Question mark over demise of telecom official

PUBLISHED : Monday, 11 January, 2010, 12:00am
UPDATED : Monday, 11 January, 2010, 12:00am

In the festive last week of 2009, two news stories initially sent chills down the spines of mainland telecom officials. On Boxing Day, the Communist Party's top anti-graft watchdog announced it was investigating Zhang Chunjiang , vice-chairman and party secretary of China Mobile, for 'serious disciplinary breach', a euphemism for corruption. On December 31, the US Department of Justice and the Securities and Exchange Commission announced that UTStarcom, a maker of telecommunications and networking gear, had agreed to pay US$3 million in fines to settle charges including one alleging its China subsidiary bribed officials of mainland telecom companies to the tune of nearly US$7 million.

At first glance, these two cases may not be directly related and the close timing of the announcements may be coincidental. But they have generated intense speculation not only in the telecom industry but also in the corridors of power in Beijing.

For many optimistic observers, the cases have given hope that the mainland leadership may have finally mustered the political courage to tackle the rampant corruption permeating the highly profitable telecommunications industry. For more cynical analysts, however, Zhang's downfall may be part of a broad and deeply delicate game being played out in the opaque world of mainland politics, while the telecom officials who received the bribes from UTStarcom get away without punishment.

Zhang, 51, is the most senior mainland telecom official to fall from grace as he has held the rank of a deputy government minister since 1999. Some mainland media have billed his downfall as the biggest corruption case in the telecom industry since 1949.

As usual, the anti-graft officials have kept silent over the details concerning Zhang's corruption, but the mainland financial media has been busy digging and throwing up whatever mud they can find.

China Mobile, the world's largest mobile operator, promptly responded that the inquiry was not related to the company and would not affect its operations.

Some media reports speculated that Zhang's downfall may have something to do with the recent listing of the Beijing Ultrapower Software Company on the newly launched ChiNext market in Shenzhen. The firm derives most of its revenue from a contract to provide China Mobile's popular Fetion mobile instant-messaging service, but Ultrapower has strongly denied any link.

Informed industry sources have agreed that Zhang's downfall was unlikely to have been triggered by his short stint at China Mobile, as he was appointed to the job only in June 2008 and his main function as the party secretary meant that he did not oversee profitable business operations. This has been partly confirmed by Li Rongrong , the mainland's top regulator of state assets, who said over the weekend that Zhang's problems 'existed' a long time ago.

Li's remarks have provided credence to media reports that Zhang was nailed because of irregularities during his tenure as chairman of the China Netcom Group, which has been now merged into China Unicom.

Caijing magazine reported that Zhang was suspected of falsifying corporate accounts to cover up losses of up to 20 billion yuan (HK$22.7 billion) when he was the head of China Netcom. The firm was launched in 1999 in Shanghai with the wholesaling of high-speed data networks. The worst kept secret at the time was that it was controlled by Jiang Minheng , a son of then-president Jiang Zemin .

With the strong backing of the younger Jiang, Zhang - a deputy telecom minister in 1999 - played a key role in the break-up of China Telecom's monopoly and gave China Netcom a third of its assets. This made China Netcom the country's second-largest fixed-line operator.

Zhang became chairman of China Netcom in 2003 and oversaw its share floatations in Hong Kong and New York in 2004.

The 20 billion yuan in losses are more likely to have been accumulated during China Netcom's early restructuring. If that were the case, Zhang's detention could be very intriguing indeed, given his links with the younger Jiang. In China's intricately woven politics, the downfall of a senior official like Zhang is usually read in the political context.

This is particularly true as the different factions of the Communist Party have already begun political manoeuvres in the run-up to the 18th party congress in 2012, when a new leadership will be elected. Although Jiang has retired, he still wields considerable influence.

Meanwhile, the timing of the US announcement of the punishment on UTStarcom, on New Year's Eve, meant that it received scant coverage in the mainland media the next day. But it is the latest of a string of US and European telecom companies accused of bribing mainland telecom officials to the tune of millions of US dollars.

While those foreign companies were punished and publicly humiliated, there have been no reports of any mainland telecom officials being punished for soliciting or receiving bribes from those companies.

One cynical but probably true explanation is that if the mainland anti-graft officials really go after the officials implicated in those bribery cases, there won't be many left to run the companies.