Chinese Business Corruption Exposed
Red Roulette

Chinese Business Corruption Exposed

Entrepreneur Desmond Shum courageously pulls back the curtain to reveal a profoundly corrupt and dangerous business culture.

In this brave, damning exposé of Chinese business and politics – both an Economist and a Financial Times Best Book of 2021 – Desmond Shum, an exemplar of success in the New China, describes with unflinching honesty the world’s second largest economy. Through effective state direction, China has completed the catch-up phase of its economic development. Now, Shum questions whether it can progress without a separation of powers and other legal, political and business standards that can forestall its greedy, flawed elites. He firmly believes it cannot.

Reviews from every major news outlet and several China experts consistently expressed respect for his defiant disclosures. They all cited Shum’s unique insider position: No one of his previously privileged stature in China has ever come forward to reveal the depth of its corruption and hypocrisy.

Desmond Shum’s international background helped him become successful in China.

Desmond Shum was born in Shanghai in 1968. In 1989, he enrolled in the University of Wisconsin to study finance and accounting. Shum’s experience abroad gave him a valuable mix of business knowledge and social skills. He returned to China, and by the age of 29, he was the CEO of a Chinese company involved in business services and internet hardware.

Shum then met Whitney Duan, the accomplished head of her own company. Duan understood China’s business environment and was careful in her dealings. She approached business like a chess master, always thinking 10 steps ahead.

I quickly learned that in China all the rules were bendable as long as you had what we Chinese called ‘guanxi,’ or a connection into the system.Desmond Shum

Shum understood spreadsheets and Western business norms, and Duan created political networks – a winning combination. The couple bought gifts for important officials including, Shum reports, $10,000 golf clubs and $15,000 watches. 

Crucial Clout

Shum details how Duan soon became the right hand of “Auntie Zhang” – Zhang Beili, the wife of one of China’s top politicians, Wen Jiabao. Duan and Auntie Zhang even dined with Xi Jinping and his wife in 2008, before he became China’s leader. Duan courted and coached established and rising officials, all the while creating future business allies.

Each approval was obtained through connections. Each connection meant an investment in a personal relationship, which meant an awful lot of effort and even more Moutai [alcohol].Desmond Shum

Shum and Duan developed a complex of bonded warehouses, export processing centers and customs facilities connected to Beijing’s airport – the largest air cargo facility in China. They invested $12 million and got access to cheap credit usually reserved for state-owned enterprises. Shum recounts that, during the project, the couple needed sign-offs from seven ministries and some 150 “chops” or stamps, and that, at each step, they had to explain how the project fit the shifting priorities of the Chinese Communist Party (CCP). Everyone along the way extracted luxurious gifts for their cooperation. 

Thanks to Auntie Zhang, the couple bought stock in Ping An, which ended up rising 26 times its initial value; by 2004, Shum relates, the couple’s holding was worth $100 million. Duan began a period of conspicuous consumption.

The Ping An deal was basically a fluke and proved a theory I – and others – had that wealthy people aren’t so much brilliant as lucky.Desmond Shum

Shum believed economic development would bring more political openness and clear, independent laws, but the CCP pushed back against Western ideologies. To show loyalty to his political contacts, Shum joined state-supported marches in Hong Kong. By 2008, the new mantra had become, “State-owned enterprises march forward, private firms retreat,” and the government forced a “Party Committee” on airport management. The state transferred local officials from their regions, which undermined Shum and Duan’s local ties and rendered worthless any bribes they had paid.

No one wanted to overthrow the Party. We just wanted a more open system.…But after 2008, it was clear that the party’s leaders viewed even a gentle nudge with alarm. We’d thought our wealth could foster social change. We were wrong.Desmond Shum

As the national mood turned against entrepreneurs, the couple sold the airport venture. Shum and Duan developed different outlooks on the future: Duan wanted to continue to leverage her connections, but Shum wanted to succeed through his and his team’s capabilities. Shum moved out of the family home.

Anti-Corruption 

In 2012, The New York Times published a story about Auntie Zhang’s wealth that mentioned Duan. Auntie Zhang pressured Duan to say that Auntie Zhang’s shares were hers, and Duan agreed. In 2013, Auntie Zhang revealed she and her children had “donated” their massive wealth to the state in return for prosecutorial immunity. 

Throughout the anti-corruption drive, investigations and punishments depended on political loyalties and CCP pedigree – if your political position became too lucrative or high-profile, your competitors sought to remove you through corruption charges.

She’d played the roulette-like political environment of the New China with unparalleled skill, parlaying an alliance with the family of a political titan into almost unimaginable success. Until she didn’t. She’d understood the real China, until she didn’t.Desmond Shum

In 2016, Shum, disillusioned with China, moved to London with his son. Duan believed she still had a rosy future in China, but on September 5, 2017, she disappeared. She had once helped many politicians, but now none spoke up for her.

“The Red Aristocracy”

The sons and daughters of China’s ruling class enjoy food and consumer goods from special, separate supply chains, Shum claims, and they get their education and health care from exclusive schools and hospitals. They also leverage political connections for sweet contracts: For example, Deng Xiaoping’s family holds a $1.5 billion monopoly on bottled-water sales on Chinese trains. 

Starting in the late 1970s, when the Chinese Communist Party gave everyone a breather so it could recover from its own disastrous mistakes, it opened the window a crack…Now that the Chinese Communist Party has the resources, it’s back to showing its true colors.

Red aristocrats can transfer their wealth safely out to the West. In China, limited capitalist dynamics created vast wealth and a solid tax base, but now the CCP is reasserting its control.

Shum recounts that one day before this book’s publication, Duan telephoned him and asked him not to publish it. She remains under house arrest in Beijing.

Review

Desmond Shum reveals a Chinese business life of the kind that until now has remained invisible to most Westerners. With headlines trumpeting China’s forced rendition of thousands of expatriates who had fled repression, Shum’s book is a genuine act of courage. The consequences the state may visit upon his former wife, however, remain unknown. Shum candidly paints himself as every bit as self-serving and hypocritical as the government officials he routinely bribed. This, he makes clear, is the price of success in today’s China.

Other insightful works on modern China include The Long Game by Rush Doshi, Invisible China by Natalie Hell and Scott Rozelle, and China Unbound by Joanna Chiu.

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