Wild South in Hainan a place for risky businessTaiwan businessman in legal dispute over transfer of development rights When Taiwanese businessman Lin Wei-ming was awarded the rights by the central government to develop a multibillion-yuan refinery in Hainan in 1990, he thought he had a sure thing. Five years later, the Hainan provincial government transferred his development rights to an obscure private firm, sparking a bitter legal wrangle complicated by the inclusion of China Petrochemical (Sinopec Group), parent company of Hong Kong-listed China Petroleum & Chemical Corp. According to Mr Lin, Hainan Hohbond International Petrochemical invested no money in the project and built nothing, yet it received and subsequently sold the project rights to Sinopec Group for a reported 692 million yuan in November last year. He claimed that Hainan Hohbond, controlled by two Shanghai businessmen, used the project to secure billions of dollars from mainland financial institutions. Mr Lin said he had received support from senior officials in Beijing but had not filed a formal complaint in the mainland courts. Hainan governor Wei Liucheng, in Hong Kong to promote the island province to investors, yesterday dismissed Mr Lin's charges of an officially sanctioned rip-off. 'Sinopec's investment in Hainan is completely proper and legal, and it fulfils the country's policy,' Mr Wei said. 'As for what is going on between the original shareholders, we are not clear.' Still, the dispute underscores the risks involved in doing business in the mainland and suggests that Hainan's 'Wild South' invest-and-ask-questions-later business culture remains very much alive. Hainan officials have displayed unusual discretion in linking Sinopec Group to the refinery that is being built within the Yangpu Economic Development Zone. 'You can write about the project and Yangpu's development but please don't mention Sinopec's involvement,' a senior Yangpu official said. Mr Lin claims to have reported his grievance to President Hu Jintao and Premier Wen Jiabao earlier this year. Complaints have also been sent to the China Securities Regulatory Commission and the National Audit Office which announced in May that Sinopec Group would be one of the nine state-owned companies to be audited this year. 'If investigated, this could potentially be one of the country's biggest fraud cases involving tens of billions of yuan, implicating numerous officials,' he said during a meeting in Hong Kong last week. Hohbond executives could not be reached for comment and the National Development & Reform Commission (NDRC) and Sinopec Group declined to comment. According to documents provided by Mr Lin, his Hong Kong-registered company, Hainan Haikou (Ko Fung) Refinery (Haikou (Ko Fung) was officially granted permission on June 29, 1990, by the State Planning Commission (now NDRC) to develop a six-million-tonne capacity, wholly owned foreign oil refinery. The ground-breaking ceremony was held on May 20, 1990, and attended by then Hainan governor Liu Jianfeng and numerous senior government officials. By the end of 1990, Mr Lin had begun acquiring and importing equipment worth US$20 million from Britain to Hainan's provincial capital, Haikou, and sending some 500 workers to nearby plants for training. During this time, another company bearing the same name as Haikou (Ko Fung) was registered in Britain in March 1990, a firm that shortly came under the control of the two Shanghai businessmen behind Hainan Hohbond. In December 1995, amid a Hainan leadership change, Mr Lin claims that development rights were transferred to Hohbond, which is a subsidiary of British-registered Haikou (Ko Fung) in a document issued by the Hainan Provincial Planning Department to the State Planning Commission. By this point Hohbond had received a written letter of endorsement from the Hainan government that was sent to potential lenders including Bank of America. After 1991 Hohbond allegedly managed to secure loans from mainland banks and state firms of at least 1.7 billion yuan. These included 518 million yuan from the Bank of Communications' Hainan branch in September 1991, approved illegally by its then chief Xu Shiquan. By August 31, 2002, the outstanding amount owed was 311.73 million yuan. The loans were revealed last year when Xu, also a former director and deputy general manager of China Travel Service (Holdings), was charged in a Shenzhen court for taking 3.5 million yuan worth of bribes and of which, $1.84 million came from Hohbond. According to Mr Lin's records, Sinopec Group's relationship with the project began in the mid-1990s when it invested 200 million yuan to jointly develop the refinery with Hohbond. In November last year, Sinopec Group bought the refinery's development right through a Hong Kong-registered private firm, Century Bright Capital Investment, controlled by senior Sinopec Group executives Zhang Baolong and Zhang Baojian, Mr Lin's records showed. Zhang Baojian, according to Sinopec Group's website, is a deputy chief accountant of the group. In April this year, construction work began at the Yangpu refinery, whose annual capacity was raised to eight million tonnes a year. About 130km away in Haikou, Mr Lin's refinery equipment, delivered from Britain between 1992 and 1993, remains stored in the free trade zone at Xiuying Harbour.