Zhou Yongkang

Sichuan tycoon Liu Han's fall underlines culture of political patronage

Deng Yuwen and Jonathan Sullivan say the case of disgraced Sichuan tycoon Liu Han and his suspected ties to Zhou Yongkang point to the unholy union of money and power in China

PUBLISHED : Wednesday, 05 March, 2014, 11:19am
UPDATED : Thursday, 06 March, 2014, 4:28am

Chinese society has been enthralled by the case of Sichuan businessman Liu Han , who was charged last week with various violent crimes, including murder. But, as unusual and scandalous as the revelations about Liu's mafia-style operations are, of even greater significance is the identity of the political protectors behind him.

In China, violent crime is usually crude and the tools of the trade unsophisticated. In Liu's case, police apparently seized advanced and strictly controlled weapons and ammunition. The acquisition of such weaponry suggests Liu was no ordinary criminal, but one with superior power and connections.

According to accounts now emerging, Liu's criminal operations went on unencumbered on a huge scale for the best part of two decades. Such longevity shows the success of the alliance he built between politics and business, and suggests that there must have been a high-level patron protecting him.

That person is widely believed to be Zhou Yongkang, the former security tsar who Xi Jinping has prioritised in his anti-corruption campaign, following the fall of Bo Xilai.

It is not coincidental that Liu established his politics-crime-business connections during Zhou's time as provincial secretary of Sichuan. Casting around for political patrons, Liu allegedly first hooked Zhou's eldest son with a massive investment deal.

The release of evidence showing a direct connection between Liu and Zhou will have to wait until the investigators' reports are out. But it is hard to find anyone who does not believe that there was one, if only because it would explain Liu's legendary arrogance, claiming once that he was a "born winner" who "never lost".

Liu was an entrepreneur who struck it rich. It is hard to say how many other businesspeople employ similar methods to Liu, but we can confidently say that he is not unique in Chinese society.

To clean up this kind of corruption, it is impossible to separate people like Liu from their political patrons behind the scenes - because the vast majority of entrepreneurs in China are involved in just such relationships.

The reason they seek political patrons is that, in Chinese society, government officials have the power to decide which commercial activities can make money and which won't. Some entrepreneurs' relationships with officials are casual and non-committal. Others throw their lot in entirely, forming the type of politics-business alliance that has produced some of the biggest winners of the reform era.

Alliances between commerce and politics are common in transitioning economies in Asia and Latin America. Prior to democratisation, Western nations also witnessed this phenomenon.

But due to the dominant power structures in China, political-business alliances are especially widespread and have particularly deep roots. For individual enterprises, they can be very beneficial. But for the growth of the economy as a whole, particularly the private economy, these alliances have become a substantial obstacle, perverting the rules of market competition.

Too many entrepreneurs invest their creative energies not in production but in cultivating patrons. This is one reason for the short-termism of private business in China, and one of the reasons so many companies remain stuck in adolescence.

In reality, enjoying political patronage does not mean entrepreneurs can rest on their laurels. Officials can easily employ the machinery of the state to force commercial partners to toe the line, or break the law. And when, for whatever reason, the relationship sours, it is inevitably the entrepreneur who is sacrificed. Bo's crime crackdown was the perfect example of officials turning on their former corporate allies due to a change in the political wind.

Many entrepreneurs seek out political patrons because, in the process of accumulating a fortune, most of them also accumulate some dirt. But as Liu Han's case demonstrates, the politics-business alliance is unreliable. Ultimately, it is unreliable because it is dishonest and illegal.

In order to provide security for entrepreneurs, China must quickly complete the transition from a chaotic market economy to one that is bounded by the rule of law, where fair and open competition replaces the opaque contortions that still prevail at the moment.

In turn, this transition depends on the democratisation of Chinese political life. Entrepreneurs who don't want to languish in a capricious alliance with officials should instead use their economic power to push forward China's progress to a democratic transition.

However, the prospects for such a development are not good. Most Chinese entrepreneurs prefer to play it safe and avoid politics altogether, and instead of backtracking from officials, they backtrack from democracy.

Deng Yuwen is a Beijing-based political analyst and a Chevening visiting scholar fellow at the University of Nottingham's China Policy Institute. Jonathan Sullivan is associate professor and deputy director of the institute