroad in Dubai or Hong Kong. Agreements are frequently written on red paper, because xeroxes or scans of red paper turn black and become unreadable. This limits leaks.
Princelings are no longer content with fat consultancy fees. “The big families want to get into private equity or do business themselves, because that’s where the real money is.”
When Deng Xiaoping launched China’s pro-business reforms, he declared “to get rich is glorious.” He meant productive businesses should be gloriously rich. But his party colleagues have found the ultimate glory in family enrichment. In the 1990, when the Chinese private sector skyrocketed, some top politicians tried to rein in their princelings. “But now there is almost no restraint,” says a top official.
Indian politicians during the independence movement aimed for ideals, not money. But once in office, their relatives became influence peddlers. Today, people enter politics mainly to make money. The emergence of political dynasties should surprise nobody: they are business dynasties by another name.
In India too, the sons and relatives of politicians often boast foreign degrees, and claim to have high technocratic skills. Here too, corporations want to hire these relatives to gain political access and influence. But we have fewer cases of princelings becoming big businessmen.
The mere fact that China has corrupt princelings does not make India less corrupt. It is no excuse for slackening our own anti-corruption efforts. Yet i suspect that most readers will, like me, grin at the expose of the princelings. The Germans call it schadenfreude-finding pleasure in the travails of others. It’s mortifying to be beaten by China in one field after another, but we can enjoy China’s victory over us in corrupt princelings.