While the Bank of China (BOC) vigorously prepares to go public on overseas stock markets, it seems that more disturbing news is just around the corner. It was just a short time ago that the president of the BOC’s Kaiping branch took 4 billion yuan (US$482 million) illegally and escaped out of the country. Now the Bank of China faces another scandal. The BOC’s Tianjin branch has stolen money from its clientele. A depositor involved has been jailed and tortured for the past two years. The scandal has tainted the BOC’s image as it prepares for its initial public offering (IPO) in the U.S.
A Deposit of 20 Million Yuan Evaporates; The Depositor Is Jailed and Brutally Tortured
In October 1999, legal representative Zhang Shili from Yizhaochen Properties Limited in the Tianjin development zone convinced Ma Ping and her husband Zhang Mu from Australia, with an annual interest rate of 16.2%, to deposit a large sum of money into the Kaixuanmen office of the BOC’s Heping branch in Tianjin. Ma Ping and Zhang Mu deposited more than 55 million yuan (US$6.63 million) for a one-year term.
Afterwards, Zhang Shili faked the seal with the assistance of Yang Zhaoyuan, the Director of Kaixuanmen Branch. After issuing Banker’s Acceptance of the aforesaid amount with the pledge of deposit verification provided by the bank’s employees, she used it at a discounted price. On November 23, 2000, Ma Ping and Zhang Mu went to the Kaixuanmen Office to withdraw their matured deposit. They were told that the money had been collateralized and could not be taken.
On November 27, Hao Baoshan, the Heping branch President and Vice President of the BOC’s Tianjin location, approached the couple with a proposal. If they agreed to assist him in replacing the false collateralization document and cover up the crime, he guaranteed they would receive their money within three months. After Ma Ping refused him, Hao said, “With my decades-long personal relationships in Tianjin City, not only will you not get your money back, but I will also put you in trouble.”
On September 7, 2001, the Tianjin Police Department trapped Ma Ping, and the couple was arrested in Tianjin and charged with “usurious re-loaning.” Ma Ping was brutally beaten by female inmates at the detention center. Her chest was scratched so bad that it festered. After several unsuccessful attempts to commit suicide, she was handcuffed with a special handcuff that would become tighter and cut into her flesh if she tried to move. She was forced to work over 18 hours a day for more than a year. Her job required working with a highly toxic industrial chemical glue while assembling sporting goods and other rubber materials. After just one month, Ma Ping had lost almost all her hair and was nearly blind. Her respiratory system had been severely damaged. After the couple was arrested, they couldn’t take care of their 10-month-old baby girl. The baby girl cried for several days and nights, which damaged her vocal chords and caused her to lose her voice.
Premier’s Instructions Ignored
Ma Ping had written to Zhu Rongji, then Premier of China, to tell her story. Zhu attempted to resolve the issue but to no avail. The BOC still refused to return her money. A former employee, Ms. Liu, of Vancouver, Canada, told this reporter that she was not surprised. “In 1995 and 1996, the BOC sent some people, including me, to Guangdong Province to investigate local banks investing hundreds of billions of yuan in unlisted real estate. Zhu Rongji himself requested severe punishment for such acts. Later, local interest groups stood up in favor of the banks and the government was afraid to act, fearing that average citizens might rush to withdraw their money if they knew the truth. In the end, those hundreds of billions of illegal investment funds were merged into the main account—end of story”.
The famous economist He Qinglian pointed out in her research that the real estate industry in China was acknowledged as one the fastest growing and most profitable industries. It was really an example of the highest form of corruption: real estate developers, government officials, and bank managers closely cooperating to plunder the public wealth and private property of common people. At the end of February 2003, the central BOC published the “Report on Implemented Monetary Policy of 2002.” This report announced the results of an investigation of real estate loans on partial city commercial banks from July 1, 2001, to September 30, 2002. The results showed that 24.9 percent of total loan amounts violated regulations. On June 13, 2003, the Bank of China published “The Notice on Strengthening Real Estate Management and its Associated Loans.” This policy change created a huge disturbance in the real estate industry. Many real estate developers believed that this policy would cut development funds, driving 50 percent of them into bankruptcy and stopping 70 percent of on-going projects.
Currently, in order to comply with stock market trading requirements overseas, commercial banks in China are attempting to increase loan amounts in order to decrease the ratio of bad loans. In the past, many loans have been invested in industries and suppliers, such as the real estate, steel, concrete, and automobile industries.
Banks: The ATM Machines for Corrupted Officials
With widespread corruption among government officials, many regard banks as their own ATM machines. In April 2004, U.S. authorities handed over the former president of BOC’s Kaiping branch, Yu Zhengdong, to Chinese police. This created international exposure for this major case. It revealed that since 1993, the former three-term president had illegally embezzled 4 billion yuan (US$482 million) from the bank. Using an internal accounting loophole between central BOC and its branches, Yu made off with the money and managed to escape China.
Xi’an Evening News reported on May 29, 2004, that Zhou Jianmin, the former director of the China Construction Bank’s Ziqiangxilu Office at the Beijiao branch in Xi’an and president of the Beidajie branch, along with Liu Yibing, illegally collected over 400 million yuan (US$48.2 million) from companies and individuals through forging bank deposit books and other bank documents. The crime has been called the most corrupt financial case since the communist took over China. Resulting from the severity of this case, Zhou and Liu were recently sentenced to death.
The Hainan Daily reported on June 8, 2004, another case of massive financial fraud—the case of Huayin International Trust and Investment Corporation in Hainan Province.
Several financial organizations were involved in the “Huayin Case.” Through the illegal sharing of state property, forging financial proofs, illegally collecting public funds, and forging contracts, the total amount of money involved in the Huayin Case was over 26 billion yuan (US$3.13 billion). A portion of this, namely 260 million yuan (US$31.3 million) was linked to one individual, Shi Xue, who was temporarily in charge of Huayin International Trust and Investment Corporation and the legal representative and CEO of Dalian Securities Limited. This was the highest amount swindled by one individual since the People’s Republic of China was founded.
In May 2004, a document from Minister of Public Security showed that there were over 280,000 corruption cases since the year 2000. The total amount of money involved was over 67 billion yuan (US$8.07 billion). Two hundred and thirty officials from over 30 countries have been arrested and sent back to China.
Scandals shake the confidence of overseas investors
Australian investor Jonechy Ma, who is also the father of Ma Ping, has invested billions of yuan in Beijing and Tianjin. On May 9, 2004, Jonechy, together with Senior Minister of Singapore Lee Kuan Yew, wrote a letter to the Chinese leadership. “We are the overseas Chinese who travel thousands of miles to China to invest in China. Facing four years of unreasonable persecution by the corrupt officials in Tianjin, we called on heaven and earth for help but to no avail. Under pressure from the leader of the Tianjin Politic and Law Committee, the judicial system distorted the law and made the wrong judgment. If such judgments, followed by future distorted decisions, are not corrected or prevented, China’s ignorance of the rule of law will severely damage its investment environment and ruin its image. Furthermore, the Chinese constitution’s pledge to protect human rights and the property of China’s citizens would be questioned. The confidence required by overseas investment in China would be severely damaged.”