Inside Story

Don’t ask, don’t tell

A rollercoaster account of life during China’s era of excess throws indirect light on Xi Jinping’s presidency

Hamish McDonald Books 12 October 2021 2378 words

Early days: Desmond Shum

Red Roulette: An Insider’s Story of Wealth, Power, Corruption, and Vengeance in Today’s China
By Desmond Shum | Simon & Schuster | $32.99 | 310 pages

It’s June 2011, and Desmond Shum and his wife Whitney Duan are taking three of China’s richest couples to Europe for an introduction to Western culture. Three executive jets have been booked, but the men want to play cards so all four couples fly in one of them, with the other two sets of wings tagging along as spares.

Shum loses US$100,000 in a game called Kill the Landlord, but that’s okay — it’s a good investment in connections. As the drink flows, Ningbo tycoon Yu Guoxiang boasts of the official favours that enabled his expressway and hotel deals.

Once they arrive, museums and art galleries aren’t on the itinerary. David Li, son-in-law of Chinese Communist Party heavy Jia Qinglin, wants to open an exclusive wine club in Beijing, so first there’s a dinner at the Pavillon Ledoyen in Paris, where the wine-tasting alone costs US$100,000, and then it’s on to a Rothschild estate in Bordeaux.

Next stop is the Côte d’Azur, where Xu Jiayin, the ex-steelworker who founded Evergrande — the property group whose US$300 billion–plus in unpayable debt is currently causing China systemic risk — wants to check out a yacht that might work well as a floating palace for entertaining contacts away from snoops. He looks over one being sold by a Hong Kong businessman, but even at US$100 million it’s not dripping with enough luxurious fittings for the purpose.

Then on to Milan, where the wives go crazy with top Italian brands. They do so much shopping that getting their value-added tax refunds delays the return flight by three hours, though it’s unclear why they are bothered with such small change.

The trip is just one episode in Shum’s tell-all account of his days as entrepreneur and fixer. Red Roulette is a mind-boggling window into the era of breakneck economic growth and excess that the enigmatic Xi Jinping would start shutting down eighteen months after the European expedition following his ascension to the pinnacle of power in China.

Shum’s book recalls, though with much less intimate detail, The Private Life of Chairman Mao (1994) by Li Zhisui, the personal physician to Mao Zedong. It also has a tinge of Mr China (2005) by British investment banker Tim Clissold, which recounted how, during China’s early switch to private enterprise, some of his clients found their ex-managers opening factories down the road making copies of their products.

Educated in Hong Kong and the United States after his parents got out of Shanghai, Shum was recruited by an American investment fund anxious to put money into Chinese startups. “I quickly learned that in China all rules were bendable as long as you had what we Chinese called guanxi, or a connection into the system,” he writes. “And given that the state changed the rules all the time, no one gave the rules much weight.”

One client was importing Heineken beer in massive quantities into Hong Kong, to be smuggled onto the mainland by various parties including the Chinese navy. Shum’s employers pretended ignorance of this and other transgressions. “A lot of Western businesses in China adopted a similar, don’t ask don’t tell business model,” he writes. “Abysmal working conditions in factories making high-end sneakers? ‘Who knew?’ Prison labour making blue jeans? ‘There must be a mistake.’ In business with the army or the police? ‘We weren’t aware.’”

Shifting to Beijing in 1997, Shum found foreign firms playing a higher-stakes game, using the offspring of high-ranking Chinese officials to gain favour. “These sons and daughters functioned like an aristocracy; they intermarried, lived lives disconnected from those of the average Chinese, and made fortunes selling access to their parents, inside information, and regulatory approvals that were keys to wealth.”

He got close to Jiang Minsheng, son of party general secretary Jiang Zemin, who was rolling out fibre-optic cable. One associate proved less reliable, marrying a granddaughter of previous supreme leader Deng Xiaoping and driving around Beijing in a red Rolls-Royce convertible with military numberplates — a bit too ostentatious, even for the red aristocracy. Other relatives of Deng got deals like supplying bottled Tibetan spring water to China’s high-speed rail network.

It was during those heady times that Shum got to know Whitney Duan, a woman from Shandong province who had parlayed a brilliant computer science degree into a job as assistant to the head of a People’s Liberation Army real estate firm, then branched out to selling IBM equipment to telecom companies and developing land owned by a state shipping company.

Whitney took Shum to be vetted by a mysterious older woman who turned out to be Zhang Peili, wife of vice-premier Wen Jiabao, who was on the verge of becoming premier. A trained geologist like Wen, she’d gained an interest in business via gemstones. Desmond passed the test, and he and Whitney married.

By then Whitney and “Aunty Zhang” were business partners sharing an office in a sought-after tower on the understanding that Zhang would get 30 per cent of Whitney’s profits. Famously nerdy and workaholic, Wen saw nothing of this, not even recognising the expensive rocks and US$10,000 Hermès handbags flashed by his wife.

Big breaks followed, including the well-timed acquisition of a 3 per cent stake in the insurance giant Ping An from the state shipping line, COSCO, that eventually turned a US$12 million investment into US$200 million for Whitney and Desmond.

The couple pushed for a new cargo hub to be attached to Beijing’s airport, which was being expanded for the 2008 Olympics. Airport chief Li Peiying and Sun Zhengcai, party secretary in neighbouring Shunyi district, were cultivated for their support, as were lots of underlings. Gifts included US$10,000 golf club sets and US$15,000 watches.

One of their employees took officials to bathhouses so many times his skin started peeling. The airport customs office demanded and got a US$50 million staff centre, and the quarantine office something similar. On a “study tour” to Los Angeles, an official collapsed, requiring a US$300,000 triple bypass, which Shum funded.

This kind of behaviour was essential, says Shum, “in a system where the rules regarding what was legal and what was proscribed were full of vast areas of grey and every time you wanted to accomplish something you had to wade into the grey.”

It was an intoxicating time for businesses with links to the red aristocracy. “In the 1990s, China’s well-off bought knock-offs,” Shum says. “In the 2000s, we bought the real thing — LV, Prada, Gucci, and Armani.” Whitney spent US$15 million on a pink diamond and US$5 million on a painting, She paid a big import duty bill for a Rolls-Royce, and gave Shum a half-million-dollar Swiss watch for his birthday that F.P. Journe had taken two years to craft. (It was seventh in a series, of which Vladimir Putin was reputedly given the second.)

It could be hard going, though, and risky. Sun Zhengcai moved on, and Li Peiying, who had no party ancestry, was arrested and eventually executed for corruption. “Red aristocrats got a prison sentence; commoners got a bullet in the head,” says Shum. Funding from state banks dried up. Whitney and Desmond had to kick in some of their Ping An profits to complete the airport project. Faced with bureaucratic niggling from Li’s replacements, the couple found a buyer for their stake, abandoning the idea of further airport logistics centres.

“I began to understand what some of my entrepreneur friends had been telling me all along: the smart way to do business in China was to build something, sell it, take money off the table, and go back in,” Shum says. If you stayed in, you could lose it all.

“Two thirds of the people on China’s one hundred wealthiest list would be replaced every year due to poor business decisions, criminality, and/or politically motivated prosecutions, or because they’d mistakenly aligned themselves with a Party faction that had lost its pull,” Shum adds, noting that “anyone running a sizable business was bound to be violating some law.”

By this time, it was widely believed that China would become more open and transparent once private enterprise came to dominate the economy. Indeed, in the early decades of the capitalist experiment, Communist Party thinkers were looking at Japan’s Liberal Democratic Party and Singapore’s People’s Action Party as models for one-party elected rule in perpetuity.

But the global financial crisis convinced party leaders that China had the right model after all. With Wen Jiabao’s term as premier coming to an end in early 2013, Whitney and Desmond thought they had a new patron emerging in Sun Zhengcai, the old party secretary in Shunyi, who had risen rapidly from mayor of Beijing to minister of agriculture, with membership of the Politburo standing committee to follow.

The top-level intrigue turned truly nasty with the approach of the 2012 five-yearly party congress, where the succession would be decided. The ambitious Bo Xilai, another red aristocrat, used his fiefdom in the vast Chongqing conurbation to promote himself via a campaign of Mao-era nostalgia. But his plan began to come unstuck when the British business fixer Neil Heywood, who was close to his wife, was found dead in a hotel room in November 2011. Three months later, the city police chief informed Bo that his wife had poisoned Heywood. Bo was enraged, and the police chief fled to the US consulate in nearby Chengdu; giving himself up to State Security not long after, he was taken to Beijing to tell his story.

According to Aunty Zhang’s account, says Shum, the scandal came to the Politburo standing committee in March. Zhou Yongkang, the powerful member supervising security agencies, argued that investigation should stop with the police chief, whose running to the Americans he considered the real offence.

Xi Jinping, still a relatively junior committee member, argued that all players in the affair should be pursued. Wen Jiabao backed Xi’s view, and in September 2012 Bo Xilai was sentenced to life imprisonment, putting him safely out of Xi’s way before the party congress.

Shum has since confirmed to the Lowy Institute’s Richard McGregor that this account came from Zhang, who would have heard it from Wen. If so, it is the first account of cut-and-thrust inside the Politburo standing committee, so far a black box for sinologists.

Dirt was meanwhile being thrown in all directions. In June that year, Bloomberg reported that Xi’s family had a billion dollars’ worth of assets. In October, the New York Times estimated Wen Jiabao’s family members held an estimated US$3 billion in assets. Aunty Zhang told Whitney the revelations had been fed to the newspaper by Bo.

The double whammy from the two American outlets enabled the victims to argue that the bad publicity was a foreign plot. The party closed ranks, and Xi’s and Wen’s families were encouraged to “donate” their wealth to the state. Whitney agreed to declare that Zhang’s wealth was actually hers. “She willingly became the fall girl to prove that Aunty Zhang had been right to trust her for all these years,” Shum says. Wen wanted to divorce Zhang and become a Buddhist monk: the party vetoed both moves.

Amid all this, Whitney and Desmond pursued a new project, the redevelopment of a rundown state hotel site in Beijing’s fashionable Chaoyang. Two office towers were built, together with a Bulgari hotel and apartment building designed by New York’s Kohn Pedersen Fox and a museum by Tadao Ando. The couple occupied a penthouse in this US$2.5 billion “Genesis Beijing” complex.

But they had become estranged, and after they divorced in 2014 Shum moved to Britain with their son. Their post–Wen Jiabao ally, Sun Zhengcai, had run into his own problems under Xi. Shifted to Chongqing to replace Bo Xilai, he was found to have not done enough to eradicate Bo’s influence, and an investigation for corruption followed. Purged from the standing committee, he was sentenced to life imprisonment in May 2018.

By then, Whitney’s problems had deepened in tandem with Sun’s. On 5 September 2017, after telling Desmond earlier in the year that she had been banned from leaving China, she disappeared from her office at Genesis Beijing, along with two executives and a personal aide. Shum wasn’t to hear from her for four years.

The silence was broken last month, shortly before Red Roulette’s release, when she telephoned Shum to implore him to stop its publication. Implying that their son might be at risk, she seemed to be reading from a script under duress.

Amid all the colour and movement of Shum’s account of those years, one central mystery remains: what did Xi Jinping have that his rivals for the top job lacked? He was consistently underestimated on his way up, says Shum, despite having made a mark by cleaning up corruption in coastal industrial domains (though selectively, like his later campaign as leader). The consensus among business contacts in those regions was that “he wasn’t even borderline talented.”

The couple’s only contact with Xi came when Aunty Zhang and Whitney had dinner with the future president and his wife, the glamorous People’s Liberation Army chanteuse Peng Liyuan. According to Whitney, Xi let his wife do the talking. “He sat looking a bit uncomfortable, cracking an awkward smile.” No rapport was established. But Xi often looks awkward, particularly posing with foreigners, when he often looks away from the camera. And he may well have been unaccustomed to being surrounded by women.

Since then, the idea that Xi was “signalling left to turn right” has been steadily dispelled by his moves to centralise power around himself, extend his tenure indefinitely, and elevate his ideological status close to that of Mao. Extreme wealth and celebrity is now decidedly out of fashion.

It remains to be seen whether the legacy of that wild period of growth — Evergrande’s debt, and some ninety million empty apartment dwellings — along with the country’s dire demography and his own crackdown on the most vibrant forms of private enterprise, will bring Xi’s dreams of rising Chinese power down to earth. •