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December 30, 2006
Taiwan Gives Go-Ahead to 0.18 Micron Chip Investment in China
The Mainland Affairs Committee and the Ministry of Economic Affairs will allow Taiwanese investment in 0.18 micron process technology in China, lifting the lengthy ban. Taiwan Semiconductor (台積電, TSM) will likely be the first to benefit. Read about the announcement here in Chinese or here in English.
Former President Li Teng-hui recently criticized moves to loosen restrictions on Taiwanese investment in China. This article suggests that Taiwanese investment in chip processing technology in China lags that of the U.S. [In Chinese.]
Posted by Richard at 1:36 PM | Comments (0)December 29, 2006
Money Laundering in China: The Case of Huang Guang-rui (Part 3)
[Editor's Note: This is the final installment of our series on money laundering in China. Read Part 1 here. Part 2 here.]
“Wipe Clean” and “Wring Dry”
“Wiping clean” follows soaking -- allowing dirty money to distance itself from its unlawful origin. After the dirty money has entered the banking system, [they move it in and out of] accounts in as many different locations as possible or holding companies [they] establish, creating a complex web of financial transactions that render helpless any auditor and moving the dirty money farther and farther away from the criminal boss [of the original enterprise].
When Huang Guang-rui would set up a false account, the deposit usually came in and went out on the same day or the following. Huang Xi-tian and the others would split up and deposit money in the accounts set up by Huang Guang-rui. Huang Guang-rui would then move it on the same day or the following into the accounts of Gao Zhan-kun, Wang Li-Mei and others, leaving a small balance in the [transmitting] account.
Thereafter, the money would be transferred to Huang Guang-rui’s Hong Kong Xinxing International Trade Company and YongXing International Trade Company accounts. Once wrung dry, the dirty money had been washed clean, becoming money Huang Xi-tian could make use of without worry,
An important middle man, called “A-Nan,” who exchanged RMB for Hong Kong dollars and has not yet been made part of this case, moved Huang Guang-rui’s RMB across the border, completing the important step of wringing the money dry.
Actually, before the end of 2000, Huang Guang-rui didn’t know who A-Nan was. Later, he was introduced to A-Nan, who, through his gang, made money off of the forex spread across the border. But in the beginning, when the amount of RMB was small, A-Nan was never directly in touch with Huang Guang-rui.
The turning point came after 2002. The amount of smuggled money that was wired had become rather large, so Huang Guang-rui began direct contact with A-Nan so that [RMB could be] exchanged into Hong Kong dollars.
Between them, Huang Guang-rui and A-Nan established a fixed fee schedule. Huang Xi-tian and Huang Chu-dong called Huang Guang-rui to ask the daily rate (not the official rate, higher than the bank’s officially announced rate, and based on the supply of Hong Kong dollars at the time of the transaction), and paid Huang Guang-rui in RMB based on the rate Huang Guang-rui had provided. Huang Guang-rui would pay A-Nan based on the rate provided by A-Nan, making money off the forex spread.
Changed into Hong Kong dollars, A-Nan would then transfer, via underground money-lending networks, to the Hong Kong Xinxing International Trade Company and YongXing International Trade Company accounts.
Judiciary organs have said that, since A-Nan has not been made part of this case, the exact methods of those who use underground money-lending networks to move money across border remain a mystery. Moreover, the details of the transacations between Huang Guang-rui and A-Nan are impossible to prove, as there is so little evidence.
Huang Guang-rui said that he only wished to give RMB to A-Nan. He guessed that A-Nan, in order to exchange currencies, may have had a relationship with a joint venture factory, to which A-Nan would have provided RMB in cash, in return for the joint venture (or foreign invested factory) would have placed the equivalent in Hong Kong dollars into the Hong Kong accounts.
In addition, Huang Guang-rui disclosed the activities of several other underground money lending networks – which directly exchanged RMB for Hong Kong dollars in cash and then moved it out into Hong Kong accounts. Chinese who gambled and won Hong Kong dollars on horse racing or the lottery in Hong Kong would give over their cash to A-Nan, who would then pay RMB to them in China. Outside of China, criminal elements who received smuggled goods would take Hong Kong dollars and within China pay RMB at a certain rate to people of a similar ilk.
Just like Huang Xi-tian and the others who profited from laundered, smuggled cash, there was still the originator of the smuggling – a Vietnamese trader name Zhang Ze-chun
For ease of moving money from one account to another, Huang Guang-rui and Zhang Ze-chun settled accounts via cellphone messaging that would send money from the Hong Kong accounts to Huang Xi-tian, and then to Huang Guang-rui. Block amounts of 500,000 or 1 million Hong Kong dollars were moved into Zhang’s Hong Kong accounts. The money arrived the same day. Zhang only shipped product once he had the money in hand.
By means of this cycle, the laundered cash entered the “wringing dry” stage, or perhaps one might say it had reached the “return of capital” stage. Just like legal capital, the laundered money was moved out to other destinations.
Well over 100 million RMB, dirty money earned through the smuggling efforts of Huang Xi-tian and 15 of his brothers and sisters, had been washed clean.
December 27, 2006
China Blocks Access to Asia Business Intelligence Weblog
UPDATE (Dec. 28): The earthquake that disrupted internet access in Korea, Taiwan and parts of China may have caused the block reported below. This article describes the damage to undersea cables in detail, stating that "China Telecom, one of the mainland's main telecommunication and broadband service providers, said that at least six of its cables in the sea area 15 kilometers south of Taiwan had been cut, affecting telecommunications between the mainland and Taiwan, U.S. and Europe."
***
Reports from Chinese subscribers confirm that this weblog is no longer accessible in several of China's largest cities. Well over a thousand readers visit this site from China daily. Is the block uniform throughout the country?
Readers in China who receive this post in their e-mail are kindly asked to email in reply their physical location and whether the weblog or an error message displays.
We are now among the list of sites considered too sensitive or offensive for viewing within the Golden Shield (金盾), including the Voice of America, the BBC and several thousand others.
Tools for circumventing blocked access include:
* Freenet
* Psiphon
* The Google Mirror, here or here.
Other methods may work -- please comment directly to this post if you know of any.
December 20, 2006
Audio: Renminbi Redux - Have They Begun to Circle the Wagons
More renminbi revaluation silliness from Washington... Click the little triangle to listen to today's post.
Renminbi Redux: Have They Begun to Circle the Wagons?
UPDATE to this post: More silliness from Washington. [One is sorely tempted to employ the perjorative "stupidity," given the continued emphasis upon ineffective strategies.] The Chinese government will give scant attention to strident but empty-fisted pronouncements.
Token offers of appeasement, like the single digit percent movement of the value of the RMB, effected over years -- we have heard similar promises about revaluation since the early 1990s -- should be taken as mere off-putting tactics which many in the American business community have come to understand for what they really are.
Why should China move when there is little genuine pressure upon their position? American investment money flows into China like the proverbial honey. Americans purchase ever increasing quantities of China-made products, even as their own manufacturing base has suffered terribly.
Change in yuan policy will come only when export revenue diminishes and inbound investment falls. Chinese understand that American pols are, frankly, impotent -- none will attempt to curtail U.S. domestic consumption of Chinese product or the massive capital outflows from the U.S. into China that do more to strengthen the Chinese position than anything the Chinese could do themselves.
Posted by Richard at 1:19 PM | Comments (0)December 18, 2006
Chinese Restrictions on Investment
Bloomberg: The Chinese government permits foreign investment in new capacity, but has essentially closed the door to foreign acquisition of established Chinese businesses in many industries.
``China now has so much capital that the central bank has to slow the spending growth,'' says Lu Jianfeng, finance director at the Jiangsu provincial government's Department of Foreign Trade and Economic Cooperation. ``China can now afford to be a little more selective in the kind of overseas investments that we want.''
For readers of Chinese, this relevant article may also be of interest: 国资委:培育大企业集团是增强国有经济着力点.
Posted by Richard at 1:34 PM | Comments (0)December 15, 2006
Money Laundering in China: The Case of Huang Guang-rui (Part 2)
[Editor's note: Read Part 1 here.]
“Soaking”
This isn’t something everyone can do – laundering money requires contact with financial institutions so that cash can move up to the surface from underground, becoming legal income – it requires a series of complex techniques. The players in this industry have specialized knowledge and skills: lawyers, accountants, auditors, financial consultants and others.
Born in 1972, Huang Guang-rui was nonetheless considered a skilled mouthpiece. From 1990 to 1993, after studying at the Guangdong International School of Finance, he spent the next five years working in a bank branch in Shenzhen. After resigning in 1998, with an inside-out knowledge of the way banks move money, he became a expert money launderer.
His activities fit the classic laundering process – using the analogy of clothes-laundering, the money laundering cycle of “placement, layering and blending” became to them “soaking, wiping clean and wringing dry.
Soaking is the first stage. Placing unlawful revenue into the financial system, into ordinary channels of distribution, is the first step. Important methods include the use of bank current accounts, postal money orders, travelers checks and other commonly circulated instruments.
Under ordinary circumstances, a very large bank deposit will attract the attention of regulators. Huang Guang-rui didn’t have much he could do about this. He used the most common technique – he opened tens of accounts in the local branches of two banks under many false names.
These accounts were patently preposterous. A few were opened using the altered IDs of his cousins. As an example, the account name of "Huang Juan-hua" was opened with a copy of photographs taken from an ID of Huang Guang-rui’s wife Huang Hai-xuan and sister-in-law Huang Xiao-yan, but with altered ID names, addresses and other pertinent information, The account name of "Huang Hui-juan" used Huang Hai-xuan’s photograph, but the ID name and number did not match hers.
Kanjiang’s “Boss Chen” shipped smuggled cigarettes into Guangzhou, Shenzhen and other designated stores, included cigarette counters and tea shops. Then those who were responsible for selling the smuggled cigarettes would figure their total revenue, and using banking institutions over a wide area, deposit that money over computer networks into the accounts Huang Guang-rui had established with falsified documents.
Experienced international money-launderers all know that the soaking stage is the most fragile, the most easily detected. But Huang Guang-rui was fortunate. The Judiciary has stated that the counter staff at two banks he patronized were insufficiently alert. Due diligence on the customer was halted at the auditing stage, becoming somewhat like a dead letter.
Identity auditing is but the first link. If one wishes to uncover soaking, one only needs to look very closely and often at the individual bank account.
Usually, a bank account opened with a false identity will show constant movement of large sums in and out. From July 1, 2003 to Feb. 27, 2004, the deposit account of "Huang Rui-juan" received 73 deposits for total of RMB 38.35 million (US$4.5 million). On August 8, 2003, however, that account showed 5 transactions amounting to over RMB 4 million (US$500,000).
However, in developed areas such as Guangzhou and Shenzhen, a single account with flows exceeding several tens of millions and even over 100 million is not that unusual. This provided good camouflage for Huang Guang-rui.
TO BE CONTINUED
December 14, 2006
Money Laundering in China: The Case of Huang Guang-rui (Part I)
[Editor's Note: Given the restrictions upon the movement of money within China and across its borders, money laundering -- the transformation into apparently clean income of unlawfully transferred or earned money -- has become a commercial activity of great significance. This article from 21世纪经济报, which I have roughly translated, describes the methods used by a major player in that business, now imprisoned, that turn "black" money, as the Chinese call it, into mainstream wealth.]
Money Laundering
Special Report
Reporters: Zhong Wen-qing (Shanghai)
“Soak, wipe clean, wring dry” – and several hundred millions of dirty money become clean. Huang Guang-rui has not been in prison long. On December 4, China’s Anti-Money Laundering department announced that it had broken up one of Shanghai’s largest underground money laundering cases since the founding of the PRC, involving as much as 5 billion RMB (US$ 625 million).
All international money laundering experts know that the soaking stage is the most delicate and easiest to be discovered. But Huang Guang-rui was fortunate. The Judiciary department has said that counter staff at two local banks he patronized weren’t alert.
For nearly five years, Huang Xi-tian took his 15 siblings and disappeared into the border area between China and Vietnam.
They liked the feeling of flying at night. Each time, they loaded up their private airship with its five engines full of carefully chosen name brand cigarettes, like Southern Comfort and 555. [Private dirigibles in China? You bet.]
Flying from Situn over the Gulf of Tonkin, Huang Xi-tian traveled into Hepu County in Guangxi to a shrimp farm on the coast. Zheng Xu-ming owned the shrimp farm. Many nights, he waited for the airship to land on the dock at the farm. Radar had been installed on the roof of the shrimp farm’s office building, used specifically to monitor the patrol status of the Customs, Coast Guard and other police unit. After the goods had been safely unloaded, they were loaded onto trucks and transported to Guangzhou, Shenzhen, Kanjiang and other places, to be sold to many [buyers]. [Editor's Note: Does any reader know the Vietnamese name for the port of 四屯?]
Huang Xi-tian was very busy, flying often in the past five years, and having smuggled from Vietnam over 47,000 cigarette cartons across the border, they now had 170 million RMB (US$20 million) in hand. But with any more money than that, they were anxious – after all, it was dirty money.
Huang Guang-rui was a genuine money god for them. Only through him could the money become Huang Xi-tian’s legal income. Money laundering – the “dirty money industry” practiced by Huang Guang-rui, was becoming the world’s third largest business activity after foreign exchange and oil.
But now, the easy life was over. On August 23, 2006, the Guangxi People’s Supreme Court sentenced Huang Xi-tian and 15 defendants to prison, reprieved from death sentences, for various terms for commodity smuggling crimes
Moreover, Huang Guang-rui set a precedent – since the amendment of the criminal money laundering law of 1997, this was the first case in China where guilt had been established for money laundering with smuggling as its predicate crime.
TO BE CONTINUED
December 13, 2006
Audio: Have They Begun to Circle the Wagons?
Click the little triangle to listen to today's post.
Have They Begun to Circle the Wagons?
On the eve of the American Magical Mystery Tour to China, the U.S. Trade Representative appears to have anointed herself in the holy oil of tradition, while reciting the usual ineffective incantation, such as we have heard ad nauseam for years.
However, the Financial Services Forum, a private association once headed by Hank Paulson, currently U.S. Treasury Secretary, has issued its own prayer in the form of a lovely little white paper, which may denote an attitudinal change on Paulson's part of no little significance to future dealings, at least on a surface level, with China:
"...no new framework of communication [between the U.S. and China] represents a 'silver bullet' that can be expected to immediately resolve difficult outstanding issues." [Editor's italics.]
Paulson himself has recently uttered a similar statement:
"There is a tendency in Washington to want immediate answers, but a relationship this important [between China and the U.S.] will have consequences for our economy and for our nation over generations..." [Editor's italics.]
Either Paulson has decided to take the high road with China by abjuring statements that appear to pressure PRC officials -- while Schwab plays Mutt to his Jeff -- or he has begun to circle the wagons, knowing full well that little will come of his meetings with the Chinese except a fine excursion and even finer cuisine.
UPDATE (Dec. 14, 2006): Uh oh... FT reports: Ms Wu criticised the US for “not only having limited knowledge of, but harbouring much misunderstanding about the reality in China.”
UPDATE (Dec. 15, 2006): Controversy Avoidance 101. FT again: "Ben Bernanke, chairman of US Federal Reserve, stepped into a political minefield on Friday when he released remarks branding China’s undervalued currency an 'effective subsidy' for its exporters which was distorting patterns of production and trade. In what looked to be a last minute bid to avoid controversy, Mr Bernanke then dropped the phrase from his speech to the Chinese Academy of Social sciences, using the less inflammatory term 'distortion' instead."
Posted by Richard at 7:03 PM | Comments (0)December 12, 2006
Event: Business Law Discussion in Beijing
商法前沿论坛之六：证券投资基金信托中的若干法律
问题[李飞][12月14日]
《商法前沿论坛》公告
演讲人：李飞
全国人大法工委副主任、著名商法专家
题 目：证券投资基金信托中的若干法律问题
嘉 宾：王利明教授
中国人民大学法学院院长
中国法学会民法研究会会长
全国人大法律委员会委员
主持人：刘俊海教授
中国人民大学商法研究所所长
主 办：中国人民大学商法研究所
协 办：北京市普华律师事务所
时 间：12月14日晚6：30至8：30
地 点：中国人民大学明德法学楼601会议室
Posted by Richard at 9:15 PM | Comments (0)December 8, 2006
China Shuts the Door on Foreign Investment in TV
Our healthy skepticism has been confirmed. (See our April, 2006 post: Further Restrictions on the Media.) China has now officially proscribed foreign investment in television and film production companies.
Posted by Richard at 3:01 PM | Comments (0)December 7, 2006
Carlyle CEO Comments on Private Equity and China
A brief link this morning to the Financial Times, which interviews David Rubenstein, CEO of the private equity firm, Carlyle, of interest because of the firm's extensive movements in China.
[NB: He speaks in as flat a tone as one has ever heard with virtually no inflection, creating the impression of stability in emotion and consistency in thought. However, each comment thus appears to be of equal value in the listener's mind. It is rather difficult to understand him from anything but a rationalist's perspective -- essentially cutting away a vast swath of potential information about the speaker and the subject of his talk.]
In the interview, Mr. Rubenstein notes the firm's great interest in purchasing privatized SOEs (state-owned enterprises), which, he believes, will decrease to a mere 100 from 200,000, either wholly or partially divested by the state. This statement tends to supplement the quote of Sean He, a managing director of the firm, said recently that publicly that ""We are very interested in private companies in China, which are very different from state-owned companies, from their business scope to management level." But one wonders the extent to which central, provincial and local governments will divest profitable SOEs, given the revenue they bring into the public coffers.
Of interest to attorneys, Mr. Rubenstein expressed an interest in limiting suits against American corporations. One would like him to expand on this idea, indeed.
Once again, my criticism reaches out to the FT editors. Yet another interview of an older white male business leader well established in the Western corporate community -- can't FT find anyone who doesn't fit this mold to comment on the week's news?
Posted by Richard at 2:40 PM | Comments (0)December 6, 2006
China Revises M&A Regulations Affecting Foreign Purchasers and Domestic Targets
[We are grateful to Michael Burke for today's post, an update on China's recently enacted M & A regulations. Mike is an attorney with Williams Mullen, where his practice focuses on advising U.S. companies on the structure and operation of investments in Greater China. He is experienced in China-related direct investments, acquisitions, private equity transactions and technology ventures. Mike is currently Co-chair of the American Bar Association, Section of Int'l Law & Practice, China Law Committee, and Visiting Fellow at the Asian Institute of International Financial Law, Hong Kong Faculity of Law.]
On September 8, 2006, the Provisions on Acquisitions of Domestic Enterprises by Foreign Investors (the New M&A Provisions), issued by China’s Ministry of Commerce (MOFCOM) and other agencies, became effective, replacing 2003’s Provisional Rule on Acquisitions of Domestic Enterprises by Foreign Investors. The New M&A Provisions are a significant development in the regulation of mergers and acquisitions in China.
Under the New M&A Provisions, a purchaser may use its own equity (provided it is listed on a foreign stock exchange) to acquire equity interests in a domestic Chinese company. A Chinese-registered advisor must conduct specific due diligence into the purchaser’s financial condition and submit a required report to MOFCOM.
In certain circumstances, the equity in a Special Purpose Vehicle (SPV) (an offshore company directly or indirectly controlled by domestic Chinese companies or residents) may be listed on a foreign stock exchange. Proceeds from such listing must be used only for authorized purposes, including establishing a new foreign invested enterprise (FIE). Such equity, subject to certain conditions, may be used as consideration in a M&A transaction.
The New M&A Provisions reiterate that the foreign-owned equity interests in a target after a foreign-invested M&A transaction must exceed 25% of its registered capital for such FIE to be able to avail itself of any FIE-related incentives or preferences. In addition, the New M&A Provisions clarify the treatment of FIEs established by offshore entities that, in turn, are controlled by domestic Chinese persons or enterprises.
The burdensome antitrust review process created by the 2003 M&A regulations remain in the new M&A Provisions. This process relies in part on vague and undefined terms to determine which M&A transactions should receive antitrust review.
If a M&A transaction would (a) result in any change in control of any domestic company in a key industry; (b) involve the holder of a well-known Chinese mark or brand; or (c) have potential or actual impact on national or economic security, such transaction must be approved by MOFCOM. This approval process is independent of the usual approval processes imposed on all foreign investment in China, including M&A transactions. Note that the New M&A Provisions do not define terms such as “key industry” or “well-known brand” and do not specify the approval procedures or timeline applicable in this context.
The New M&A Provisions are the Chinese government’s latest effort to regulate foreign-invested M&A transactions. In some measure the New M&A Provisions reflect the Chinese government’s concerns over asset stripping of state-owned enterprises and potential abuse of FIE incentives. They also reflect the government’s efforts to enable more forms of M&A transactions in China. The New M&A Provisions likely will be supplemented with implementing rules in the near future, meaning that China’s M&A regime will continue to evolve.
