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The Rise and Fall of a Local Official Obsessed

Corruption Fighters Question Guo Youming’s Record in Growing Hubei Province GDP

A November 27 statement by the Communist Party’s anti-corruption watchdog confirmed that the Deputy Governor of Hubei Province, Guo Youming, was being investigated for graft.

Three days later, Guo was removed from his post, becoming the thirteenth official with the rank of Deputy Minister or higher to fall from grace over corruption since the party’s Eighteenth National Congress in November 2012.

Guo, fifty-seven, is a native of the central province of Hubei and has spent much of his career in the water industry. In 2000, Guo, then Vice Director of the Hubei water bureau, was named Deputy Party Secretary of Yichang. He was later promoted to Yichang Mayor and the city’s Party General Secretary. Since August 2011, Guo had been the Deputy Governor of Hubei, overseeing the province’s land, agriculture, forestry, and water management. He is also in charge of works related to poverty relief, the Three Gorges Dam, and the country’s major water transportation projects.

Several sources say Guo’s corruption was uncovered during a nationwide inspection launched by the party’s anti-corruption watchdog, the Central Discipline Inspection Commission. An entrepreneur in Yichang said the inspection team arrived at the city in June and visited dozens of companies.

An official at the Hubei anti-corruption bureau said Guo’s violations mainly occurred during his tenure in Yichang between 2000 and 2012. During that decade, Guo was known for his support in attracting outside investment and calls for aggressive economic growth. From 2008, when Guo became Yichang’s party boss, to 2011, the city’s GDP rose from 104 billion yuan to 214 billion yuan. The rapid growth attracted nationwide attention.

One of the most important projects supported by Guo was a 20 billion yuan investment in the Three Gorges Quantong Coated and Galvanized Plate Co., which opened in late 2008. Starting in mid-2011, the company has faced big debts and suspended production.

Climbing the Ladder

Guo graduated from college in 1982, and joined officialdom in 1993 by becoming Human Resources Director of the Hubei water bureau.

An expert at the Hubei Academy of Environmental Science said the position was a springboard for Guo. At that time, he was believed to be one of the most promising young officials in the province.

Three years later, the thirty-nine-year-old Guo was appointed Deputy Director of the provincial water bureau. Later, he became Yichang’s Deputy Party Chief.

Yichang carries a special weight in Hubei because two major water projects are in its territory: the Gezhou Dam and the Three Gorges Dam. Over the past two decades, Yichang has grown from a small town to a major city.

In 2004, Yichang’s GDP hit 54 billion yuan, which trailed only the province capital, Wuhan.

In 2008, in the face of a slowdown linked to the global financial crisis and the completion of the Three Gorges Dam, Guo pushed forward a number of major industrial and infrastructure projects, attracting investors in a bid to maintain the city’s growth.

During the first half of 2009, city officials traveled the country aiming to promote the city and invite investors. Tens of billions of yuan in agreements were signed, the biggest being the Quantong galvanized plate project, which started out as an 11 billion yuan deal.

In 2010, Guo said the city should have GDP of 400 billion yuan by 2016, emphasizing chemical, equipment manufacturing, electricity, food, and medicine industries.

Guo’s economic success led to a promotion to the provincial level. In August 2011, he was promoted to Deputy Governor of Hubei and in July the next year he left Yichang.

His successor soon ran into trouble. Quantong, once the pride of Yichang, faced a crisis.

The Failure of Quantong

Local media reports said that in late 2008, Guo led a team to visit Hebei, a province in the north that envelops Beijing, meeting businessman Liang Shicheng, owner of Hebei Hengtong Coated and Galvanized Plate Co.

Guo invited Liang to invest in Yichang and promised great support. Liang eventually signed an agreement with Yichang High-Tech Development Zone. Work on the project proceeded fast. Some 239 households signed agreements to leave to make room for the project. The Yichang zone helped the project gain government approvals without paying the usual fees.

In 2011, the first phase of Quantong started operation. Liang and the city government then decided to add another 9 billion yuan in investment. Quantong would see its annual production capacity reach 10 million tons by the end of 2013, with sales revenue totaling 50 billion yuan and contributions to local tax revenue hitting 3 billion yuan. The company would hire 16,000 people and become the country’s largest coated and galvanized plate production facility, making the steel sheets widely used to make heavy equipment, automobiles, and home appliances.

However, the market ran into trouble in the second half of 2011. By February 2012, Quantong was reported to have 2 billion yuan in unpaid loans. The Yichang government offered 200 million yuan from its budget to support Quantong.

But in May 2012, Guo said in public that Quantong’s 2011 sales revenue was 18.5 billion yuan and it received orders for more than 9 million tons of products for 2012. He urged government agencies and financial institutions to continue offering support to Quantong to help it expand capacity and seek a public listing.

Several Quantong employees, however, say it saw its inventories rise starting in the second half 2011, and it occasionally had to halt production. In September, production was entirely suspended after it delayed paying its employees. The public came to know of Quantong’s troubles and the Yichang government had to intervene.

Quantong general manager Zhao Dahe said the company’s liability ratio was around 63 percent, with debt at more than 7 billion yuan. Debts included bank loans, trust loans, financial leasing, and loans from the government. More than ten local banks that followed Guo’s orders to support Quantong faced bad loan difficulties. The company also owed more than 1 billion yuan to its suppliers.

Graft Suspicions

Many people blamed Quantong’s failures on its aggressive pace of expansion. But an official at the provincial anti-graft agency also wondered what led to the “wrong decision-making.”

Quantong’s financial reports show that in 2011 it received nearly 100 million yuan in subsidies and tax rebates from the government. Documents from the Yichang High-Tech Development Zone show that the city government offered 2.87 million yuan in subsidies for each hectare of land to Quantong for infrastructure construction. It also provided a 300 million yuan loan with preferential terms.

Meanwhile, a Quantong executive admits financials were inflated. The company said on its official website that total investment of the first phase of the project was 7 billion yuan. However, in an interview with The Economic Observer, Zhao, the firm’s GM, said the figure was only 2 billion yuan.

Business registration documents indicate that Liang, the Chairman and largest shareholder of Quantong, did not put any cash or property in the investment. He offered only two trademarks worth 1.34 billion yuan that were owned by Hengtong in exchange for a 31.7 percent stake in Quantong. Company employees say the trademarks were never a part of the company’s business.

The Beijing News, citing an official in Yichang’s judicial system, reports Liang has been restricted from leaving the city.

The investigation into Guo is likely to expand beyond the Quantong project. Since his downfall, a college classmate, Yu Hongzhi, has also come under the scrutiny of corruption fighters. Yu set up Yichang Hongxu Conduit and Calling Co. in 2003 when Guo was the acting mayor of the city. Yu’s businesses, which also include property and tourism, had also won great support from the Yichang government. Several local businessmen say Yu got help from Guo for land purchases.