Official at centre of Fortescue case in jail for bribery
John Garnaut,
Beijing
Source: The Age Business section 10/9/09
April 10, 2009
THE Chinese central planning official at the centre of Fortescue Metals Group chief Andrew Forrest's court proceedings is now in a Beijing jail, convicted of receiving more than 1 million yuan ($A205,000) in bribes.
He Lianzhong was in charge of outward foreign investment at the National Development and Reform Commission (NDRC) before being tripped up by a disgruntled mistress.
Beijing court documents suggest that He Lianzhong used his mistress to try to extract commissions worth tens of millions of US dollars from some of China's largest companies while acting as official gatekeeper for their overseas investment dealings.
A number of Chinese executives privately blame the vast administrative power given to Chinese officials, and in particular for derailing a number of promising investment projects in the early years of the resources boom.
The 2005 investigation into He Lianzhong by the Communist Party's feared Disciplinary Inspection Commission exposed "rampant power abuse" and ultimately forced the NDRC to loosen its grip on outward investment decisions, according to the respected magazine Caijing.
He Lianzhong's former division continues to control outward investment deals such as Chinalco's in Rio Tinto, MinMetals in Oz Minerals and Hunan Valin in Fortescue.
Chinese corporate sources say Chinese investor companies now sometimes have the upper hand in their negotiations with the NDRC — China's top economic planning agency previously known as the State Planning Commission.
Nevertheless, Chinese investment bankers say, the NDRC had blocked investment by several private or provincial Chinese companies, including Shagang and Hunan Valin, in Fortescue until its preferred bidder, national champion Baosteel, bowed out late last year.
Counsel for Fortescue this week shed new light on He Lianzhong's modus operandi.
John Karkar QC told the court in Perth that He Lianzhong had promised to "teach them a lesson" after Mr Forrest had refused to let He Lianzhong's preferred Chinese company, the China Metallurgical Construction Group Corporation, take a large controlling stake in Fortescue. Mr Forrest's disregard of the ultimatum is at the heart of his 2004 contractual troubles that are now the subject of the proceedings brought by the Australian Securities and Investments Commission.
A Chinese source familiar with He Lianzhong's Beijing court file told The Age yesterday "Fortescue is not named in any of the court documents".
He Lianzhong's was sentenced in January to 12 years' prison for taking bribes on 40 occasions from 10 Chinese companies in the decade to 2006. The former military officer is one of a long line of corrupt Chinese officials brought undone by mistresses unhappy at the financial aspects of their personal dealings.
The mistress, Huang Huijuan, also known as Tanny Wong, was allegedly acting on He Lianzhong's behalf in holding 40 per cent of an offshore company that stood to receive $US31 million ($A44 million) of Venezuelan oil from a subsidiary of oil giant PetroChina.
The subsidiary, China National United Oil Corporation, engaged British Virgin Islands-registered Botanic in 2004 to help with a stalled oil supply agreement with Venezuela.
Botanic was to receive a commission worth one-sixth of the resulting oil shipments, estimated at the time to be worth $US31 million.
But the PetroChina subsidiary refused to pay the commission when the oil supply problem was sorted out during a visit to Beijing by Venezuela's President Hugo Chavez.
Lawyers for Botanic said Ms Huang was merely holding the Botanic shares on behalf of her benefactor, He, Lianzhong, who wielded administrative power over the energy supply agreement in question.
He Lianzhong also received $HK140,000 ($A25,000) from a Beijing trading company, Parkwin Energy, that was entangled in the deal.
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