Wenzhou’s coal barons tell Ren Wei that a corrupt, greedy and overbearing state is throttling their entrepreneurial zeal
Ren Wei 22 November 2009
The coal entrepreneurs of Wenzhou are notorious for dropping millions at a moment’s notice on extravagant cars, fashion and jewellery. They make fortunes almost overnight and have a penchant for ploughing money into high-risk, high-reward ventures.
Their reputation is for being crude, the embodiment of the nouveau riche. And they own and operate coal mines - among the deadliest, most corrupt and detested industries in the country.
However, when a group of more than 40 Wenzhou entrepreneurs who had invested in mines in Shanxi province gathered for a conference late last month, there was no waft of celebratory cigars or the clinking of expensive glasses of rice wine. Instead, the talk was of concerns over the direction of the mainland’s market economy and fears they were all about to lose a huge amount of money.
The entrepreneurs are locked in a bitter battle with Shanxi’s provincial government, which has been attempting to force them to sell their mines to larger, state-owned rivals. This consolidation campaign is apparently aimed at improving safety: Shanxi’s small mines are notorious for explosions, gas leaks and cave-ins that claim hundreds of lives every year.
A small company being swallowed up by a bigger rival sounds like business as usual in a market economy, right?
“No. It’s not a matter of buying and selling,” said one of the entrepreneurs at the conference in Zhejiang’s provincial capital Hangzhou. “We are no match for the government. We are victims.”
The residents of Wenzhou, a small coastal city in Zhejiang, rose to national prominence in the early years of reform and opening up in the 1980s as some of the first to embrace the market economy and set up private shops and businesses.
They were economic trailblazers, and a major source of capital for the luxury real estate booms in cities like Shanghai.
In recent years, they have found a new target for their investment - coal. Hundreds of Wenzhou businessmen have spent an estimated 50 billion yuan (HK$58 billion) to own exploration and mining rights in coal-rich Shanxi.
The bet would pay off handsomely if they were able to fully tap their mines amid ever-rising demand for energy. But a government circular in April ordering privately owned mines to either shut down or merge means the punt looks set to be a losing one.
The coal mine boss, who asked not to be named, said he invested more than 100 million yuan in one project, including purchasing and installing equipment and paying bribes for various licences.
The mine had not yet started operation as it took several years to obtain all the necessary licences and lay the groundwork for exploration.
“I would accept the deal if it was enough to offset my investment,” he said. “Unfortunately, the price they have offered is far less. They also proposed giving it to us in instalments, which means we risk never getting it.”
Hu Zuguang a professor from Zhejiang Gongshang University who spoke at the conference, was blunt in his criticism of Shanxi’s government.
“It is ridiculous that Shanxi officials neglect laws and regulations while conducting deals at their own will,” he said. “They have no clue what the law is, and that’s why the province is among the most undeveloped nationwide.”
The majority of the mine bosses were not prepared to go on the record.
“We’ll be doomed if the Shanxi government learns what we are doing here,” said Lian Zuqian, one of the few bosses who would identify himself. “They are nasty and vicious. They will do everything to kill us.”
In response to this story, Shanxi’s government said the consolidation was in compliance with central government safety guidelines.
A third anonymous mine boss said it was unrealistic to fight against the government.
“It is not possible to take legal action against the Shanxi government since no court will accept the case,” he said.
“We need some constructive advice from legal experts and other people to address the problem.”
While the mine bosses could agree that cadres overruled any laws or regulations, they could not decide on how to proceed. According to the participants in the forum, which included nearly 100 government-backed researchers, lawyers, professors and other Zhejiang businessmen, some bosses have caved into government pressure and sold up, while others have refused.
Unsuccessful attempts have been made to appeal to the central government.
One of the problems is corruption. The mine bosses openly said it was necessary to bribe officials in order to get permits to operate, while others admitted to evading some business taxes.
“We are worried they [the Shanxi government] would coerce us into giving in since our books are not clean,” said a fourth boss. “We need to think about that too.”
To date, 90 per cent of entrepreneurs have signed preliminary agreements with potential buyers. Some of these bosses said the deals were far from being closed and they were desperate to find a better solution.
“Under the draft agreement, what they agreed to pay is equivalent to only one-fifth of the real value of the assets,” said the first boss, who claimed to have spent 100 million yuan on his project.
“We are in a market economy, and it will be ridiculous if we cannot let market forces set the price.”
It remains to be seen whether Zhejiang’s provincial government would step in to negotiate with Shanxi. Zhejiang is recognised as a place where provincial policies are most friendly towards private entrepreneurs.
“We need government support. After all, we also contributed a lot to local economic development,” said a fourth boss. “We need assistance badly. We are helpless.”
A number of entrepreneurs at the conference said this battle was about more than just securing a return on investments.
They spoke of an environment in which Beijing was attempting to scale back the size of the private economy while beefing up state-owned companies.
Wu Jie chairman of Rifa Holding Group, said he was pessimistic about the outlook for private businesses.
“A new wave of assaults from state-owned companies is approaching,” he said. “Administrative forces are going to engulf the small private companies.”
Zhejiang businessmen are haunted by a merger deal in September when profitable, private Rizhao Iron & Steel was taken over by loss-making Shandong Iron & Steel, a larger state-owned rival.
The marriage between the two steelmakers resulted from government directives. Wu was blunt in his objections to the state tightening its grip on the economy.
“In the 1930s, the Kuomintang did so, giving birth to the big four families, which led to the party’s failure,” he said.
“In the 1950s, the socialist reforms under which the private sector was nationalised proved unsuccessful as the economy went dormant for decades.
“Are we going to do it for a third time? We’ll wait and see.”
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Pitted against the big boys
Wenzhou’s coal barons tell Ren Wei that a corrupt, greedy and overbearing state is throttling their entrepreneurial zeal
Ren Wei
22 November 2009
The coal entrepreneurs of Wenzhou are notorious for dropping millions at a moment’s notice on extravagant cars, fashion and jewellery. They make fortunes almost overnight and have a penchant for ploughing money into high-risk, high-reward ventures.
Their reputation is for being crude, the embodiment of the nouveau riche. And they own and operate coal mines - among the deadliest, most corrupt and detested industries in the country.
However, when a group of more than 40 Wenzhou entrepreneurs who had invested in mines in Shanxi province gathered for a conference late last month, there was no waft of celebratory cigars or the clinking of expensive glasses of rice wine. Instead, the talk was of concerns over the direction of the mainland’s market economy and fears they were all about to lose a huge amount of money.
The entrepreneurs are locked in a bitter battle with Shanxi’s provincial government, which has been attempting to force them to sell their mines to larger, state-owned rivals. This consolidation campaign is apparently aimed at improving safety: Shanxi’s small mines are notorious for explosions, gas leaks and cave-ins that claim hundreds of lives every year.
A small company being swallowed up by a bigger rival sounds like business as usual in a market economy, right?
“No. It’s not a matter of buying and selling,” said one of the entrepreneurs at the conference in Zhejiang’s provincial capital Hangzhou. “We are no match for the government. We are victims.”
The residents of Wenzhou, a small coastal city in Zhejiang, rose to national prominence in the early years of reform and opening up in the 1980s as some of the first to embrace the market economy and set up private shops and businesses.
They were economic trailblazers, and a major source of capital for the luxury real estate booms in cities like Shanghai.
In recent years, they have found a new target for their investment - coal. Hundreds of Wenzhou businessmen have spent an estimated 50 billion yuan (HK$58 billion) to own exploration and mining rights in coal-rich Shanxi.
The bet would pay off handsomely if they were able to fully tap their mines amid ever-rising demand for energy. But a government circular in April ordering privately owned mines to either shut down or merge means the punt looks set to be a losing one.
The coal mine boss, who asked not to be named, said he invested more than 100 million yuan in one project, including purchasing and installing equipment and paying bribes for various licences.
The mine had not yet started operation as it took several years to obtain all the necessary licences and lay the groundwork for exploration.
“I would accept the deal if it was enough to offset my investment,” he said. “Unfortunately, the price they have offered is far less. They also proposed giving it to us in instalments, which means we risk never getting it.”
Hu Zuguang a professor from Zhejiang Gongshang University who spoke at the conference, was blunt in his criticism of Shanxi’s government.
“It is ridiculous that Shanxi officials neglect laws and regulations while conducting deals at their own will,” he said. “They have no clue what the law is, and that’s why the province is among the most undeveloped nationwide.”
The majority of the mine bosses were not prepared to go on the record.
“We’ll be doomed if the Shanxi government learns what we are doing here,” said Lian Zuqian, one of the few bosses who would identify himself. “They are nasty and vicious. They will do everything to kill us.”
In response to this story, Shanxi’s government said the consolidation was in compliance with central government safety guidelines.
A third anonymous mine boss said it was unrealistic to fight against the government.
“It is not possible to take legal action against the Shanxi government since no court will accept the case,” he said.
“We need some constructive advice from legal experts and other people to address the problem.”
While the mine bosses could agree that cadres overruled any laws or regulations, they could not decide on how to proceed. According to the participants in the forum, which included nearly 100 government-backed researchers, lawyers, professors and other Zhejiang businessmen, some bosses have caved into government pressure and sold up, while others have refused.
Unsuccessful attempts have been made to appeal to the central government.
One of the problems is corruption. The mine bosses openly said it was necessary to bribe officials in order to get permits to operate, while others admitted to evading some business taxes.
“We are worried they [the Shanxi government] would coerce us into giving in since our books are not clean,” said a fourth boss. “We need to think about that too.”
To date, 90 per cent of entrepreneurs have signed preliminary agreements with potential buyers. Some of these bosses said the deals were far from being closed and they were desperate to find a better solution.
“Under the draft agreement, what they agreed to pay is equivalent to only one-fifth of the real value of the assets,” said the first boss, who claimed to have spent 100 million yuan on his project.
“We are in a market economy, and it will be ridiculous if we cannot let market forces set the price.”
It remains to be seen whether Zhejiang’s provincial government would step in to negotiate with Shanxi. Zhejiang is recognised as a place where provincial policies are most friendly towards private entrepreneurs.
“We need government support. After all, we also contributed a lot to local economic development,” said a fourth boss. “We need assistance badly. We are helpless.”
A number of entrepreneurs at the conference said this battle was about more than just securing a return on investments.
They spoke of an environment in which Beijing was attempting to scale back the size of the private economy while beefing up state-owned companies.
Wu Jie chairman of Rifa Holding Group, said he was pessimistic about the outlook for private businesses.
“A new wave of assaults from state-owned companies is approaching,” he said. “Administrative forces are going to engulf the small private companies.”
Zhejiang businessmen are haunted by a merger deal in September when profitable, private Rizhao Iron & Steel was taken over by loss-making Shandong Iron & Steel, a larger state-owned rival.
The marriage between the two steelmakers resulted from government directives. Wu was blunt in his objections to the state tightening its grip on the economy.
“In the 1930s, the Kuomintang did so, giving birth to the big four families, which led to the party’s failure,” he said.
“In the 1950s, the socialist reforms under which the private sector was nationalised proved unsuccessful as the economy went dormant for decades.
“Are we going to do it for a third time? We’ll wait and see.”
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