The web of corruption surrounding disgraced former railways minister Liu Zhijun was widespread and drew in equipment suppliers and middle- and high-level officials, Caixin reports. The publication also says that Ding Shumiao, the businesswoman whose own corruption investigation led to the detention of Liu, skimmed off at least 800 million yuan ($122 million) in kickbacks from railway equipment supply contracts as a result of her connection of Liu.
It says that the practice of companies giving middlemen, such as Ding, a “commission fee” for help in winning contract bids was commonplace. It quotes one such arrangement in which “a large state-owned company gave Ding Shumiao…about 100 million yuan.” The fee would have been routed via a private sub-contractor and was said to be 3% of the total value of the project. Given that China is spending 2 trillion yuan on developing its high-speed rail network that works out at potentially a sizable chunk of change going to commission fees.
Update: Caixin has posted an English translation of its investigation.
The Economic Observer adds a second corruption inquiry that is possibly tied to under-investigation Railways Minister, Liu Zhijun. This involves Luo Jinbao, former chairman of China Railway Container Transport Corp., which is a subsidiary of the Ministry of Railways, and also of Shanghai-listed China Railway Tielong Container Logistics Co., from which he stepped down as chairman in October last year after only six months in the job and without explanation. The latter is the first publicly listed company to be connected to the investigations.
The publication says it was this case, on which it reported briefly in January, that first cracked open the possibility of high-level corruption around the development of the country’s high-speed rail network. It also adds that it was through Luo that Ding Shumiao, whose business dealings are also under investigation as we noted earlier, first met then Deputy Railways Minister Liu in 2000.
Local press reports are starting to peel back the case surrounding Liu Zhijun, the railways minister under investigation for apparent corruption. Caijing has reported that he is being accused of taking a more than 10 million yuan ($1.5 million) bribe to help a Shanxi company win a high-speed rail contract worth several hundred million yuan. Liu has already been sacked from his more senior post as Party secretary within the ministry.
Joining some dots, which may or not be connected, takes us back to reports in January of investigations into the business dealings of a prominent, wealthy and politically well connected Shanxi businesswoman and philanthropist, Ding Shumiao (also known as Ding Yuxin). Ding’s Broad Union business empire encompasses coal, coal shipping, railway investment, equipment and track building, station advertising and hotels. Its environmental protection equipment subsidiary, Shanxi Jinhande, won bids in 2008 to supply noise barriers along several high-speed rail lines worth a reported 836 million yuan between them. The following year Ding won a 2.3 billion yuan contract to build a coal freight line in Shanxi. Shanxi Jinhande recently changed its name to CREC Taikete Environmental Engineering, the latest move in a corporate reshuffling of Broad Union that has been underway for several years.
It is not clear what triggered the investigation into Ding’s dealings. Our experience is that there is usually a political agenda somewhere in the background when someone so prominent is involved. Liu, if it is shown there is a connection, may have been collateral damage, so to speak, and pretty extensive damage at that. The railways ministry has been a fiefdom unto itself, however. There are many among the reformers and anti-corruption campaigners in the Party who would jump on an opportunity to rein it in.
China is spending 700 billion yuan a year on building out the world’s largest high-speed rail network. That is, almost by definition, a honeypot sweet for the skimming. Whether prosecutors eventually find dots to connect between Liu and Ding, it seems a racing certainty that there will be many dots that will connect somewhere. They will be looked for. Events in Egypt have sharpened the appreciation in Beijing of the corrosion corruption can inflict on public trust in government.