A Murder Mystery of Chinese Business and Politics

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The following is an excerpt of Grant Williams' free weekly newsletter "Things That Make You Go Hmmm..." Click here to subscribe

“We all need patience and do things according to the rules” – BO XilAi

“As Chairman Mao said as he was building the nation, the goal of our building a socialist society is to make sure that everyone has a job to do and food to eat, that everybody is wealthy together ... If only a few people are rich, then we’ll slide into capitalism. We’ve failed. If a new capitalist class is created, then we’ll really have turned onto a wrong road.” – Bo Xilai

“There are many people who have poured filth on Chongqing, including pouring filth on me and my family, even talking about my son studying abroad and driving a red Ferrari -- utter nonsense -- and I feel outraged. Utter nonsense.” – Bo Xilai, father of Bo Guagua, Ferrari-driving, Harvard University student

“This sh*t is chess; it ain’t checkers” – Det. Alonso Harris, Training Day

curious incidentThis week’s edition of Things That Make You Go Hmmm..... is a little different to those that have come before it in that it is more of a murder mystery/who dunnit and focuses on the machinations behind a very significant power struggle currently raging in the shadowy world of China’s ruling party.

For those amongst you who like tales of drunken British businessmen, unexplained deaths, cyanide poisoning, swift autopsies, mysterious political figures, Lady Macbeth type wives and police chiefs fleeing for their lives - read on. For those of you who prefer less sensationalist tales..... well read on anyway - this one’s a doozy!

As bizarre and salacious as this story is, the implications for the immediate future of China are extremely important and, with China watchers split between those who believe a hard landing is not only assured but imminent, and those of a more sanguine disposition, the search for clues as to the outcome will be meticulous.

Our story begins on November 14, 2011 in a nondescript hotel room in the hills above the Chinese city of Chongqing roughly 850 miles north-west of Hong Kong - where a British businessman, 41 year-old Neil Heywood, was found dead.

After an extremely basic autopsy, the initial cause of death was listed as ‘excessive alcohol consumption’ and a rather hasty cremation took place in China with Heywood’s family being informed of his demise by telephone.

The story barely made the news either in China or back home in the UK.

Heywood wouldn’t have been the first British businessman abroad to overindulge in the bars and nightclubs of a foreign land and, if one were predisposed to finding a suitable ‘accident’ to befall an enemy who fit that mold, then drinking himself to death would have ordinarily been a fairly plausible cover story - but in this case, there was something that didn’t quite fit the official story - Heywood doesn't drink.

According to the NY Times, Heywood’s funeral in Battersea, a few days before Christmas was a strange affair:

(NY Times): ...mourners who gathered for Neil Heywood’s memorial service a few days before Christmas were perplexed by the instructions laid down beforehand by one of Mr. Heywood’s classmates from Britain’s elite Harrow boarding school. He asked them not to approach Lulu Heywood, Mr. Heywood’s Chinese wife, and to remain in the pews until she and their two children had left the church.

The classmate’s eulogy made no mention of why a 41-year-old man in apparently good health had suddenly died. Nor could anyone ask the family.

“It was all very odd,” said one of those at the service, who, like many people connected with Mr. Heywood, asked to remain anonymous because of the sensitivities surrounding the case. “There were a lot of questions, and a lot of tears. We’d all been to plenty of funerals, and none of us had ever been through anything quite like it.”

Heywood was an Old Harrovian who was well connected in the UK and, amongst his many entrepreneurial ventures in China, he helped arrange for wealthy Chinese citizens to purchase and import luxury Aston Martins. His various business interests in the Chongqing area brought him into contact with some very well connected men and women and, in particular, a husband and wife who wielded more power than anybody in the densely populated region local Party Chief, Bo Xilai and his wife, a formidable lawyer named Gu Kailai.

Perhaps unsurprisingly, the death of an unknown British businessman in an unknown hotel in a largely unknown (at least, outside of China) city was soon forgotten - but in early February, 2012, the story was reignited hen Bo’s police chief, Wang Lijun, a hardman who had cracked down ruthlessly on organized crime in Chongqing under Bo’s orders, was suddenly demoted to general duties. China’s microblogosphere went crazy:

(UK Guardian): The abrupt transferal of a gang-busting police chief due to be immortalized in film has sent China’s internet rumor mill into overdrive.

Wang Lijun became famous nationwide after leading a crackdown against organized crime in Chongqing launched by the region’s high profile party secretary, Bo Xilai.

His move from police to more general duties has sparked particular interest because he is seen as such a close ally of Bo, who is expected to rise still further when the next generation of leaders takes power this autumn.

Their controversial anti-gang campaign led to more than 1,500 arrests and culminated in the execution of the city’s former deputy police chief and top justice official, Wen Qiang, for corruption, rape and shielding organized crime.

But on Thursday, Chongqing’s information office said on its blog the party committee had given Wang a new portfolio in charge of economic affairs in place of his public security post, the South China Morning Post reported.

A few hours later, the office revised its message to say the 52-year-old would be in charge of issues including education, the environment and industrial and commercial management.

Despite the abrupt move, little attention was paid to Wang’s demotion in the Western press until a few days later when Wang walked into the US Consulate in the city of Chengdu with a stack of documents and, apparently, an extraordinary story to tell.

Although nobody knew what Wang was telling US officials, the presence of armed Chongqing police outside the Consulate made it apparent that Wang had opened a large can of worms.

Several days later, Wang emerged, accompanied by Party officials, and headed not for Chongqing, but directly to Beijing:

(Bloomberg): ...A seat was purchased for Wang Lijun on a Feb. 8 flight from Chengdu to Beijing, according to a website authorized by China’s aviation regulator to show all commercial air ticket information. Another first class ticket was bought for Qiu Jin, a vice minister at the agency responsible for anti-espionage and covert operations to ensure state security.

“This means that the top leadership is directly involved in this investigation,” Li, who analyzes Chinese elite politics, said in an e-mail. “The incident is extremely serious and we probably only see the tip of the iceberg.”

It was clear that something with potentially major political implications was unfolding, but not even the wildest of speculators could have foreseen the direction in which this story was about to go.

Bo Xilai is a ‘Princeling’, a term reserved for China’s elite, and few in China are more elite than Bo, the son of Bo Yibo, one of the Eight Elders of the Communist party who joined the Long March and became one of Deng Xiaoping’s most trusted advisors. Bo Yibo was one of the revolutionary veterans unseated by the Gang of Four under Mao Zedong. In short, Chinese royalty.

Bo Xilai developed a reputation for being a flamboyant politician, a hardliner who cracked down on corruption and became wildly popular with the vast majority of his constituents through his populist politics and welfare spending along with the success of the ‘Chongqing Model’ - Bo’s egalitarian society which united Maoists and social democrats in a new left leaning alliance.

Bo’s rise through the Party ranks was nothing short of meteoric and his ultimate ascension to the nine member Politburo Standing Committee - China’s most powerful body in October 2012 was seen by many to be set in stone (although Bo’s Maoist tendencies had begun to set off alarm bells amongst China’s top brass).

All of this made his dramatic ouster on March 15th an absolute bolt from the blue.

The first clue was a reference by Wen Jibao to the ‘Cultural Revolution’ in a conversation with reporters a day earlier:

(Bloomberg): On March 14, before Bo’s firing, Wen told reporters one floor down from where Bo spoke at Beijing’s Great Hall of the People that China in the late 1970s had taken a decisive turn away from the politics of the Cultural Revolution. He then spoke of Chongqing and the political events that culminated in former Chongqing police chief Wang Lijun spending a night last month at the U.S. consulate in Chengdu, Sichuan, prompting speculation he was seeking asylum.

“The current party committee and government in Chongqing must seriously reflect on the Wang Lijun incident and learn lessons from that incident,” Wen said. “What has happened shows that any practice that we take must be based on the experience and lessons we have gained from history.”

The following day it was time for Bo to go:

(Washington Post): The unceremonious firing Thursday of Bo Xilai, the populist Communist Party chief of the southwestern mega-city of Chongqing, was seen by some observers here as a victory for China’s reformers and a stinging defeat for those known as the “new leftists,” for whom Bo had emerged as a champion.

But with the party’s internal wrangling shrouded in secrecy, the latest twist in China’s most tumultuous political drama in years has left many — from ordinary Chinese to foreign China-watchers — perplexed about what is really going on behind the vermilion walls of the Zhongnanhai leadership compound in Beijing... “Basically, his political career is at an end,” said Zhang Ming, a political science professor at Beijing’s Renmin University. “The Chongqing model is also over, and the chance of [China] turning leftward is finished.”

The removal of Bo from his powerful Party post was the most significant such move since the aftermath of Tiananmen Square in 1989 and, in a handover year, when stability is of paramount importance to China from a political, social and economic standpoint, it was an enormous surprise to China watchers everywhere.

But it is in the aftermath of Bo’s demise that the real twists and turns begin so let’s get back to the story.

After his unceremonious ejection from office, the sheer volume of timely information that became readily available to Western media outlets made it obvious that its release was being sanctioned at the very highest level of the Chinese government, but more than the volume of information, it was the nature of it that took the breath away.

The trigger seemed to be the request on March 20 by the British Foreign Office to have the investigation into Heywood’s death reopened. As soon as that was made known, the dominoes started to fall.

On April 10, the Chinese government announced that it had arrested Gu Kailai and Zhang Xiaojun, a member of her household staff, on suspicion of the murder of Heywood. It was quickly leaked that the cause of death was supposed to have been cyanide drops which had been placed in Heywood’s drink by Zhang. From there, rumors abounded of other murders, multiple mistresses and life threatening diseases as well as a supposed affair between Kailai and Heywood.

Whatever WAS true, was well and truly buried in the kind of informational avalanche that was carefully designed to ensure Bo could never again return to the political scene in China.

Job done.

But what are the implications of this seismic upheaval atop China’s ruling class? Well, they are HUGE and could easily result in an all out behind the scenes battle over the future of China.

Let’s return to that question and answer session held by Wen Jibao back in March:

(Foreign Policy): Responding to a gently phrased question about Chongqing, Wen foreshadowed Bo’s political execution, a seismic leadership rupture announced the following day that continues to convulse China’s political landscape to an extent not seen since 1989. But the addendum that followed might be even more significant. Indirectly, but unmistakably, Wen defined Bo as man who wanted to repudiate China’s decades long effort to reform its economy, open to the world, and allow its citizens to experience modernity. He framed the struggle over Bo’s legacy as a choice between urgent political reforms and “such historical tragedies as the Cultural Revolution,” culminating a 30-year battle for two radically different versions of China, of which Bo Xilai and Wen Jiabao are the ideological heirs. In Wen’s world, bringing down Bo is the first step in a battle between China’s Maoist past and a more democratic future as personified by his beloved mentor, 1980s Communist Party chief Hu Yaobang. His words blew open the facade of party unity that had held since the massacres of Tiananmen Square.

Wen and Bo stand at opposite ends of the political spectrum and are perhaps the two most powerful political voices in modern day China (though in Bo’s case, I shall need a change of tense). They polarize opinion like no others and have both been staunch in their adherence to their own particular political views; in short, Wen is very much the progressive, status quo candidate whilst Bo is looking to make the state far more powerful once again, and turn back much of the liberalization and democratization progress that has been made over the past 20 years.

By removing the head of the Leftist snake through Bo’s ouster and the continuing press campaign to thoroughly discredit him, the Wen faction has moved decisively and effectively. But, in the form of Wu Bangguo (the Chairman of the NPC and a staunch opponent of Wen) and Zhou Yongkang (Head of State Security) Bo has two extremely powerful allies on the Standing Commit- tee who are opposed to Wen’s reformist leanings and who could potentially prove to be major thorns in Wen’s side in the months leading up to October’s handover. Unless those who back Bo are swiftly marginalized or brought back into line, we could see this complicated issue return to cause havoc at the National Party Congress in a mere six months’ time.

That a 9-man Standing Committee can sit at the head of a country of around 1.3 billion people is enough of a clue that they cannot afford to make any missteps - particularly in an increasingly transparent world where the events of the Arab Spring have demonstrated that the status quo is a fragile thing indeed, so, despite some recent signs that China’s growth has been slowing, every conceivable stop will be pulled out to ensure that, after the upheaval of the first four months of the year, the period between now and October will be kept as stable and as peaceful as is possible.

That is likely to mean looser policy, ‘market- friendly’ data and a concerted effort to report lower inflation and ensure that Chinese stock markets break out of their near five year slump. The chance of a major Chinese property collapse in the next six months has become even more remote now than it was prior to the extraordinary events in Chongqing. That’s not to say everything is fine, but whatever lurks beneath the surface will stay there until power has been cemented once again. In the meantime, the Party has a perception problem that needs dealing with - and dealing with fast.

As Mayor of Chongqing, Bo Xilai’s monthly salary was roughly $700 and so his gilded lifestyle would have to be considered something of an eyebrow raiser. In the days after Bo’s demise, tales of his son, Bo Guagua’s penchant for Ferraris and fast women whilst studying at Oxford and, later, Harvard and rumors that Heywood had helped Gu Kailai move up to $1bln out of China into offshore accounts appeared in the Western press with startling speed and it is important to realize that everything coming out of China is now carefully orchestrated to ensure the ‘official’ story is disseminated as far and as widely as possible. Interestingly enough, the NY Times - not always known as being ahead of the game in China - seems to have had the jump on pretty much every twist in the story from start to..... well, middle, so somebody has decided to use that august publication as a mouthpiece to the West.

Bo’s fabulous wealth is a big problem for China because it shines an unwelcome light on just how power is used amongst the elite to feather their own nests whilst working tirelessly for ‘the people’.

The statistics surrounding fraud and corruption at the very highest levels are truly staggering:

(Time): ...the People’s Bank of China published a report that looked at corruption monitoring and how corrupt officials transfer assets overseas. The report quotes statistics based on research by the Chinese Academy of Social Sciences: 18,000 Communist Party and government officials, public-security members, judicial cadres, agents of state institutions and senior-management individuals of state-owned enterprises have fled China since 1990. Also missing is about $120 billion.

The People’s Bank of China report stresses that until now, nobody has been able to provide an authoritative figure of the exact sum pilfered, and the figure of $120 billion is still only an estimate. It is nonetheless an astronomical sum. It is equivalent to China’s total financial allocation for education from 1978 to ‘98. Each escaped official stole, on average, $7 million. But the real numbers might be even higher. Some media have reported that the wife of the deputy chief engineer of the Ministry of Railways, Zhang Shuguang, who was recently caught for corruption, owns three luxury mansions in Los Angeles and has bank savings of as much as $2.8 billion in the U.S. and Switzerland. This example gives a glimpse into the broader picture.

For an official estimate to contain such staggering numbers only points to just how truly astronomical the real numbers must be and, in a country where, after 2008, the M1 money supply growth increased from 7% to 40% in a matter of months, there was a lot of cash sloshing around to go ‘missing’. That growth is now back down below 10% once again but the damage has been done and, even though the CPI that was running at 2% the last time the Chinese opened the cash spigots, do not be surprised if, even with the current rate of inflation double that, those spigots get opened wide once more before October.

In the West, free money buys votes. In China it buys stability (or at least a semblance of it) and that, right now is an absolutely invaluable commodity.

The Bo Xilai story is not over. It will continue to grace the pages of the more sensationalist Western media outlets for months to come and you can guarantee that with every new wrinkle, every new twist and each new turn that the story takes, some extremely powerful people are behind the dissemination of the information that we in the West are allowed to digest.

In a first, this particular Chinese power struggle looks as though will be fought largely in the pages of the Western press, with just enough freedom for the Chinese microblogging universe to ensure the required information reaches those for whom it is intended.

However it pans out, one thing is for certain, the stakes are incredibly high.

The removal of Bo Xilai is widely seen as market-positive by many experts as it heralds the demise of the ‘Chongqing Model’ with its echoes of the Cultural Revolution, and with a senior official in the shape of Vice Premier Zhang being quickly installed as Bo’s successor in Chongqing, the return to the more private sector oriented ‘Guangdong Model’ looks set to be cemented in the coming months, but should the Wen faction not completely extinguish the challenge of Bo and his allies, we could be in for some major upheaval.

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