Tuesday, April 13, 2010

Powerful Lining their Pockets

China's largest pension fund called the Social Security Fund is going aggressively for better returns and is now planning to invest overseas and in private equities.

The fund currently has 776.5 billion RMB ($113.74 billion) and is expected to have 2 trillion RMB by 2015.

It's not the overseas investments that are interesting, but the private equities.

These are not private equity companies that are overseas, but in China, investing overseas.

And the people behind these private equity companies are mostly taizdang or "princelings", the sons or daughters of senior Communist Party officials who take advantage of state-directed policies.

A fascinating story by the Financial Times talks about these princelings and their rise through private equity firms. In 2009, private equity deals in China were worth $3.6 billion, accounting for one-third of all transactions in the Asia-Pacific region, says data from Thomson Reuters.

There are people like Winston Wen, Premier Wen Jiabao's son who is with New Horizon Capital; George Li, the son of Li Ruihuan, a senior leader in the 1980s until 2003; Wilson Feng, the son-in-law of Wu Bangguo, the country's top legislator; and Li Tong, the daughter of Li Changchun, in charge of propaganda and media.

These people seem to live a strange existence. According to the FT article, princelings live very low-key lives where Internet searches of them are practically blocked. Most live in luxurious gated communities in Beijing and have holiday homes around the world. Their spouses are almost never seen in public, while those who venture out tend to have cars with military or paramilitary license plates that allow them to ignore traffic regulations or be stopped by the police.

And a number of these princelings now own or run private equity firms that are closely affiliated with many state-owned enterprises.

"In the past, the best option for these people with 'background' was to go to the high-paying western investment banks but now the economic strength has shifted," says a person in the private equity industry, asking not to be named due to the sensitivity of the topic. "Now they're saying to the foreigners, 'Hey, I'm in the driving seat, I have the deals -- so you give me your money and I'll invest it myself and take a big cut'."

Which brings us back to the first sentence in this story. When the Social Security Fund invests in private equity companies here, these princelings will further enhance their power and pockets -- with taxpayer money.

It seems that money in China goes around and around -- usually to the privileged few who grab some for themselves before passing the money onto others.

In the end one wonders if the taxpayers themselves will ever benefit as much as the ones who had the money earlier.


gg said...

need a more equitable re-distribution of wealth. inequality is the seed of discontent. discontent is the seed of uprising.

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