Global Policy Forum

By Keith Bradsher

The Chinese government announced today that it would bring corruption charges against a former top banker, Zhu Xiaohua. He becomes the most prominent corporate leader to face charges of criminal malfeasance in China since the country began its move toward a market-based economy two decades ago.

Mr. Zhu, who was president of China's sixth-largest bank, the China Everbright Bank, until his abrupt dismissal in July 1999, was criticized in unusually strong terms tonight on the national nightly news program of China's state-run television and in a statement from the official New China News Agency.

Mr. Zhu "was a senior official who accepted enormous bribes and showed grave dereliction in his job, thus creating massive economic losses for the state and his enterprise," the news agency said, adding, "The circumstances of his offense are grave, and its nature is despicable."

By making such a public display of the case involving Mr. Zhu, Chinese officials appeared to be sending a message to the country's increasingly independent business executives, especially in the stumbling banking industry, that corruption would not be tolerated. The Communist Party also seemed intent on demonstrating that it will not accept corruption even as it is perceived as being deeply corrupted.

The agency did not provide details of the alleged bribes or dereliction. But Everbright announced on Tuesday in Hong Kong, where its shares are now traded, that Chinese banking regulators and an internal audit had found accounting irregularities associated with a 1999 merger that Mr. Zhu championed and oversaw.

The bank then admitted on Wednesday that it had evaded $58 million in taxes in merging with a smaller Chinese bank in 1999. Everbright is also struggling with loans that were issued in violation of prudent lending standards and have not been repaid.

Like Wang Xuebing, who was dismissed on Jan. 11 from his post as president of the China Construction Bank, Mr. Zhu is a protégé of Prime Minister Zhu Rongji. China's Communist Party leaders are wrapping up their annual summer retreat at the coastal resort of Beidahe, where they are believed to have been discussing when the current generation of leaders should retire and who should replace them.

Zhu Rongji has been expected to step down as prime minister early next year, although it is not clear who would succeed him. He is part of an older generation of leaders, led by President Jiang Zemin, that is being encouraged to retire by younger Communist officials in their 40's and 50's but that still retains considerable support from provincial leaders and the military.

Zhu Rongji's most prominent role has been as China's leading advocate of eliminating government bureaucracy and increasing the autonomy of state-owned and private enterprises from government control. There is no suggestion for the moment that he is being discredited as China moves toward a heavily orchestrated political transition.

But concern has risen among Chinese officials about corruption in independent enterprises and about the stability of the country's financial system.

Everbright's problems are the latest in a series of scandals over bank loans that were allegedly issued with little hope of their eventual repayment. Wang Xuebing lost his job as president of the China Construction Bank after Chinese and American regulators found evidence of abuses at the Bank of China while he was president there from 1993 to 1999 and when he ran the bank's New York office in the early 1990's.

Chinese banks have a chronic problem with issuing improper loans. Standard & Poor's, the credit-rating agency, estimated in May that borrowers had either defaulted or were seriously in arrears on half of all loans. But banking experts here say that many bad loans are not the result of corruption so much as pressure on banks by provincial and sometimes even national officials to continue lending money to money-losing, state-owned enterprises that provide millions of jobs.

Zhu Xiaohua is a former vice governor of China's central bank and a former director of the agency that administers China's $243 billion in foreign exchange reserves. When he was removed from the Everbright Bank in 1999, the Hong Kong news media initially reported that he was under investigation for his handling of the reserves, including whether some reserves had been improperly lent to Everbright after he changed jobs.

One of Mr. Zhu's successors as director mysteriously fell to his death from the seventh floor of a Beijing hospital in 2000.

But the New China News Agency only cited Mr. Zhu's tenure at Everbright in today's statement. Mr. Zhu had increased Everbright's activity in Hong Kong after becoming its president in 1996, and he was accused today of having done illegal deals in Hong Kong dollars.

Mr. Zhu "exploited his post for his own personal gain and accepted massive bribes worth several million Hong Kong dollars," the news agency said, adding that, "he also violated regulations by personally deciding on and approving loans of hundreds of millions of Hong Kong dollars to others, thus creating huge economic losses." One American dollar equals 7.8 Hong Kong dollars.

The ministry of finance said here today that Everbright itself remained financially stable despite the losses.

The news agency said today that Mr. Zhu had been expelled from the Communist Party and that his case had been handed over to prosecutors for criminal charges after an investigation by the anticorruption units of the Communist Party and the central government. He is believed to be in Beijing's special prison for senior officials, and neither he nor Mr. Wang could be reached for comment.

China routinely imposes the death penalty on low-level officials convicted of corruption. More senior officials tend to be treated less severely, however.

In a possible sign of embarrassment about the latest financial scandal, the news agency posted its report on the Chinese-language version of its service but not on the English-language service. China's Ministry of Finance has been pushing banks to clean up their balance sheets and reputations so that they can raise money by selling shares on international stock markets.

The Bank of China raised $2.5 billion on July 25 in Hong Kong with an initial public offering of shares in its Hong Kong subsidiary.

The scandal at Everbright is especially embarrassing because it used to be a showcase bank for this country. The Asian Development Bank, a multilateral lending institution like the World Bank but independent of it, bought a large stake in Everbright five years ago and provided money for the latest computers, financial software and training.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.