Is it Cartel Activities to Penalize and try and Crush a Free Market Business When they Critize the Cartels?

Cited from an Email I recieved. This is old as of lately I know that China has allowed 6 foreign banks into their country to alleviate this kind of unfair play from the SOE's. However, they are still arresting researchers who wish to do indiviudal public audits of the companies for investments firms, as the SOE's are cloaking themselves with public investment and not fully sharing the profits with their investors.

Still good example of cartel activity. From some newer articels I have still found this old SOE loan first before private market loans though.

"June 6, 2003

1400 GMT

Summary

The Dawu Group, one of China’s largest private companies, has been penalized and its founder Sun Dawu arrested by Chinese authorities for public criticisms and for trying to establish an independent credit cooperative as an alternative to state-controlled banks. As a politically active, wealthy entrepreneur who publicly opposed Beijing’s policies, Sun represents a worst-case scenario for China’s leaders — and very well might represent the vanguard of an alternative source of political power in the Middle Kingdom.

Analysis

One of China’s largest private companies, the Dawu Group, has been reprimanded for publishing essays critical of government policies and state-controlled banks and for trying to create an independent credit cooperative. Northern Chinese officials announced June 4 that they confiscated $360,000, froze the firm’s bank accounts and shut down its Web site, www.dawu.com.

The Chinese government moved against Dawu and founder Sun Dawu, who represents a direct threat to the Chinese Communist Party and the central government’s authority. Sun’s criticisms and actions are a clear and present danger, not merely to Beijing’s political authority, but also to one of the fundamental pillars of the Chinese economy. As a politically active, wealthy entrepreneur who publicly opposes Beijing’s policies, Sun represents a worst-case scenario for China’s leaders — and very well might represent a vanguard of a growing alternative source of political power in the Middle Kingdom.

The Dawu Group is a feed and agricultural firm, founded by former Agricultural Bank employee Sun and his wife in 1985. The company, based in China’s northeastern province of Hebei, prospered and expanded, eventually becoming a conglomerate that controls a network of agricultural, food and electronics companies and two educational institutions. According to the nation’s Commerce and Industry Bureau, Dawu has been one of China’s largest private enterprises since 1995.

Sun’s entrepreneurial spirit and the success of his company are emblematic of the post-Mao China and its economic reforms. However, Sun’s wealth and probable political connections seem to have sufficiently emboldened him to confront Beijing’s policies — ultimately leading him into conflict with the authorities.

As a self-designated champion of rural reform and a spokesman for China’s peasantry, Sun enjoyed some official support. He criticized excessive bureaucratic procedures as hindering rural entrepreneurship and found audiences at China’s prestigious Beijing University. Sun’s outspokenness won him some fame, and he became the subject of recent articles in publications such as the China Economic Times and Singapore’s The Straight Times.

Sun eventually pushed the envelope too far, however. In a recent essay published on his company’s Web site, he criticized Beijing for neglecting rural development and railed against state-owned banks for moving funds — largely made up of China’s 800 million rural residents’ personal savings — into urban projects. At the same time, Sun withdrew 3 million yuan ($360,000) from a state bank, allegedly to establish a private rural credit cooperative. This was far beyond Beijing’s limits.

By most accounting standards, China’s banks essentially are insolvent, weighed down by nonperforming loans to the nation’s state-owned enterprises (SOEs). Although the SOEs are rusting Stalinist throwbacks from a bygone era — the majority of which likely have not seen a profit since the 1980s — Beijing is obligated to maintain many of them. Most SOEs are important either because they control strategic public utilities like telecommunication, energy or transportation, which Beijing is unwilling to privatize and sell to foreign investors, or they employ so many people that shutting their doors would further exacerbate an already severe unemployment problem. Because of this situation, the SOEs continue to be supported by the state-controlled banks — built on deposits which are primarily the life savings of the Chinese population, the majority of whom are rural.

China’s above-average savings rates, managed by state-controlled banks, are a critical segment of the national economy. According to the People’s Bank of China, household savings have risen almost 20 percent year on year to a record 9.81 trillion RMB ($1.18 trillion) in January — nearly 100 percent of GDP. This capital and the interest it bears are crucial to China’s economic development, and a run on the banks would be devastating for the country.

Sun’s essays, in essence, implore Chinese citizens to recognize this reality and encourage them to demand a say in how their bank deposits are applied. Taken to its logical extreme, Sun is floating the idea that the Chinese vote with their bank balances: If the state banks don’t make enough rural investments, then withdraw your funds and put them somewhere they will — such as a private rural credit cooperative created by Sun. It is little wonder that police paid Sun a visit.

His case is an interesting example of the power of one politically savvy Chinese entrepreneur — what keeps Chinese policymakers awake at night is the thought of legions of them. This is primarily what prompted former President Jiang Zemin to turn Marxism inside out and invite capitalists into the Communist party.

Jiang’s government realized that China’s wealthiest citizens naturally would acquire power along with their money. Given this, they decided it was better to enfranchise as many of them as possible, rather than allow them to wander China’s political landscape seeking opportunities for self-expression. In the last few years, several of the country’s richest citizens have cooperated with the government, either as business partners or members of the National People’s Congress and delegates of People’s Political Consultative Conference. Others, however, have raised Beijing’s ire.

A number of wealthy Chinese have been arrested and fined for tax evasion and other criminal acts. Zhou Zhengyi, a Chinese real estate magnate worth an estimated $320 million, has been under house arrest since May 26 as part of investigation of fraudulent loans from state banks. Other entrepreneurs, like Sun, have been targeted by the state for political activities in addition to business-related improprieties. Yang Bin, one of the richest men in China, was arrested in October 2002 for tax fraud in connection with “irregular” business activities. In addition to being a business tycoon Yang — much to the surprise of Chinese authorities — had been appointed governor of the North Korean Sinuiju Special Administrative Region. Yang might have thought that his position in North Korea would have made him too valuable to both Beijing and Pyongyang to be bothered over a few business irregularities. He was wrong.

Individually, China’s millionaires and billionaires on occasion have challenged Beijing’s authority through either shady business deals, tax evasion or blatant theft of state assets, but few have confronted the government as Sun has. Ultimately, what is far more troubling for Beijing is that Sun has like-minded peers who want to change Beijing’s policies — or failing that, change the policymakers in Beijing.

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Seems to me that would be Cartel activities. To arrest those that research the SOE cartel links, possible give those with the diagram of the actual proof of the Cartel links and vertical application neck ties, and then arrest and prosecture plus hit for tons of money any private enterprise that wishes to grow without the Communsit SOE controlled bansk saying so. Updated however, I know today, China has allowed at least 6 foreign banks into their country to allevaite this problem. However, this does show the intrinsic mindset of the SOE cartels.