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Xu Zengping, buyer of China's first aircraft carrier, the Liaoning. Photo: K. Y. Cheng

Legal dispute saps finances of man behind China's first aircraft carrier

Long-running legal dispute sapped Xu's finances as he tried to keep Liaoning project afloat

One dispute has dogged Xu Zengping for two decades and, says Xu, indirectly affected his efforts to raise money for the carrier deal.

It involves a legal tussle with the Guizhou provincial government over the ownership of the Guizhou Park Hotel, a four-star development in the provincial capital of Guiyang .

"It is a typical case of how some local authorities and greedy officials try to swallow foreign shareholders' profit through joint-venture projects," Xu said, adding that if his money had not been tied up in the hotel, he would have had more resources to devote to the carrier project.

In 1986, Hong Kong-based Hon Shan Holdings, which Xu co-founded, was invited by then Guizhou party chief Hu Jintao and governor Wang Zhaowen to get the unfinished hotel back on track, according to the hotel's website and legal documents from the Ministry of Foreign Trade and Economic Development, which later became part of the Ministry of Commerce.

Hon Shan invested US$1.65 million for a one-third share of the project, while the provincial-owned Guizhou Tourism Investment Company contributed US$3.35 million for the remainder. Xu's company also obtained a US$5 million loan from Standard Chartered Bank to develop the hotel.

The ministry approved the deal in 1987 and the hotel opened for business in 1989.

The Standard Chartered loan was supposed to be paid off by the end of 1996, but Guizhou Tourism Investment took another loan with another bank and used the money to pay the Standard Chartered debt off six years early on December 22, 1990 - without notifying Hon Shan, according to a legal document.

The Guizhou authorities then assumed full ownership of the project, claiming that Hon Shan had not been contributing.

On April 27, 2004, Hon Shan was ejected from the hotel's management after the local government turned the joint-venture project into a wholly government-owned business without the ministry's approval, according to Hon Shan lawyer John Hou Xiangjing.

Both Hon Shan and the ministry filed suits in the Guizhou Intermediate People's Court, accusing the provincial tourism authorities of contract violations, but the court ruled against them in two trials in 2004 and 2005.

Hon Shan and the ministry appealed to the provincial high court in August 2005, but the hearings ground to a halt because the Guizhou authorities refused to cooperate.

Over the next seven years, the hotel was linked to a string of corruption scandals that ended in several senior officials going on trial in Guizhou and Beijing and receiving punishments that ranged up to suspended death sentences. Guo Jingyi , the former deputy administrator of the ministry's treaty and law department, who represented the ministry in the hotel trial in 2005, was given a suspended death sentence in 2010 for taking 8.45 million yuan in bribes, some of which came from the Guizhou hotel's management.

In Guizhou, at least three leaders were felled by corruption investigations, including former party head Liu Fangren, 68, who was sentenced to life in prison in late June, 2004, for taking 6.77 million yuan in bribes. The province's former vice-governor Liu Changgui received an 11-year sentence for corruption.

"The key reason they won the [hotel] trials is that they used their administrative power to interfere in the legal system," Xu said.

On September 2, 2014, the provincial high court reversed the lower court's decision and ruled in favour of Hon Shan and the ministry. But it did not say what should happen to the 20-year joint-venture contract that ended in 2008.

"Hon Shan hasn't had a cent in compensation from the hotel management in the past near three decades," Hou said.

Even so, Xu said his company's "little victory" meant he "finally saw some hope" for the country's legal system.

"I think my case should be a contribution to President Xi Jinping's call for the country to abide by its legal rules," Xu, a decade-long member of the Chinese People's Political Consultative Conference, said.

Xu insists that he hasn't used his position on the consultative body to lobby for his case.

"I just focused on ways of promoting our country's military and defence education and strengthening our country's military capability," he said.

 

This article appeared in the South China Morning Post print edition as: 'Greedy officials' lose to man with aircraft carrier
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