Juggling with a slowdown in the cradle of Chinese capitalism

Tue, Jul 3, 2012, 01:00

THE EASTERN CITY of Wenzhou, the cradle of capitalism in China, is never long out of the headlines. It has featured in this column before back in April, when the city was put forward as a test case for banking reform, introduced when more than 90 private company bosses fled after the economic slowdown left them with debts they could not pay back.

But in the past week it has been in the news for different reasons – one of its citizens is involved in an elaborate fraud case, while the local government is having to come up with inventive ways to reduce spending.

Wenzhou’s economic success has been under strain in recent times. The city’s wealth is built on manufacturing but also on property speculation, and government efforts to cool the sector and avoid a bubble have hit hard. Economic growth in Wenzhou was 5 per cent last quarter, the slowest it has experienced in four years.

Even against this background of relative hardship, the chuzpah of trader Lin Chunping’s has become the stuff of legend, although it also reinforces a common prejudice in the rest of China that people from Wenzhou are untrustworthy hustlers.

The rice and metals trader claimed that he had bought a US bank, the Delaware-based Atlantic Bank of America, for €48 million in June 2011.

The 42-year-old Lin wowed local officials with his plans to rescue the venerable institution from certain collapse, using millions he had earned in copper mines in Africa.

For his efforts, the local government gave Lin a senior political advisory role. After all, how often does a native son break into the notoriously difficult US banking sector?

Well, not that often. The bank unfortunately didn’t exist and he was unmasked in March of this year.

Fake Apple stores are okay. Pirate DVDs are fine, but a fake bank? That’s stretching it a bit.

Lin has stuck to his story. While conceding the bank didn’t exist, he insists he does genuinely want to buy overseas banks and he only used the name he gave as a pseudonym because the deal was ongoing and he couldn’t use a real name. It was a case of exaggeration if anything, he said.

Lin is facing tax fraud charges, involving a complicated €8 million scheme which involved selling on tax invoices in Zhuhai, in Guangdong province.

Police have been looking for him since he disappeared in May of this year and a nationwide arrest warrant was issued. He faces up to 10 years in prison, according to local media reports, but for the tax fraud, not the bank fantasy.

Wenzhou has been forced to be inventive when it comes to finding ways to deal with the changing economic environment.

The latest wheeze is to sell off about 1,400 government cars to cut costs and increase transparency, and it has already sold 215 vehicles, in an auction on June 24th, raising 10.6 million yuan (€1.32 million).

That works out at around €6,100 per car – not exactly luxury limousine prices. It makes one think that perhaps there was some privatisation going on here – were government officials buying their own cars at knockdown prices?

Wenzhou spends 144 million yuan (€18 million) a year to operate and maintain its vehicle fleet, while the central government spends an estimated €13 billion a year on cars.

The car industry reckons that between one-fifth and one-third of all Audis in China are owned by government officials, and are recognisable as such by their special official licence plates.

This makes it easy to spot the Porsche Cayennes and other SUVs, complete with back seats full of expensive shopping bags, which are also ostensibly for official use.

This kind of abuse of privilege is a major source of social dissatisfaction in China. The Beijing government has tasked local agencies with becoming more transparent about car purchases to make budgets clearer and avoid corruption.

Any officials who no longer have a black Audi to rely on will be given transportation subsidies ranging from 300 yuan (€37) to 3,100 yuan a month, depending on their rank, according to the local government’s website.

Feng Gang, professor of social science at Zhejiang University, is annoyed at the subsidies.

“Being a civil servant should be no different from any other job – you buy it with your own money and pay for the upkeep.”