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标 题: China: To the money born zz from FT
发信站: 水木社区 (Tue Mar 30 15:18:07 2010), 站内
China: To the money born
By FT Reporters
Published: March 29 2010 22:37 | Last updated: March 29 2010 22:37
Children of the revolution: youths featured in a 1970s propaganda poster. More
recently, China's 'princelings' have been active at the vanguard of the
financial industry
New Horizon Capital is one of the most influential and successful participants
in China's fledgling private equity industry. It has billions of dollars under
management and a stable of investors that includes Deutsche Bank, JPMorgan
Chase, UBS and Temasek, Singapore's sovereign wealth fund. But you would not
guess any of that from its central Beijing headquarters.
The company has no nameplate in the lobby of the Golden Treasure Tower, a
nondescript building near the Forbidden City, the traditional seat of imperial
power. Its simple 12th floor offices are identified only by a small sign inside
the door that reads, in Chinese, "New Horizon Growth Investment Advisory
Limited".
The company does not need flashy suites as it has one of the most valuable
assets in China. He is Winston Wen, an MBA from Northwestern University's
Kellogg business school in the US who keeps a low profile and bears a striking
resemblance to his father � Wen Jiabao, premier of the People's Republic of
China.
The younger Mr Wen and New Horizon are in the vanguard of a more aggressive
generation of taizidang ("princelings") � offspring of senior Communist
party officials � who dominate the burgeoning home-grown private equity
industry, where huge profits are to be made from restructuring state assets and
financing private companies.
In 2009 private equity deals in China totalled $3.6bn, accounting for one-third
of all such transactions in the Asia-Pacific region, according to Thomson
Reuters. But industry participants say the potential market is far larger.
According to those working in the sector, the princelings' ascendance is
squeezing out less well connected operators, including foreign firms, which
might have important consequences for two reasons. First, private equity could
play an important role in modernising the economy, channelling funds to
promising but capital-starved companies � but those benefits will be felt only
if the industry is run in a professional and competitive manner.
PRIVATE EQUITY PRINCELINGS
'Red-blooded 'veterans versus ruthless arrivistes
The term "princeling" was coined to refer specifically to the children of
senior leaders of China's Communist revolution � the veterans who joined Mao
Zedong on the fabled Long March of the mid-1930s or were members of the inner
circle at the time of the 1949 Communist victory.
Today it is used more broadly to include the offspring of later generations of
technocratic leaders � but a distinction remains between them and the truly "
Red-blooded" revolutionary families.
Beijing political insiders say that distinction is made sharper today by the
aggressive business dealings of the newer generation of princelings and their
moves into the hot new field of private equity.
None of the most prominent players in the burgeoning domestic private equity
sector is from the revolutionary dynasties that include the offspring of such
Communist icons as Deng Xiaoping, the late paramount leader, and the children
of the "eight immortal" party elders who supported his rule through the 1980s
and 1990s.
"The old revolutionary royalty, like the family of Deng Xiaoping, are still
untouchable and they regard this country as belonging to them in a very real
sense," says one such insider. "They see the newer generation of princelings
as more ruthless, and some even go as far as saying that when the eunuchs
become powerful it means the end of the dynasty is near."
Some analysts see the private equity activities of princelings as a potential
political problem as the government prepares for a leadership transition in
2012, especially since there is a recent precedent of senior leaders cracking
down on the business activities of their predecessors' children.
When he was consolidating his power in the early 1990s, Jiang Zemin, former
president, shut down companies and arrested a number of business executives
with close ties to Deng's children.
After Hu Jintao, the current president, came to power in 2003 he launched a
similar high-level crackdown that brought down the party secretary in Mr Jiang'
s power base of Shanghai and netted prominent real estate developers and
businessmen with close ties to his son.
In the jockeying for power and influence that is sure to dominate the Beijing
political scene for the next two years and beyond, the new generation of
princelings may become pawns in a high-stakes game, just as their predecessors
did before them
Second, some in the political establishment fear that princeling dominance of
private equity could exacerbate public perception of nepotism and misrule at
the top of the Communist party. In an opaque authoritarian system lacking the
popular legitimacy of a democracy, such fears are hard to dismiss. A recent
online opinion poll by the People's Daily, the party's official mouthpiece,
found that 91 per cent of respondents believe all rich families have political
backgrounds.
In an interview with the same newspaper, the former auditor-general said the
fast-growing wealth of officials' children and relatives "is what the public
is most dissatisfied about". Li Jinhua, widely respected as the senior
graft-busting official between 1998 and 2008, told the paper this month: "From
the numerous cases currently coming to light, we can see that many corruption
problems are transacted through sons and daughters."
Many of the elite's children are western educated and, over the past 15 years,
dozens have been recruited by western companies and banks hoping to secure an
entry into the Chinese market and win mandates to take state-owned companies
public in New York or Hong Kong. As most foreign investors know, employing the
relative of a senior party leader as an adviser or employee can help cut
through bureaucratic obstruction and resistance from local interest groups.
But today those institutions and investors are scrambling to invest in the
private equity funds of princelings who would once have been on their payroll.
"In the past, the best option for these people with 'background' was to go
to the high-paying western investment banks but now the economic strength has
shifted," says one person in the private equity industry, asking not to be
named because of the sensitivity of the topic. "Now they're saying to the
foreigners, 'Hey, I'm in the driving seat, I have all the deals � so you
give me your money and I'll invest it myself and take a big cut'."
Prominent private equity princelings include George Li, a former banker at
Merrill Lynch and UBS with an MBA from the Sloan School of Management at the
Massachusetts Institute of Technology, whose father, Li Ruihuan, was one of the
country's senior leaders from the late 1980s until 2003. Another son, Jeffrey
Li, recently resigned as China head of Novartis, the pharmaceuticals group, to
go into private equity, according to people familiar with the matter.
Wilson Feng, who bankers and private equity investors say is the son-in-law of
Wu Bangguo � officially second in the party hierarchy � left Merrill Lynch
two years ago to launch a fund with ties to the state-owned nuclear energy
conglomerate, according to media reports and people familiar with the matter.
Mr Feng was key to securing Merrill's mandate to take Industrial and
Commercial Bank of China public in Hong Kong in 2006 in the biggest initial
public offering in history.
Other private equity princelings include Li Tong, daughter of Li Changchun, the
member of the nine-strong ruling Politburo standing committee in charge of
propaganda and the media. Ms Li now runs a private equity fund at Hong
Kong-based Bank of China International focusing on the media sector, according
to three people familiar with the matter. Stanford-educated Jeffrey Zeng, son
of Zeng Peiyan, former vice-premier, has also set up a fund affiliated with
state-owned financial institutions.
"This is turning into a crucial moment for the financial industry in China,"
says the head of a foreign bank in Beijing."But we are very worried that
foreigners and other skilled Chinese are being shut out by a string of
princelings and other very well-connected people trying to dominate [the
private equity] market."
The government has been encouraging the creation of a home-grown private equity
industry in recent years but approvals to set up funds are tightly controlled
and investments often require them from numerous state agencies. Having the
relative of a top leader in its management team can help fledgling funds
overcome these hurdles.
Princelings have long been suspected of leveraging parental political power for
personal gain; the topic was a source of public anger during the 1989 Tiananmen
Square student protests that ended in a bloody military crackdown. But Beijing
political insiders say two men led the way for the ambitious new generation,
fostering the modern perception of close ties between money and political power.
Levin Zhu, son of former premier Zhu Rongji, and Jiang Mianheng, son of former
president Jiang Zemin, are familiar to many foreign investors, having worked
for or set up joint ventures with several large western companies. Their
fathers helped push through some of the past two decades' most important
market-based reforms, including World Trade Organisation membership.
Mr Zhu has a PhD in meteorology from the University of Wisconsin-Madison.
Following a stint at Credit Suisse First Boston in New York, he returned to
China in the late 1990s and orchestrated a virtual take­over of China
International Capital Corp, a joint venture in which Morgan Stanley holds about
34 per cent.
Mr Jiang boasts a PhD in electrical engineering from Drexel University in
Philadelphia. Returning to Shanghai in the early 1990s he was courted by
foreign investors who saw him as the country's most valuable joint venture
partner. Today, he controls Shanghai Alliance Investment Limited, a government
investment company operating much like a private equity firm.
With their parents both out of formal office since 2003, the influence of Mr
Jiang and Mr Zhu has waned. But as children of the "third generation" of
technocratic leaders, they are seen to have paved the way for the current wave
of princelings. "Those two really helped create the image of Red families
running this country for their own benefit," according to one person who deals
closely with many princeling families. "Their actions have given all the
younger generation a green light to go out and aggressively build their own
buckets of gold, no matter what the consequences for the image of the party or
the leadership."
By squeezing out foreigners and other competition, dominance of the private
equity sector by princelings will bring few benefits in terms of management
skills or financial discipline, some analysts and industry participants say.
"Private equity is a very good area for princelings because with these sorts
of connections you can get into companies ahead of their IPOs and make a lot of
money in a short space of time," says Professor Victor Shih of Northwestern
University. "It is an easy way to make money because everyone will be willing
to back them because of their connections. Everyone will do it willingly in
order to potentially get favours from senior leaders in return."
People close to several private equity princelings say they often feel they are
victims of reverse discrimination; that no matter how smart or hard-working
they are, the public will assume their success relies purely on nepotism.
However, some important operators in the Chinese sector, while benefiting from
family links, are seen in the industry as well qualified in their own right.
One such person is Liu Lefei, son of Liu Yunshan, head of the party's central
propaganda department. The younger Mr Liu previously managed Rmb1,000bn ($147bn;
?109bn; £98bn) as chief investment officer for state-owned China Life
Insurance and has taken over the reins of the state-controlled Citic private
equity fund.
The Financial Times was unable to reach some of the individuals named in this
article or their companies, and those who were contacted refused to comment.
Because it can prompt public dissatisfaction and accusations of nepotism,
information about the private lives and business dealings of leaders and their
offspring often falls within the scope of vague and wide-ranging state secrecy
laws, regularly used to silence critics of the regime. Even the existence of
leaders' relatives is usually a well-guarded secret. Internet searches on
princelings and their activities are usually blocked in China.
Most live in luxurious gated communities around Beijing and maintain holiday
homes around the country and the world. Spouses are almost never seen in
public. Younger, less discreet, princelings can be identified in Beijing by
their luxury sports cars with military or paramilitary licence plates, which
allow them to ignore traffic regulations and avoid being stopped by the police.
But the princelings themselves face a dilemma. If their business activities are
too successful or high profile they may damage the political fortunes of their
powerful parents, even without specific allegations of inappropriate dealings
or special privileges.
Some analysts and industry insiders foresee a situation where the scions of
powerful political families use the private equity industry to carve up parts
of the economy at the expense not only of foreign investors but also of the
older generations of princelings with direct bloodlines to China's
revolutionary Communist party founders.
But the constant jockeying for position within the party behind closed doors in
Beijing is set to intensify as the next big leadership transition approaches in
2012. Some analysts say the private equity activities of the more aggressive
younger princelings could be used by political enemies as a weapon against
their parents.
In the case of Winston Wen, "You have to wonder if this will leave Wen [Jiabao]
open to some sort of blackmail if his son has such a high-profile position in
the financial sector, where all sorts of favours might be offered", says Mr
Shih. "What if someone gets some dirt on Winston Wen?"
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