In China, the scandal of Gucheng Coalfield mining rights sets a new record for the official and coal corruption, involving multiple officials at departmental level and above. A shell company that was known to no one acquired a coalfield’s exploration rights valued over RMB 100 billion with forged materials, which then were taken over by a large state-owned enterprise. This act allowed the original stockholders to cash out tens of billions of yuan.
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The Corruption Scandal Behind a Billion-Dollar Mining Rights Project
Written by: Bai Zhaodong, Wang Peng
Edited by: Zhu Tao
Gucheng Coalfield is located in Yulin, a historical city in northern Shaanxi Province. In the past it was once known as “Camel City,” a name referring to its desert setting. Situated in the far north of Shaanxi Province, Yulin lies in the junction of Loess Plateau and Mu Us Dessert. During the Warring States period of Chinese history (c. 475 – 221 BC), this place was the northern frontier. Elm trees were planted here to form fence against foreign aggression, hence the name Yulin (literally meaning “elm forest”).
As late as the end of 1980s, Yulin was still among one of the poorest regions in China, with its all 12 counties classified as impoverished. Under the barren soil, however, lay immense wealth. Yulin is rich in coal, oil and natural gas reserves; proven coal reserves alone amount to 150 billion tons, accounting for about one fifth of China’s total coal reserves.
The booming development of coal and oil industry over the past 20 years turned Yulin into a gold-rush destination. A large number of newly rich people emerged under this trend, the most typical of whom were the coal tycoons.[1] The 2011 statistics revealed that there were over 7,000 billionaires in Yulin, most of whom had made their fortunes from coal.
Turning rich overnight, a lot of people thus lost their way. Amid the huge interest conflict, local political and business relationship appeared to be extremely entangled.
In recent years, Yulin—a national hub for energy and heavy chemical industry—has become a hard-hit area for mineral and energy corruption in Shaanxi. All three levels of the provincial, municipal and county Party Secretaries, i.e. former Shaanxi Provincial Party Secretary Zhao Zhengyong, former Yulin Municipal Party Secretary Hu Zhiqiang, and former Fugu County Party Secretary Zhang Huirong,[2] were put under investigation for their involvement in mineral and energy development. The scandals implicated dozens of officials —a truly shocking spectacle.
As a series of cases came to the surface, the gravity of corruption in mining industry made jaws drop. Those power-for-money deals that made a coal tycoon overnight were gradually known to the public.
Among them there is this scandal of Gucheng Coalfield mining rights that hasn’t been fully publicized. This scandal sets a new record for official and coal corruption, involving multiple officials at departmental level and above. A shell company that was known to no one acquired a coalfield’s exploration rights valued over RMB 100 billion with forged materials, which then were taken over by a large state-owned enterprise. This act allowed the original stockholders to cash out tens of billions of yuan.
The Beginning of a Gold Rush Dream
Let us go back to about a decade ago. At the end of 2011, Bai Enfu, a businessman from Fugu County, Yulin, became the talk of the town. This hard-drinking man who barely managed a successful business suddenly saw 4.7 billion yuan credited to his bank account, making him a genuine multi-billionaire.
The 56-year-old Bai Enfu founded a small cement plant in 2002 under the name of Fugu Changcheng Building Materials Co. Ltd. (hereinafter “Fugu Changcheng”). Later, his plant remained semi-idle for a long time due to failure of meeting environmental standards and other reasons. At that time, Bai probably had very little idea how his hollow company would bring him riches overnight.
According to business registration records, Fugu Changcheng was registered on Jun. 6, 2002 with capital RMB 20 million. Its legal representative was Bai Enfu, and shareholders were Bai Enfu himself and his two brothers Bai Eryin and Bai Liangyin. Fugu Changcheng’s main business scope included: production of ordinary Portland cement, investment and development of mining business, sales of electromechanical equipment for coal, building materials, steels, and mining, and transport for ordinary goods.
On Oct. 8, 2007, Fugu Changcheng acquired the exploration rights for the Gucheng Exploration Area of Fugu Carboniferous-Permian Coalfields (hereinafter “Gucheng Coalfield”). The area of Gucheng Exploration Area covers 125.45 square kilometers. The certificate number was 0100000710797, valid from Oct. 8, 2007 to Oct. 8, 2009.
On Oct. 25, 2010, an article from China Land and Resources News reported the discovery of an extra-large mid to deep coalfield in Gucheng, Fugu County, on the border of Shannxi and Inner Mongolia. Proven coal reserves in the exploration area totaled 4.175 billion tons, or 5.664 billion tons if added the resources on the peripheral area. The coal seams were thick, of good quality and simple structure, suitable for building several mega mine shafts. This place had good potential to become Shannxi’s largest coking coal base.
This report further stated that the exploration and development of this large coalfield had been carried out by Fugu Changcheng and three other domestic geological exploration agencies with multiple exploration techniques. Going through the three stages of reconnaissance, general survey, and detailed survey, Fugu Changcheng spent three years to complete the entire process. Huibei Mining Bureau had completed resource verification and project evaluation and the master plan for Gucheng Coalfield was compiled, too.
The news about Gucheng Coalfield caused quite a stir in the political and business circles. The coal industry was in its “golden decade” with 2010 being the peak. Northern Shannxi’s coal prices had soared from RMB 20 per ton in 2002 to RMB 800 per ton. That means a coalfield with reserves exceeding 4 billion tons was worth over RMB 100 billion in market value.
There was a question no one could explain though. Why a company like Fugu Changcheng—originally only traded in building materials and had been struggling for survival—could secure such a large mining exploration project?
Passing Levels of Approvals with Fake Materials
For those familiar with coal industry, there was another loose end.
Since 2003, the booming Chinese energy market had pushed the coal prices all the way up. By 2007, the coal prices climbed from RMB 30 per ton initially to RMB 400 per ton. With such price hikes, speculative trading of coal mines appeared in the northern Shannxi. Exploration rights also became important targets chased by various interest groups.
To prevent overcapacity in coal production, then Ministry of Land and Resources[3] tightened the approval of exploration rights.
On Sep. 30, 2005, the Ministry announced adjustment in the approval of exploration rights; the approval process was ceased for the exploration projects of the coalfields covering more than 30 square kilometers.
On Feb. 2, 2007, the Ministry issued another notice pertaining to the suspension of accepting coal exploration application, deciding to stop accepting new applications for coal exploration projects from Feb. 2, 2007 to Dec. 31, 2008. From then on, the Ministry issued further notices continuing the suspension of approval for new coal exploration projects.
This means the Ministry of Land and Resources essentially called off the application of coal exploration rights for more than a decade; not until 2014 were the applications of coal exploration rights resumed.
The question arises then: how did Fugu Changcheng bypass the policy barrier and secure the Gucheng Coalfield exploration rights in 2007?
Judicial documents show that in February 2007, while the provincial Land and Resources Department of Shaanxi submitted a request to the Ministry for instructions regarding the “outstanding issues” of Shannxi coal exploration applications, then Director Wang Dengji of Shaanxi Land and Resources Department instructed the Deputy Director Liang Feng to include some projects that couldn’t be counted as “outstanding issues” into the scope of the special Disposal Plan.
The outstanding issues referred to those application cases lawfully accepted by Shaanxi Land and Resources Department prior to Sep. 30, 2005, and the Disposal Plan aimed to provide special treatment to these projects so that they didn’t have to be cut off abruptly due to the policy change from the Chinese central government.
The Ministry approved Shaanxi’s Disposal Plan, requiring that the related rights transfer be handled in accordance with relevant schemes regarding mining rights and the registration procedures be consigned through negotiations.
As far as the Caijing reporters understand, in 2007 alone, Shaanxi Land and Resources Department submitted applications in the name of “outstanding issues” to the Ministry several times and the exploration rights of these projects were then approved successively.
Among them, at least five companies got onboard the train of “outstanding issues” by “paying extra fare.” In addition to Fugu Changcheng, there were four other companies obtaining the exploration rights of coalfields at the following sites: Hongdunjie Town, Haizetan Township and Huanghaoji Township in Jingbian County, and Qienshuta Coalfield in Yuyang District.
According to judicial documents, in 2007, Wang Dengji paved the way for Huanglingqian Jiangyuan Co. Ltd. (hereinafter “Huangling Jiangyuan”) by requesting the Yuyang District Government of Yulin to complete formalities for this company, falsely stating it an investment project in the 2004 East-West Cooperation and Investment Trade Fair. As a result, the exploration rights of Qienshuta Coalfield’s exploration rights held by Huangling Jiangyuan could be included in the scope of “outstanding issues” for the Disposal Plan. Then, Ministry of Land and Resources approved this project, and Shaanxi Land and Resources Department conducted the procedures for Huangling Jiangyuan’s exploration rights which covered an area of 8.21 square kilometers.
As Caijing reporters confirmed, most of the exploration rights scandals that later erupted in Shaanxi took shape during this period. While applying to the Ministry of Land and Resources, Wang Dengji submitted several projects that didn’t fit the qualifications of “outstanding issues” with forged materials or supplementary documents; Fugu Changcheng’s Gucheng Coalfield project was among them.
To circumvent the Ministry’s policy, it was necessary to prove that Fugu Changcheng first submitted its application of exploration rights prior to Sep. 30, 2005. Due to the restriction on timing, Fugu Changcheng’s application documents were left with defects that were difficult to conceal.
The Assessment Report for Gucheng Coalfield Exploration Rights shows Fugu Changcheng filed its application to the local government and the Ministry of Land and Resources in May 2002, proposing to raise its own funds to conduct risk geological exploration in the Gucheng Exploration Area of Northern Shaanxi Permo-Carboniferous Coal Field. The truth, however, was that Fugu Changcheng hadn’t yet been registered or established at that time. Bai Eryin, Bai Enfu’s brother and Fugu Changcheng’s former shareholder, recalled that he had never heard of his company applying for Gucheng Coalfield’s exploration rights prior to 2007.
Information provided by an official from Fugu County’s natural resources department indirectly confirmed the doubts existing in the Assessment Report for Gucheng Coalfield Exploration Rights. He told Caijing that in 2002 the Chinese coal market was in a slump, and even the open-pit mines located in the west of Fugu County were not making any money, let alone Gucheng Coalfield. With coal seams about 1,000 meters deep, this mine had no economic value for extraction back then. He also said he had never seen Fugu Changcheng’s application materials.
Fugu Changcheng acquired Gucheng Coalfield’s exploration rights in 2007, but the General Survey Report for Gucheng Coalfield in Fugu County Shaanxi Province wasn’t completed until 2008. Only in January 2009 did the Ministry of Land and Resources establish a file for Gucheng’s coal reserves.
Under the normal application process for exploration rights, after coal is discovered during reconnaissance, a general survey should be conducted to establish the basic knowledge of the coal resources. A report should then be produced and submitted to the Ministry of Land and Resources for filing. The authorities would commission an appraisal firm to assess the transfer price of the exploration rights and then conduct detailed survey. However, Fugu Changcheng acquired the detailed-survey exploration rights ahead of its general survey. A series of operations in reverse manner nonetheless passed successfully.
Who is the Mysterious Force behind the Scenes?
In hindsight, Fugu Changcheng must have cleared every layer of bureaucracy from the local, provincial levels all the way to the central government, which was not something ordinary people could achieve. Who, then, was the mysterious force that pushed Fugu Changcheng step by step to realize its goal?
As previously mentioned, it was exactly arranged by then Director Wang Dengji of Shaanxi Land and Resources Department that the project of Gucheng Coalfield’s exploration rights was included into the Disposal Plan for Outstanding Issues and submitted to then Ministry of Land and Resources for approval.
Why did Wang Dengji spare no efforts to help Bai Enfu’s Fugu Changcheng company? Based on currently available information, there was a heavyweight figure that brought Wang and Bai together.
Sources familiar with the matter told Caijing that Bai Enfu was an honest person in spite of his drinking problem. He was highly regarded by Wang Bin who had served as Shenmu County’s Party Secretary for many years. Wang Bin established strong network of connections within the official circles of Shenmu and Fugu.
In 1999, he was promoted to Deputy Mayor of Yulin in charge of coal industry. But then he offended a special interest group due to the controversy regarding the cheap sale of Yushuwan Coal Mine and was transferred to Xi’an Bureau of Geology and Mineral Resources as the deputy director in 2005.
After leaving Yulin, Wang Bin in fact lived in seclusion at home, and never went to work for a single day. Several years later, the officials who suppressed Wang Bin were transferred out of Shaanxi. His former colleagues felt relieved to resume engagements with him, including Wang Dengji who had become the director of Shaanxi Department of Land and Resources.
From 1996 onward, Wang Dengji and Wan Bin had both worked in Yulin—always in the superior and subordinate relationship. Wang Dengji was promoted to the Mayor of Yulin City in 2001 with Wang Bin as the Deputy Mayor. Both of them took the same position in the Yushuwan Coal Mine incident, which caused them transferred out of Yulin at different times. In other words, the two shared the same hardship.
According to sources, just two months before the exploration rights of Gucheng Coalfield were approved, Fugu Changcheng’s shareholding structure experienced a major change. Bai Eryin and Bai Liangyin withdrew from the company. The newly joined shareholders were Hao Bin, Li Xiuzhen and Wei Yenfeng, each of whom taking 25% of shares along with Bai Enfu the original shareholder. The three new shareholders were all associated with Wang Bin in one way or another: Hao Bin, Wang’s cousin; Wei Yenfeng, the wife of Wang’s secretary in the past; Li Xiuzhen, the wife of Wang’s subordinate in the past.
An investigation done by Caijing reporters found that Wei Yenfeng was an employee at Shenmu City’s health system and her husband He Qingshan a senior executive at an investment company in Shaanxi. Neither of them had any business experience. During Wang Bin’s tenure as the Party Secretary of Shenmu County, He Qingshan was Wang’s secretary, and followed Wang to Yulin City later.
According to relatives of Li Xiuzhen, she had worked at the power company of Shenmu County and was then living in Xi’an looking after her two children. Her life was not affluent.
Another man hidden behind the scenes of Fugu Changcheng was Huirong Zhang, former chairman of the Tongchuan Municipal Committee of the Chinese People’s Political Consultative Conference, who had worked as Wang Bin’s speechwriter in his early years. In 2007 when Fugu Changcheng obtained approval for Gucheng Coalfield’s exploration rights, Zhang was the Magistrate of Fugu County. He then rose to become a Member of the Standing Committee of Yulin Municipal Party Committee and concurrently the Party Secretary of Fugu County.
Thus, a complex relationship network with Wang Bin at the center and Fugu Changcheng as its vehicle gradually becomes clear.
Explorations Rights Transferred to State-owned Enterprise for Cashing out RMB 3.5 Billion
Leveraging its powerful clout in the official circles, Fugu Changcheng secured the exploration rights to Guchen Coalfield—worth more than RMB 100 billion of market value—with forged materials. Next, Fugu Changcheng paid the outstanding fee of RMB 1.24 billion for the exploration rights and properly completed the formalities. By doing so, Fugu Changcheng was able to transfer its exploration rights on the secondary market. The following step was to find a buyer. Specifically, a powerful one.
Huaibei Mining (Group) Co., Ltd. (hereinafter “Huaibei Mining”), a state-owned enterprise founded in 1958 in Anhui Province, has now developed into a large SOE focusing on coal power, chemicals and modern services. The company holds assets of RMB 92 billion and employs more than 90,000 people; it ranked 276th among China’s Top 500 Enterprises in 2018 and 18th among the Top 50 coal enterprises in China.
According to the business registration, Fugu Changcheng’s four shareholders signed an Equity Transfer Agreement with Huaibei Mining, each transferring 12.75% of their shareholding to the company. Following this equity transfer, Huaibei held 51% of Fugu Changcheng; Bai Enfu and the other three shareholders each held 12.25%.
On Aug. 27, 2010, Fugu Changcheng completed the equity-change registration. The company name was simultaneously changed to Huaibei Mining (Fugu) Changcheng Co., Ltd. (hereinafter “Huaibei Changcheng”). Its legal representative was changed from Bai Enfu to Xie Conggang, and the enterprise nature changed from natural person holding to state-owned holding.
Sources familiar with the matter told Caijing that after the change of business registration for Fugu Changcheng was done, Huaibei Mining paid 75% of cash, or RMB 4.725 billion, to Bai Enfu and the other three shareholders as agreed in the equity transfer agreement. That means the four shareholders cashed out a profit of RMB 3.5 billion from this deal after deducting the previously paid RMB 1.24 billion for exploration rights.
At that time, the price of exploration rights in northern Shaanxi was around RMB 15 per ton. Accordingly, the value of 4.04 billion tons of coal deposits should exceed RMB 60 billion. So, Huaibei Mining’s acquisition of a 51% stake of Fugu Changcheng for RMB 6.3 billion appeared to be a worthwhile transaction. According to sources, Fugu Changcheng and Huaibei Mining reached a deal immediately after the two sides being introduced by Zhao Zhengyong’s wife Sun Jianhui.
It is worth noting that Zhao Zhengyong just got promoted from Vice Governor of Shaanxi Province to Acting Governor shortly before Huaibei Mining signed the agreement with Bai Enfu and others. Zhao, whose ancestral home is in Anhui, had served in the public sector for a long time before the age of 41. He had held various posts including Party Secretary of the Provincial Political and Legal Affairs Commission and Director of the Anhui Provincial Public Security Department. In 2001, he was transferred to Shaanxi.
At this point, this scandal surrounding the exploration rights of Gucheng Coalfield gradually came to light. The several main figures encountered different fates.
On Oct. 28, 2014, Wang Dengji was placed under investigation by judicial authorities on suspicion of accepting bribes. On Oct. 17, 2016, the Intermediate People’s Court of Langfang City, Hebei Province, concluded that Wang Dengji had accepted bribes equivalent to RMB 66,243,400 and sentenced him to life imprisonment, deprivation of political rights for life, and confiscation of all his personal property.
In 2017, the Chinese Central Government dispatched the 11th Central Inspection Team to conduct a “look-back” inspection on Shaanxi Province from February to April. On Jun. 8, when the Inspection Team presented their findings to the Shaanxi Provincial Party Committee, it pointed out that the corruption problems related to the mineral resource exploration, mining, operations and the capital increase and share increase of state-owned enterprises in Shaanxi had not yet been fully uncovered.
As confirmed by Caijing reporters’ investigation, Bai Enfu, the former legal representative of Fugu Changcheng, was taken away by prosecutors from Hebei province, not long after the central inspection ended. After that, Bai Enfu, Hao Bin and other people’s shares were frozen, as were the shares of multiple companies under the name of Wang Bin’s son.
In August 2019, as the Zhao Zhengyong case further developed, Zhang Huirong and Wang Bin were taken away for investigation by the Shaanxi Provincial Commission for Discipline Inspection and Supervision as well.
[1] This original article is reprinted with the author Bai Zhaodong’s permission. The original report can be found in Caijing magazine: https://magazine.caijing.com.cn/20210419/4757837.shtml
[2] Translator’s note: Party Secretary (i.e. the secretary to Communist Party of China) is the post of the highest political leader at every level of governments in China. There are also heads of administrative organizations, but they may be inferior to the Party leaders. For example, the governor of a province (as appearing later in the article) is inferior to the party secretary of that province.
[3] Translator’s note: The authority in charge of mining and resources in the Chinese central government. Its name has been changed to the Ministry of Natural Resources.