In the financial documents for a Guangdong province grower and processor of tea seed oil is a list of key shareholders who also happen to be the relatives of local government officials.
Off the record, Guangdong Xindadi Biotechnology Co. Ltd. and its chief—a businessman who went out of his way to cultivate good relations with local officials—received but according to investigators never properly accounted for tens of million of yuan in government subsidies.
Tipping authorities to the alleged fraud was an anonymous source who gave police information about a provincial government official who owns ten valuable pieces of real estate. His portfolio includes homes that would never be affordable based on his salary of no more than 10,000 yuan a month.
On June 18, the local Communist Party anti-corruption agency announced the detention of the official, Wei Jinfeng, a fifty-year-old deputy director of the Guangdong Finance Department. His wife and mother-in-law were also placed under investigation.
Authorities followed an unusual paper trail. It began with a master’s thesis Wei wrote as a graduate student at Sun Yat-sen University about the allocation of government subsidies.
He explored what was then a recently issued provincial policy to include a third-party vetting process in government contracting. The thesis cited loopholes in the rules that left room for corruption.
Shortly after Wei’s detention, authorities broadened their probe to include the head of a tea seed oil manufacturing company in the city of Meizhou. He was Huang Yunjiang, chairman of Guangdong Xindadi.
Huang is well-known for showing generosity toward local government leaders. For example, he built a recreation center where retired government workers could practice brush strokes on giant calligraphy tables. Allegedly, the relationships he fostered helped streamline business license and funding applications.
Sources said ordinary people in Meizhou generally believed that Huang had ties to Wei, but apparently the two men purposely kept their distance in public.
Yet an investigator told Caixin that “Wei was clearly involved in the Xindadi business.” He declined to elaborate.
Flagrant Fraud
Not only is eight-year-old Xindadi the largest tea oil manufacturer in Meizhou’s Pingyuan County—a major center for tea plantations and oil processing since the 1970s—but it’s been honored as a high-tech agribusiness company for its innovative tea-seed oil processing patents.
A former county party secretary said Xindadi is often at the top of the list for local business tours by government officials during the Spring Festival holiday. Big names from Party, government, and military circles likewise attended a ceremony for the company’s opening of a tea oil industrial park in 2007.
The name of a former county Party Secretary, Xiao Wenhao, who delivered a speech at the park’s ceremony, appeared in Xindadi company documents that showed the links between county Party officials, Wei, and his relatives, investigators said.
However, a former Xindadi employee said Wei was careful to keep his relationship with Huang a closely guarded secret.
In 2008, Wei’s mother-in-law and Xiao’s little brother were listed as holders of hundreds of thousands of company shares.
Xiao in a 2010 speech declared that the government would provide strong support for the company’s bid to launch an initial public offering. That was two years after Xindadi announced plans to list on the Shenzhen Stock Exchange.
The IPO bid coincided with central and provincial government policies promoting the tea oil industry. But the listing never occurred, and in July the China Securities Regulatory Commission ended its review of the IPO request because, an official told Caixin, there were problems with the company’s government subsidies.
Meanwhile, farm subsidies from the Ministry of Finance aimed at promoting “modern agriculture” were benefiting the company.
Between 2009 and 2011, investigators said, Xindadi received 25.8 million yuan in central and local government funds. The largest single payout was 7.9 million yuan.
In addition, the Pingyuan and the Meizhou governments loaned the company 13 million yuan between 2009 and 2011.
Meanwhile, Xindadi enjoyed preferential tax treatment. For instance, its taxes were cut 15 percent after receiving certification as a high-tech enterprise in 2008. Typically, subsidies are awarded for “high-tech” projects only to properly certified companies approved by local government officials.
According to an industry insider, “If a company can get the government to approve funding, subsidies are distributed immediately.”
Kept off the record, however, are the palm-greasing maneuvers that slip subsidy cash into officials’ pockets. For example, the source said, officials expect no less than 30 percent of any allotted subsidy.
In some instances, a company chairman will pay half that necessary amount as a bribe to a high-level official. The rest can be handed over after the subsidy is received.
Safeguarding Spoils
Agricultural projects are particularly amenable to siphoning off public funds, given the ease with which a poor harvest can be declared and financially written off.
A member of the Guangzhou People’s Congress who serves on the Financial and Economic Affairs Committee said companies often target agricultural subsidies because it’s hard to assess a farm project’s achievements if weather conditions can be cited as mitigating factors.
Unlike standard government contracts, a farm subsidy application doesn’t require a review by third-party experts. An agricultural policy analyst who asked not to be named said the same officials responsible for a project’s assessment are often in charge of subsidies.
One of Huang’s former business partners said large percentages of the subsidies awarded to the tea oil company were routed back to the officials who approved the funding.
The source said Huang once griped that too much of the subsidy cash had to be frittered away to pay for entertaining a constant stream of experts and officials on the take.
“Huang said he got little benefit from the subsidies. Half the funds were stripped off and stuffed back into the pockets of others,” the ex-partner said. “But Huang really had no choice.”
He Xin and Tian Lin are Caixin staff reporters.