China's Push to Purge Organized Crime Casts Shadow Over Private Businesses


Chinese leader

Xi Jinping’s

push to crush organized crime has led to prosecutions and asset seizures targeting prominent entrepreneurs and sent chills through private businesses in the world’s second-largest economy.

The campaign has fallen heavily on people like Zhang Wei, who built businesses in lending, asset management and real-estate investment in the southern city of Shenzhen, where he also became a municipal lawmaker.

Police accused him of running an “underworld-style” crime syndicate that engaged in fraud, blackmail and other offenses. In May, a Shenzhen court sentenced Mr. Zhang to life in prison and confiscated assets—including property, stocks and an Airbus A319 jet—that his family estimates to be worth more than $1 billion.

Mr. Zhang has admitted to giving bribes and asking associates to trespass on a private residence, but he denied all other charges against him. His lawyers and family say his alleged misdeeds didn’t fit government definitions of “underworld-style” crimes and that his punishment was vastly disproportionate. Mr. Zhang couldn’t be reached for further comment.

The case against Mr. Zhang and others like it have alarmed some entrepreneurs and legal experts, who say the Communist Party’s zealous enforcement threatens to undermine the private sector.

Prosecutors portrayed Zhang Wei as the leader of a crime ring involved in illegal fundraising, fraud and blackmail. Mr. Zhang has denied most of the charges against him.



Photo:

Wang Tao

For decades, entrepreneurs in China “always thought that tomorrow will be better,” but shifting political winds have since cast a pall on business confidence, the founder of a prominent Chinese technology company said in response to Mr. Xi’s campaign. “We are all small-time businessmen in the eyes of government officials,” he said.

Shenzhen authorities didn’t respond to queries about Mr. Zhang’s case.

The prosecutions illustrate a challenge Mr. Xi faces as he tries to retool China’s economy, which has been driven for decades by a freewheeling business culture where illegal and questionable practices—such as bribery and loan-sharking—became rampant and were often overlooked by authorities.

While the campaign has boosted Mr. Xi’s popularity and broken up collusion between local officials and businessmen, it also weighed on entrepreneurs already worried about the Chinese leader’s push to assert greater state control over the economy and bring the private sector to heel.

Growth in private fixed-asset investment had slowed to 4.7% in 2019 from 8.7% in the preceding year, before such investments shrank due to the Covid-19 pandemic. Although Mr. Xi has championed a larger role for state companies, he still needs private businesses, which are more productive and bigger providers of jobs, to power China’s growth into a developed nation, economists say.

Since its start in 2018, Mr. Xi’s push against organized crime—known as “sweep black and eliminate evil”—has dismantled more than 15,000 criminal groups and detained some 237,000 suspects, including businessmen who allegedly colluded with local officials, according to state media.

Beijing has declared the “sweep black” campaign a success. Guo Shengkun, chief of the party’s top law-enforcement commission, told officials in March that Mr. Xi’s fight against organized crime has greatly improved public order and helped optimize conditions for social and economic development.

Even so, concern among private businesses about the campaign has prompted the State Council’s Development Research Center, a powerful government economic-policy think tank, to launch a study looking into its impact on business confidence, according to people briefed on the process.

Legal scholars and criminal-defense lawyers say local authorities, under pressure to deliver results, sometimes blur the lines between criminal syndicates—which face heavy penalties for severe offenses—and legitimate companies that engaged in illegal behavior.

At the Chinese Communist Party’s centennial celebration, President Xi Jinping called for defiance against foreign pressure. As China challenges the U.S.’s leadership, WSJ’s Jonathan Cheng looks at what’s next for the country. Photo: Wang Zhao/AFP (Originally published July 1, 2021)

Some lawyers representing entrepreneurs targeted in such cases say courts limited access to hearings and declined to publish written judgments, violating their clients’ rights to a fair trial. Chinese officials say they have made significant progress in efforts to enhance judicial transparency, while pledging to push for more improvements.

“Xi is likely right that many business practices are in fact criminal and sort of bad for society,” said

Meg Rithmire,

an associate professor at Harvard Business School who studies capitalism in authoritarian systems. Entrepreneurs in China have long operated in a loose legal environment that encouraged rapacious practices and pushed them to seek protection from political risks, such as by colluding with officials, she said.

But the use of high-intensity campaigns and opaque courts to punish errant behavior is likely to exacerbate the problem, Ms. Rithmire said, as it intensifies entrepreneurs’ sense of insecurity and undermines efforts to build a predictable business environment.

The campaign has ensnared prominent business figures across the country. Among them is Zhang Dewu, an animal-husbandry magnate in the central province of Hubei once honored by local and central-government officials for his business achievements. He was detained in late 2019 for allegedly running a crime ring that engaged in loan-sharking and used violent means to provoke trouble, among other offenses.

Mr. Zhang couldn’t be reached for comment. His lawyers said the allegations against him neither fit the government’s definitions of organized crime nor involved serious violence. While acknowledging that some of Mr. Zhang’s employees used coercive methods to deal with business disputes, the lawyers said these employees caused only minor injuries in one instance, and their actions therefore didn’t meet the legal criteria of routinely using violence to oppress and cause harm to the public.

In June, Mr. Zhang’s daughter, who has been running the business in her father’s absence, wrote an open letter to top provincial officials saying the case threatened to cripple the company. She offered to let the government run the company and take over its assets.

“It’s too bitter and too tough being a Chinese private entrepreneur,” wrote the daughter, Zhang Jianhang, saying a government takeover would ensure the company’s employees and partners “no longer live in fear.”

The letter caused a stir on Chinese social media. “The survival of private enterprises is becoming increasingly difficult,” Huang Yingsheng, a former judge unconnected to the case, wrote in an online post that has since been blocked by censors. “I hope that the current situation, in which ‘entrepreneurs are either in jail or on their way to jail,’ can soon change!”

Hubei authorities didn’t respond to queries.

Zhang Wei in an undated photo from his time with the People’s Liberation Army, before he moved to Shenzhen.



Photo:

Wang Tao

Mr. Zhang, the Shenzhen entrepreneur, served in China’s military in the early 1990s before moving to the city when it was a testing ground for pro-market policies as China overhauled its state-dominated economy. He worked as a security guard and ran an alcohol dealership before setting up a business providing bridge loans for home buyers. That helped him venture into real-estate investments and online peer-to-peer lending, a risky sector that had provided a financial lifeline to small businesses often ignored by state-owned banks, until Beijing restricted such borrowing under Mr. Xi.

Mr. Zhang parlayed his success into a degree of local influence, becoming a vice chairman of Shenzhen’s state-backed chamber of commerce and a member of the municipal legislature.

Authorities detained Mr. Zhang in October 2018, initially on suspicion that he had bribed a former Shenzhen security chief, Li Huanan. In writings published online by his lawyers, Mr. Zhang accused his interrogators of pressuring him to either confess to a bribery charge or face graver allegations of organized crime.

“When that happens, you’d be like meat on a chopping board,” Mr. Zhang recalled his interrogator saying, according to an essay he wrote that was published in November. “We’d chop you up however we’d like, and no one will dare to help you.”

Mr. Li, the official Mr. Zhang was accused of bribing, was sentenced to 15 years in jail in July 2020. He couldn’t be reached for comment.

When Shenzhen police announced Mr. Zhang’s arrest in April 2019, they accused him and his alleged accomplices of wrongdoing that included illegal possession of firearms. That accusation didn’t appear among the charges that Mr. Zhang later faced in court.

Prosecutors eventually built a case that portrayed Mr. Zhang as the leader of a crime ring involved in illegal fundraising, fraud and blackmail, among other offenses, according to a copy of the court judgment reviewed by The Wall Street Journal. He denied the vast majority of charges.

Companies often exhibit characteristics that authorities cited to define “underworld organizations” in China, such as the presence of an organized structure and involvement in activities for economic gain, said Ruan Qilin, a criminal-law professor and an adviser to China’s top prosecutorial agency. “The difference between the two lies in propensity for violence,” he said.

Mr. Zhang, now in his late 40s, confessed to bribery charges and acknowledged asking some fellow defendants to act as debt collectors for his company, but said he insisted that they use nonviolent means.

He said the bribes he gave amounted to a total of 260,000 yuan, now the equivalent of about $40,000 and less than half of what prosecutors alleged he had paid in return for favors that included help in getting elected to the Shenzhen legislature. He also denied using coercion in his business dealings, and said many of the people who prosecutors alleged were part of his crime ring didn’t know each other.

The Shenzhen court ruled against Mr. Zhang, handing him a life sentence for fraud charges related to private money lending. He was also given 15 years for blackmail and 10 years for “organizing and leading an underground-style organization,” among convictions on other charges.

When the court handed a life sentence to Mr. Zhang, his family was stunned. “Even though we suspected this could happen, it was still a big shock,” said Mr. Zhang’s wife, Wang Tao.

Mr. Zhang “has no blood on his hands, has never facilitated drug use or kept a stash of firearms,” Si Weijiang, a former member of the businessman’s defense team, wrote in an essay shared on social media. “I believe that this verdict deals a bitter blow to domestic private entrepreneurs’ confidence in the law.”

China’s Crackdown

A look at Xi Jinping’s push against crime, as selected by WSJ editors:

Write to Chun Han Wong at chunhan.wong@wsj.com

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