Zeng Chengjie, "China's Bernie Madoff," executed by the Chinese government last week. (Sina Weibo)
Zeng Chengjie, a real estate developer who has been likened to "China's Bernie Madoff," was executed by the government last week for fraud and illegal fundraising.
The businessman allegedly defrauded more than 57,000 investors out of approximately RMB2.8 billion (US $460 million), of which RMB1.7 billion has been returned.
Zeng used the money to fund his company for urban development projects, including public facilities and local landmarks.
He has been described as a self-made businessman - the type who pulled himself up by the bootstraps at a young age. In 2006, his hometown published a profile on Zeng filled with accolades, referring to him as a "diligent, wise, and conscientious man."
In sadness and outrage, Zeng's 23 year old daughter, Zeng Shan, has been actively speaking out against how the Chinese government treated her family in this matter.
She points out that Zeng's business was highly-integrated with the local government.
The local government encouraged the very fundraising that got Zeng executed, and worked very closely with him on the local real estate projects, according to Zeng's daughter.
In fact, she accuses local Communist Party members of removing their investments from Zeng's projects sometime in 2009, which is what initiated panic among investors. The members left Zeng "holding the bag" in the alleged Ponzi scheme, and came out of the entire matter themselves smelling like roses.
Meanwhile, Zeng was imprisoned, his assets sold, and he was executed by lethal injection.
The most unsettling thing is that Zeng's family was not notified by the Chinese government prior to his execution, nor did they see his body before it was cremated.
Zeng Chengjie, "Zeng Shan's Weibo page, where she has posted a picture of her father Zeng Chengjie while he was in prison. (Weibo)
Zeng Shan's Weibo page, where she has posted a picture of her father Zeng Chengjie while he was in prison. (Weibo)
Here is a rough translation of what Zeng Shan posted on Weibo of her father's execution:
Zeng Shan's message has gone absolutely viral and has generated more than 50,000 comments.
The immense response highlights the concern many people are feeling about China's justice system when it comes to white-collar crime.
Wang Xiaoshan, a highly-followed Weibo commentator, rails against the inequity of justice in China in favor of government officials:
"Those in power have already abolished the death penalty for their own men. Please forget about dreams of using the death penalty to punish corrupt officials. Death penalty is for people like you and me."
To Wang's point, last week the former Railways Minister, Liu Zhijun, was given the death sentence for accepting bribes amounting to millions of dollars. But his sentence was then suspended, meaning he will likely escape with a prison sentence instead.
China's mixture of politics with business should give Americans pause: the U.S. has been doing business with China on an ever-increasing basis.
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For instance, check out this real-life horror story:
Hu Zhicheng is a Chinese-American businessman living in California with his wife and two daughters.
He is an expert in catalytic converters used to control automobile pollution, and formed his own company, partially working in China.
When he became involved in a dispute with a competitor while on a visit to China, Hu was arrested. He was eventually cleared of all wrongdoing and released, but authorities refused to let him leave the country when a competitor sued him.
After being detained for nearly 5 years, he was released to his home in California earlier this June.
And here's another, even more recent, horror-story:
Last month, American businessman Chip Starnes was held hostage by employees in his Chinese factory for six days before he was released.
Starnes is co-owner of the Florida-based company, Specialty Medical Supplies. He had recently laid off some of the Chinese factory's workforce and transferred jobs to India. Some employees were given severance pay, and the remaining workers demanded the same.
And so, the workers gated him in the factory when he visited, forcing him to work with a union negotiator on the matter.
"It is not rare in China for managers to be held by workers demanding back pay or other benefits, often from their Chinese owners. Police are reluctant to intervene, as they consider it a business dispute," says the AP.
James Zimmerman, former chairman of the American Chamber of Commerce China explained to WSJ:
It is clear that China's business sector is currently riddled with significant societal problems.
Don't get me wrong, I am all for the U.S. taking part in the global economy; we'd be remiss not to.
But at the same time, business there operates there under a different set of rules...rules that you can't glean from a book and take a test on to become proficient or safe.
Perhaps the public outcry over the secret execution of Zeng Chengjie will spark change in China's cavalier brand of white-collar justice, and perhaps not.
Either way, Americans need to be aware of these issues when looking to do business in China.
We also might take a lesson from China and apply it here at home: when government mixes with business, it's all too easy for corruption to ensue.
Are you an investor looking for a safe way to navigate China's credit crunch as it ripples through the world economy? Check out Money Morning's Global Investing Specialist Martin Hutchinson's picks here.
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