By MICHAEL WINES
Published: May 18, 2010
New York Times
BEIJING — A high-school dropout who built the Chinese home appliance chain Gome into a multibillion-dollar empire was sentenced to 14 years in prison on Tuesday after being convicted of insider trading, bribery and other crimes, government prosecutors reported.
The conviction of the former chairman, Huang Guangyu, was among the most significant in a string of recent business-related corruption trials that have brought down top officials in China’s oil and nuclear power industries and felled other executives in the airline, beverage, cellphone and securities businesses, among others.
Prime Minister Wen Jiabao has demanded a crackdown on corruption, saying bluntly in March that it threatened the Communist Party’s continued hold on power.
Although prosecutions have increased, many analysts say investigations remain spotty, and their targets are often chosen for political reasons.
Mr. Huang’s sentencing officially closed a spectacular rise-and-fall saga that had led the Chinese press in 2008 to crown him the nation’s richest man, with an estimated net worth of $6.3 billion. Forbes magazine’s list of the wealthy placed his assets at a more modest $2.7 billion.
Just a month later, in November 2008, Beijing public security officers detained Mr. Huang on suspicion of “economic crimes.” In the ensuing 17 months, investigators accused him of bribing five senior tax and police officials, illegally converting 800 million renminbi, or $117 million, into foreign currency and insider trading involving the stock of a company in the city of Shenzhen that was said to have netted him about $45 million.
Perhaps a dozen prominent people were reported in the Chinese press to have been caught up in the investigation, including Xu Zongheng, a onetime mayor of Shenzhen; the former police chief and the former top anticorruption official in southeastern China’s Guangdong Province; the deputy public security chief in Shanghai; and a major investor in Neptune Group, a cruise line and casino operator based in Hong Kong.
The state-run Xinhua news service, the only news agency allowed to witness the trial, reported that Mr. Huang also was fined about $100 million and that the court ordered about $29 million of his assets seized. Mr. Huang’s wife, Du Juan, was also convicted of insider trading on Tuesday, the agency reported, and was sentenced to three years in prison and fined about $29 million.
Two of the firms Mr. Huang once ran, Gome Electrical Appliances Holdings and Beijing Pengrun Real Estate Development, were fined $730,000 and $176,000 for paying bribes.
Gome (pronounced Gwo-may) issued a statement saying it respected the court’s judgment and adding that “the amount won’t materially affect the company’s business operations or financial position.” Since its peak, Gome has closed hundreds of stores, and now has fewer than 700, but it remains profitable.
Mr. Huang, 41, resigned as chairman of Gome two months after his detention. The company stated that no corporate funds were embezzled or used to pay bribes.
Mr. Huang’s personal story had epitomized the can-do spirit and canny business acumen that have been trademarks of China’s swift rise to economic prominence. The younger of two brothers in a farming family in Guangdong Province, he was said in Chinese news reports to have spent part of his childhood trolling through trash bins for usable goods. He left school at 16 and, with his brother, opened the first Gome store in Beijing in 1987 with 4,000 renminbi they had earned as traveling salesmen in Inner Mongolia and a 30,000-renminbi loan.
“He came from Guangdong, an area rife with pirated goods, and went to Inner Mongolia, where almost everything was in short supply,” Wu Alun, who wrote a 2005 book about Mr. Huang, said in a telephone interview on Tuesday.
“That was where his first business ideas were formed: Take things from where they are plentiful to where they’re scarce.”
At its peak, Gome was China’s largest retail appliance chain, with 1,350 stores in more than 200 cities. Mr. Huang became fabulously wealthy by floating his company on the Hong Kong stock market in 2004, then investing in real estate and stock in mainland China.
But when he sought in 2006 to take over the troubled company that runs Zhongguancun, northern Beijing’s computer technology district, he attracted the attention of investigators. Days after Mr. Huang’s November 2008 detention, the Chinese Securities Regulatory Commission accused Mr. Huang of manipulating the price of stock in a company, Beijing Centergate Technologies, so that profits from share sales could be used to restructure the company.
Investigators later charged that Mr. Huang had paid about $680,000 in bribes to five top tax and police officials for help in tax disputes.
Mr. Huang’s rise, Mr. Wu said, may also have epitomized the corporate style in modern China, where seeking political favor and protection are sometimes viewed more as sharp business tactics than as acts of wrongdoing. The chances of being investigated, other analysts routinely say, often depend on whether one has fallen from political favor.
Still, investigations and convictions are visibly increasing. The English-language Global Times newspaper reported that 14 government officials at the ministerial or provincial levels were fired in 2009 for corruption, the most in the last three decades, and that the number of officials caught embezzling more than a million renminbi, or about $145,000, last year was up by nearly one-fifth from 2008.
Trading in Gome’s shares was suspended for some seven months after Mr. Huang’s detention but resumed about a year ago after a Boston private equity firm, Bain Capital, agreed to invest up to $423 million in the company in return for a minority stake. In August, Gome named three Bain executives to its board in a stated attempt to improve corporate governance, but the three were ousted from the board this week.
