Sunday, November 29, 2009

Denouement on Yide and Zhou Xiaodi

Once ranked on the Hurun Report as one of China’s biggest philanthropists, Zhou Xiaodi has finally been sentenced to serve 14 years in jail as the result of real estate dealings in Shanghai. The sentence was handed down on November 5, 2009.

See the news article from the Shanghai Daily here:

Interestingly, as well, is that his sentence included a fine of 300 million RMB, or 44 million USD.

The story dates from the days of rural Shanghai and lax oversight of property market in Shanghai. In 2001, Zhou’s real estate company “bought” land from Shanghai County (which was subsequently abolished and absorbed by Pudong New Area) in the Sanlin area. This area has been left undeveloped for 8 years, precisely because of dealings overtaken by Zhou. His position of influence with the local government allowed him to elude government land development requirements.

After his obtaining of the use rights for the Sanlin area, Zhou then sold off parts of the land to investors from Zhejiang and Jiangsu, keeping only one part of the land—designed as land for housing people dislocated by the Shanghai Expo—for himself. Despite paying for their shares in a Shanghai property market often closed to outsiders, the Jiangsu and Zhejiang investors were never given legal rights to build on the land. Years later, Zhou again sold the right to develop and manager property on the land.

In total, Zhou made hundreds of millions of RMB as a result of obtaining land use certificates from the government. The spectacular thing is that Zhou did not invest any of his own money, or actually do anything with the Sanlin land, in making this money.

His legal troubles occurred when he hired migrant workers to beat a representative from the Zhejiang investor who was trying to get compensation from their investment back. Yin Minghua, the victim of the beating, had already helped the Jiangsu investor sue for a return of their original investment. A full investigation was undertaken but has not been publicly disclosed due to the connections to multiple levels of city government, importantly including the PSB, to the case.

As is often true of wealthy entrepreneurs in China who obtain their wealth by shady means, Zhou undertook a multitude of socially responsible actions. Besides donating large amounts of money, which put him on the Hurun list, he also set up a university and hospital, both affiliated with prestigious institutions in Shanghai, in Pudong.

Zhou’s company still has a website that can be found here:

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