The aftershocks of former Sichuan Province deputy Party Secretary Li Chuncheng’s takedown are starting to ripple through Chengdu’s real estate sector. Developers are freezing projects, architects are putting plans on hold, while prospective tenants are left in a holding pattern until the rubble clears.
Caixin recently reported on one deal, involving real estate giant Vanke and a shell company, Tongtai, that is at the center of the investigation into Li Chuncheng’s activities. That deal highlights the role of the “Harbin Gang,” associates of Li Chuncheng from his days in Heilongjiang, and their efforts to cash in on their boss’s sway over land auctions in Chengdu.
But if rumors swirling around the city prove to be true, then the biggest head – involving literally the biggest real estate project in the world, The New Century City Global Center (Youku video) – is about to roll.
It’s been two weeks since whispers on the street and on Weibo mentioned Deng Hong and the New Century Global Center in connection with Li Chuncheng’s fall. On December 8th, a Weibo user posted the first mention of Deng Hong under investigation, which was then promptly deleted. On December 10th, Caijing journalist Li Wei Ao (@??? on Weibo) posted a photograph of Deng Hong attending a meeting at the his company’s offices, roundly ridiculed by netizens who saw the meeting as a diversion meant to put an end to the rumors. Since then, no one has come out to definitively state whether or not Deng Hong is under investigation, but the damage is already done.
Tenants are starting to shy away from the development, and the firm run by famous Iraqi architect Zaha Hadid, who designed the New Century Art Centre across from the New Century Global Center, has reportedly recalled their representative in Chengdu.
A Likely Suspect
Deng Hong, director of the Exhibition and Travel Group (ETG), is one of the most powerful real estate magnates in the region. The group’s holdings include the massive Century City Exhibition Center in the south of the city, which includes an Intercontinental Hotel, another Intercontinental Hotel and exhibition center near Jiuzhaigou in northern Sichuan, a smaller collection of hotels and exhibition centers in Yibin, and several other tourist locations around Sichuan. The group also owns the Intercontinental Hotel in Lhasa and has controversial projects in Micronesia and the Maldives.
Yet, none of these projects match the New Century City Global Center in investment or size. Sources within the government claim that the city of Chengdu provided RMB 50 billion in funds for “the world’s largest stand-alone building” and the whereabouts of those funds is central to the investigation into Deng Hong.
In an interview for the Washington Post in 2002, Mr. Deng comes off as the prototype Chinese nouveau riche, with interests in real estate and powerful connections in the government:
Deng, in addition to his army background, has assiduously cultivated ties with the city government of Chengdu. Ask him which is more important, his relationship to other businessmen or to the government, and he does not hesitate: “I really don’t have anything to do with my fellow businessmen,” he said, echoing other well-off Chinese. “My business depends on the government.”
So much so that last year, Deng surrendered 30 percent of his stake in the convention center to the Chengdu city government, for nothing. One of his senior executives is the former deputy mayor of Chengdu. For his development project next to the national park in western Sichuan, he has hired retired government officials.
The former deputy mayor of Chengdu in 2002 – supposedly one of Deng’s former executives – was none other than Li Chuncheng. Although no smoking gun exists, and the Chinese media has so far remained silent on the possibility of Deng Hong under investigation, the very system that drives development in China creates men like Li Chuncheng and Deng Hong: powerful, supremely wealthy, and until very recently, unaccountable to anyone.
A Corrupt System of Achievement
Deng Hong has often spoken publicly of his goal to transform Chengdu into the “Davos of the East,” and these words – along with his willingness to partner with international chains like Intercontinental, build massive convention centers, and turn over shares to the government – was music to official ears. During the last 15 years, Chengdu has expanded well past the Second Ring Road, the border between the urban and rural worlds in 2002 when John Pomfret sat down with a confident Deng Hong, and has become one of the fastest growing cities in China. Very little of that growth came outside of the system that created Li Chuncheng, shell companies like Tongtai, and fabulously rich magnates like Deng Hong.
Even as these men and their associates cashed in on this growth, the city also received a complete makeover. The government offices moved south to surround the convention center that Deng built; shopping malls filled with luxury outlets, Starbucks and now a new Apple store popped up all over the city; two Metro Lines now criss-cross the city with more planned; and the Second Ring Road is receiving an upper deck. Next year in June, the Fortune Global Forum will be held here in Chengdu – an international stamp of approval if there ever was one.
The construction barrels forward all across the city. Thousands of apartments are up for sale along the Third Ring Road, the new border between urban and rural in Chengdu, advertising a “massive discounted price of RMB6,500 per m/2” – property prices within Chengdu’s central CBD and in high-end complexes like Luxe Hills in the south start from RMB15,000 per m/2. And the city has another grand contemporary art complex in the works – to complement the New Century Art Centre and the Tianfu Museum of Modern Art going up right under Mao’s nose – the Tianfu Cultural and Performance Centre, a gorgeous capstone to Chengdu’s economic and cultural renaissance.
But a list of Li Chuncheng’s corrupt deals that is circulating Weibo presents a veritable who’s who and what’s what of Chengdu’s last 15 years of development. The list, put together by netizens, includes construction on the First and Second Ring Roads, various tourism projects involving the Chengdu Culture and Tourism Group, and pretty much every large-scale real estate project initiated between 2000 and 2012, including The Luxe Hills residential development. There are even dealings between the government, the local Red Cross when it was under the control of Li Chuncheng’s wife, and local mafia.
The Chengdu public assumes that every major development in the city is tainted with corruption in some form, and now that the once unassailable Li Chuncheng is under investigation, they are more brazen in the streets and online with their condemnation and identification of allegedly corrupt officials and their projects.
In an article in the Economic Observer, Chen Jieren wrote that this anti-corruption drive may be real, due mostly to official tolerance of public participation – the fact the case of Li Chuncheng, speculation on Deng Hong, and a list of supposed crimes have been posted and re-posted online is testament to that tolerance. In fact, the public reaction to this recent drive may actually be affecting the system enough to cause the recent articles in Duowei and the Wall Street Journal (via Sinocism) about a possible backlash against the anti-corruption drive and its proponents online.
When one removes the nucleus from a system, as the anti-corruption drive did when it targeted Li Chuncheng, the system can’t help but falter. Real estate prices cool down, developers and tenants freeze plans, and the steamrolling development of an emerging city takes a punch to the gut. A backlash is inevitable.
What else is to be expected from a system that has not only made many people incredibly rich, but has also turned provincial capitals like Chengdu into international up and comers?