April 21, 2017 2:27 pm JST

China seeks to discredit exiled tycoon with spy chief confession

Video surfaces of detained official alleging bribery by exiled businessman Guo Wengui

A video confession by a detained former spy chief has surfaced in China, countering sensational claims by an exiled businessman as a public tussle over corruption in the financial sector dredges up the ghosts of old deals.

Ma Jian, the vice-minister of state security detained in 2015, was an ally of Guo Wengui, a businessman also known as Miles Kwok who has made waves from his home in Manhattan in recent days with allegations of corruption by Chinese security officials. The release of Mr Ma's confession came as China sought Mr Guo's return though an Interpol red notice.

The dramatic spat follows the detention of two financial industry regulators this month, as China's anti-corruption campaign moves into the lucrative and politically fraught finance sector.

Industry insiders say the burst of activity is probably the result of information gleaned from Xiao Jianhua, a well-connected businessman who conducted deals on behalf of families of "princelings" - the offspring of top Communist party leaders. Mr Xiao was abducted from Hong Kong and spirited across the border by security agents in late January.

"From 2008 to 2014 I used my power and position to benefit Guo Wengui," Mr Ma recounts in a 23-minute video confession spliced with Mr Guo's remarks that also details bribes the tycoon is alleged to have paid.

The video has been posted on Chinese news websites and circulated on social media. The Financial Times could not determine when it was recorded or contact Mr Ma, who remains in custody. However, he is wearing a puffer jacket during the confession, suggesting it may have been made when the weather was cooler.

Its release appears to be a response to Mr Guo's allegations that senior security officials control Founder Securities, one of China's largest securities groups. Mr Guo's participation in a boardroom battle over Founder led to his exile and the jailing of several of its executives in 2015. Backed by Peking University, Founder has an extremely complex ownership structure.

A three-hour live online interview with Mr Guo by Voice of America was abruptly cut off mid-broadcast on Wednesday, while in China several respected financial media groups have published exposes of Mr Guo's life and career.

Mr Guo, who has done business with Mr Xiao, emerged from exile to fire off his first broadside the week Mr Xiao disappeared. He predicted this month's detention of Xiang Junbo, China's top insurance regulator, in a February conversation with the FT.

The drama speaks to larger concerns over the proliferation of vested interests since China's financial sector underwent a wrenching change two decades ago.

After bailing out its indebted state-owned sector in the late 1999s, China abruptly traded a Soviet-style financial system for one that, at least on the surface, looked like the west's. Banks built shiny new headquarters and listed themselves on the Hong Kong stock market, with the help of Wall Street's biggest players. Money poured into securities brokerages and stock markets took off on a wild ride.

The style of the Communist party changed too, as a younger generation of technocrats traded in baggy trousers and windbreakers for tailored western suits.

But under the surface, guanxi, or connections built up over years of working together, have continued to play an outsize role. And even the most competent bank executives' subservience to higher-ranked party officials have overridden normal fiscal discipline.

Insurance regulator Xiang Junbo's detention came after he had warned against "allowing financial crocodiles to lurk in the insurance industry". Over the past year, his office had penalised four Chinese life insurance firms, including one controlled by Mr Xiao, and sought to cut off the marketing of investment schemes disguised as insurance products.

Mr Xiang's relationships stretch much further back. He headed Agricultural Bank of China at the time of its $19bn listing in Hong Kong and Shanghai in 2010. AgBank was the last of China's "big four" banks to list and was long viewed as the most problematic because of its rambling structure and exposure to bad loans in the countryside.

(Financial Times)

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