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2012年5月27日星期日

RMB80 Billion Losses of State-owned Assets

RMB80 Billion Losses of State-owned Assets


Monday, May 7, 2012

Earthquake among Government Officials in Jin Cheng City of Shanxi Province, China: the wealthiest in Energy Industry Suspected of Causing RMB80 Billion Losses of State-owned Assets

  
Photo of
Lv Zhonglou, Chairman of the Board of Qinhe Energy Group Co.Ltd
 
The Battle between the Two Wealthiest behind the News on “RMB80 Billion Losses of State-owned Assets”

By Peng Junyong, reporter of New Finance, in Beijing
  
Lv Zhonglou, Chairman of the Board of Qinhe Energy Group Co.Ltd and the richest person in the energy industry of Shanxi province, was pushed to the center of storm again and again with the rumors of “embezzlement of RMB80 billion state-owned assets” and  being a “runaway boss.”

Surrounding this businessman who has the highest academic diploma among coal bosses in China, negative public tip-offs, government auditing, denials, written instructions from high level leaders, and business conflicts kept unfolding. And the business battles behind the disputes left over by the coal mine reforms years ago has not come to an end up to today.

When I met Lv Zhonglou, he played in his fingers a piece of cigarette, which he jerked several times in his hand, rubbed slightly between his fingers, and jerked it again, not lighting it up. It appeared that, at the age of 47, he met a substantial obstacle in his life.

In the afternoon of May 4, when Lv, Chairman of the Board of Qinhe Energy Group Co., was sitting in front of the reporter of New Finance in a hotel near West Sanhuan Road in Beijing, the rumors that he had run away was everywhere on the media. In the same time, the news was spreading that Zhang Xinming, one of his former business partners and now a business competitor, was listed as wanted by police because of unlawfully leaving the country with a fake passport.
  
Among the wealthiest coal bosses in Shanxi province, Lv is renowned in China’s coal industry for his highest academic diploma and competence in modern enterprise management. If he becomes a “runaway” boss, the shock from it will be well off the limit of Shanxi province and the coal industry itself.
 
Lv complained, “If there’s any negative news in Shanxi, I’d be dragged into it involuntarily. It happened several times like this.”

The so-called “negative news” referred to the “earthquake” that had been happening among the government officials in Jincheng City, Shanxi province. For the recent half a year, at least four officials of deputy county magistrate’s level or above were placed under Shuanggui, a form of investigative detention for cadres. And several dozen more were being investigated. 
According to the person close to the investigation, the first person falling into trouble was Wang Youming, who was placed under Shuanggui while acting as an inspector at vice department chief’s level and former head of Bureau of Land and Resources of Jincheng City. His detaining was followed by the arrest of secretary of county committee of Qinshui County of Jincheng City. And Qinhe Energy Group Co.Ltd, of which Lv Zhonglou was the Chairman of the Board, is located just inside Qinshui County.

When the rumors that Lv ran away just emerged, some people even set off firecrackers to celebrate his fall in front of the Jincheng municipal office building.
  
The headquarter of Qinhe Energy Group Co. Ltd is locatedin Qinshui County of Jincheng City, Shanxi province. In 2001, Qinhe was founded on the basis of reorganizing and reforming of “Three-Mine One-Station”, which refers to three coal mines and one coal distribution station. Qinhe’s business focus was on anthracite coal, coal chemistry and finances. Lv, the Chairman, is a native of Qinshui County, who was called the first person holding the highest academic diploma among the coal bosses in Shanxi province, after returning back to his hometown with a PHD degree in Western Economics in 1994.
In contrast with his outstanding background, the breaking news was “Shanxi vice department chief involved in the embezzlement of RMB80 billion state-owned assets.” It was referred to the claim that Qinhe Energy Group Co., Ltd was actively involved in the “conspiracy among government officials and businessmen to sell state-owned assets below value,” which happened during Qinhe’s reorganization in 2001. Some of the officials being investigated were among the major decision makers of the reorganizing and reforming of “Three-Mine One-Station.” They were listed as the major targets to be investigated in the blood-tear complaints by 39 veteran cadres.

Apparently, the “runaway boss” rumor was not true. Through the confirmation of New Finance reporter, Lv went to work as usual on May 2 in his company’s office building in Haidian District, Beijing. He also attended the board of directors meeting as scheduled in April in Jicheng city, at which he even casted his opposing vote.
“I have nothing to do with the fall of the head of Bureau of Land and Resources. Someone has been interested in dragging me down with these things,” Lv said to the New Finance reporter. He also said, “Whenever there’s negative news, I’d be said to be involved in it.”
 
But according to a source familiar with this matter, these rumors had their own origins. While having nothing to do with the fall of many Jicheng city officials, these rumors were closely related to the coal industry in Qinshui county of Jicheng city.

People of Qinshui County regard the coal resource buried deep under earth as the only thing that they can boast about. This resource is also an important tool to attract business and investment for the locals.

With continuous rising of the price, coal, once being ignored generally, has become a hot spot in the center of contentions, revolving which are the never ending conflicts among the interest groups.
  
Qinshui County, located in the heart of Qinshui coal fields, has coal resource in 94% of its 2500 square kilometer area. In 2000, the county’s finance income was only RMB72.25 million, listed as one of the poorest counties in Shanxi province.
  
In 2001, coal industry reforms were initiated in Qinshui county by reorganizing into a sole entity the state-owned Yonghong Coal Mine, Yong-an Coal Mine, Houcun Coal Mine and Jiafeng Distribution Station, the so-called Three-Mine One-Station. Its purpose was to establish a group holding corporation by selling state-owned stocks at the value of its net assets.
  
On 12-12-01, Qinhe Energy Group Co. Ltd was established. The stock holders were China Peace (Beijing) Investment Co., Ltd holding 25% stock, Shanxi Province Qinshui County State-owned Assets Management Bureau 25%, China Datong Industries Co., Ltd 20%, Jincheng Zhongjia Coal Industries Co., Ltd. 20%, and Beijing Runxin Investment Co., Ltd holding 10%. And their total investment was RMB50 million, ranging from RMB12.5 million to 5 million for individual investors.
  
Among the RMB50 million registered capital, except for the RMB12.5 million invested by Shanxi Province Qinshui County State-owned Assets Management Bureau, the remaining balance was arranged to be paid by the other four outside companies on a three-payment-a-year installment plan. The remaining balance of the total net asset of the state-owned assets, which was RMB77 million, was later arranged to be paid in full in four years.
  
It was naturally shown that the four outside companies brought into the deal by Lv purchased RMB0.11 billion worth of state-owned assets with only RMB37.5 million, enjoying the grant not only of their late payments of the registered capital, but also the late full payment in four years. This became the proof of the news of “selling state-owned assets below value” and “purchasing this state-owned asset with Qinshui county’s own state-owned assets.”
However, in those years when the coal market was struggling at low prices, the above deal didn’t arouse much dispute. Lv was even regarded as a “pretty daughter” who brought back home a handsome son-in-law, referring to the outside companies. But this deal would become a direct cause of dispute in the years to come.
  
The then media even summarized the outside investment of coal exploration and mine planning into two ways, one was from the private business owners from Zhejiang area, and the other was from the investor of Beijing. And Lv was thought as a model for the latter.
 
Some media commented on Lv and his
Qinhe Energy Group Co. Ltd, “The investors from Beijing was introduced by government into the coal exploration and mine planning through reforms of the state-owned enterprises, while the investors from Zhejiang took a civilian marketing approach. Dramatically, Beijing investors chose to settle down to actively engage in reforms and innovations of the property and management system; while the Zhejiang people chose a temporary stay and operated their business within the old system quietly.

At that time, Lv’s business perspective and capacity were different from other ordinary coal bosses, resulting in huge profit difference. Lv told the report, “I entered the coal business in 1998. In Qinshui area, the lowest price for one ton’s coal was RMB15, with the whole coal industry remaining in loss. Even then, I could still make profits.”
  
The locals would talk about him, “When the coal price was so low, he could still make profits. So he was thought as a business genius by the local government, who sought for his joint cooperation.”
 
“He rose to his fame and success in such a short time. It’s because he knew things about capitals, and he had good judgments on the economic trends. Seeing the definite rise of coal price and the rich coal resource in his hometown, Lv set up a coal mine of himself, though quite small in size. At that time, only idiots would invest in coal industry. But his classmates in People’s University were all studying economics and they could get a better prediction of economy. And since it was relatively easy to get business financing then with the help of his classmates, he got his first pot of gold.”

A middle level cadre in Jicheng city once said, “Lv used to be an employee of the State Scientific and Technological Commission. He returned back to his hometown to buy coal mine only when he had known in advance from inner circle that the coal price would rise.”
 In fact, some coal business owners in Jicheng city pointed out that, when Lv and his Qinhe Energy Group Co. Ltd took steps to reform and reorganize the local coal mines, the coal industry had been experiencing a record low in revenue for quite some time. The anthracite coal produced in Qinshui County only had the average selling price of RMB15 at the production site.

Lv’s PHD degree in economics apparently helped him make the insightful market forecasts and predictions in coal industry. In 2004 only, his company produced 2.425 million tons of raw coals, making profits of RMB0.27 billion and paying taxes of RMB0.156 billion. The tax it paid per ton was four times on average over that of other coal producers that didn’t undergo reforms.
According to the State Statistics Bureau’s report in October 2004, Qinhe Energy Group Co. Ltd was listed among the ten most profitable companies in national coal industry, and ranked #1nationwdie if based upon the amount of profit made per ton.
Zhao Xuefeng, the general manager of Qinhe Energy Group Co. Ltd, said that in the year of 2011 the company produced 4.32 million tons of raw coal and its sale revenue reached RMB4.4 billion, paying RMB3.1 billion tax and making RMB1.95 billion net profits. Lv’s billionaire fame matched the reality.
  
In those years, the depiction of coal bosses in general in the news media was “The coal bosses squatted on the hill tops, feeling complacent while looking at cranes operating to dig out the coal and counting one dig for one thousand RMB.” But this clearly had nothing to do with Lv when he was having the interview with the reporter.
 
Some reporter commented on Lv, “Before knowing Lv, I had had the showing-off impression about the coal bosses. But Lv changed my view completely.” He also said, “He is the scholar type of person, a well-educated businessman.”

With the rapid rise of coal price, it’s undoubtedly true that Lv’s wealth has been increasing in the meantime.

Lv complained to the reporter, “Some people claimed that I embezzled RMB80 billion state-owned assets. But my company’s total assets is no more than RMB8 billion. How come I could embezzle RMB80 billion?”
                                                                                                                        
No matter a parvenu or well-educated businessman, Lv was confronted with continuous tip-offs and negative information against him questioning his wealthy. Apparently, the whereabouts of RMB80 billion state-owned assets needs an explanation.

Lv said, “Personally, I don’t want to be a moral standard that people can look up to. But it’s not easy to do business. Sometimes, if you act like a bad guy, nothing bad will happen to you. But when you want to do clean things, you’d get troubles.”
 
According to the local people, in order to avoid unnecessary social activities and dinner parties, Lv spent most of his time hiding in Beijing or Hong Kong. If being bothered with an invitation call, he’d excuse himself by saying he’s traveling in other cities. This is the reason that Lv keeps low all the time.

Translated by Qian Geng, and Posted by China Democracy Party National Committee

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