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China undercuts corrupt tycoons

From CNN Beijing Bureau Chief Jaime FlorCruz

Zhou was reportedly given big loans to develop housing in Shanghai.
Zhou was reportedly given big loans to develop housing in Shanghai.

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Several multimillionaire entrepreneurs in China are embroiled in corruption scandals.
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BEIJING, China (CNN) -- "Give our money back!" a group of middle-class investors chant in a rare public demonstration in China.

They say they have lost their savings in a real estate investment scam -- a corruption case in Beijing involving unscrupulous businessmen and local officials.

Meanwhile, a much bigger scandal is brewing in southern China.

Shanghai tycoon Zhou Zhengyi, ranked last year as China's 11th richest entrepreneur, is now reportedly detained by authorities who are probing his business operations.

The investigation could lead to the executive floors of the Bank of China (BoC), one of the country's top four state banks.

The bank has said it is looking into complaints over certain deals with Zhou's companies in Hong Kong and Shanghai.

"So here we have a typical case of close connections between the local Shanghai branch of the BoC and entrepreneurs like Zhou Zhengyi, who has been given huge loans in order to develop housing complexes in Shanghai," Jean-Pierre Cabestan, a China analyst told CNN.

Zhou, 42, built a business empire in real estate and finance and became Shanghai's richest man. Two of his companies are listed in Hong Kong and two in Shanghai stock markets.

Neither Zhou nor any Chinese official has been charged with any wrongdoing, but the case could escalate.

"This case is interesting as he had very good connections with Shanghai's political leadership," says Cabestan.

"It is too early to jump to conclusions but the fact that the Central Discipline Inspection Committee sent a delegation to Shanghai tends to indicate that some political leaders are involved in this case."

Not the only one

Despite reforms the justice system is still widely criticized by the public
Despite reforms the justice system is still widely criticized by the public

Zhou follows a line of disgraced millionaires.

A Chinese-born Dutch citizen, Yang Bin is currently on trial for alleged fraud and bribery. During his heyday as a flower-grower and real estate developer he was said to be worth $900 million, the second richest man in China.

Liu Xiaoqing, a film actress turned entrepreneur, was also arrested over alleged of tax evasion.

China's new leaders have renewed efforts to reform the banking system. The nation's state banks are typically saddled with non-performing loans given to bankrupt state enterprises.

While banks have a habit of giving out sweetheart lending deals to well-connected businesspeople, officials are now asking state-owned financial institutions to stop giving dubious loans to politically connected businesses and enterprises.

They are also cracking down on corruption, analysts say, to enhance their legitimacy.

By undercutting tycoons like Zhou, the Chinese leaders are trying to show that they have low tolerance for high-flying millionaires who have amassed wealth through dubious or illegal means.

In 2002 the average wealth of entrepreneurs on Forbes magazine's list of richest-Chinese was just under US$200 million, in a country where the average annual wage is still less than $1,000.

Currently Beijing's dilemma is how to curb corruption in business without killing the creative energy of its private entrepreneurs.


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