Page last updated at 06:57 GMT, Tuesday, 18 May 2010 07:57 UK

What brought down China's Huang Guangyu?

By Chris Hogg
BBC southern China correspondent

Huang Guangyu. File photo

Huang Guangyu used to be known as the "price butcher".

He was famous for founding Gome, a chain of electronics stores that stretched across China. He's still the company's biggest shareholder.

But he's no longer in charge.

Once the country's wealthiest man, he's now one of its most famous convicts.

A court in Beijing has sentenced Huang Guangyu to 14 years imprisonment for illegal business operation, insider dealing/trading, leaking inside information and the crime of company bribery.

Rupert Hoogewerf, the publisher of the Hurun Rich List, was the first to dub Huang Guangyu the richest man in China. He says that although the entrepreneur was a brilliant businessmen he wasn't a good enough politician.

"Huang Guangyu was quite strange in so far as he didn't really cultivate his political contacts very overtly," he says.

Mr Hoogewerf says there is a lot of speculation as to the reasons for Huang Guangyu's downfall but the theory he subscribes to is that "at the top of very top of the Chinese political esablishment there are quite a number of different factions. He started cultivating faction A, and faction B got jealous and took him down."


After Huang was arrested in November 2008 his political network collapsed.

Several senior officials have been punished for their dealings with Huang that came to light during the investigation, according to China's state media.

Bernhard Zhao
Bernhard Zhao says the corrupt ways are no longer acceptable

Mr Hoogewerf says that confirms what entrepreneurs he's spoken to say - that he had been "sailing too close to the wind".

"They say he shouldn't have been doing so overtly what he was doing," he says. "He was considered to be living what was considered to be quite a high risk business life in that respect."

Huang was accused of organising illegal transactions - converting Chinese yuan into Hong Kong dollars and insider trading in connection with huge purchases of technology stocks.

Wang Rongli, a lawyer who's studied entrepreneurial corruption, believes Huang was not unusual in his disregard for the rules here. China's first generation of entrepreneurs, he says, don't really understand the law or don't want to.

There are skeletons behind every entrepreneur in China
Rupert Hoogewerf, Hurun Rich List

"They develop bad habits," Mr Wang explains. "At the start of their careers, they settle business over dinner or with small bribes. But once their businesses reach a certain scale, the bribes become huge and this has become really dangerous."

He says efforts to draw up new laws to govern business transactions have produced loopholes that can be exploited by canny operators to maximise profits.

"There are some grey areas in our law, and that means entrepreneurs aren't clear if they are breaking the law or not. In other cases they convince themselves what they are doing might not be strictly legal, but it's not exactly illegal either".

He says sometimes law enforcement is patchy too, sometimes there are uncertainties, making corrupt entrepreneurs believe if they're lucky they won't be punished. He brands them "opportunists".

Political plot?

But younger entrepreneurs like Bernhard Zhao, from what you might call the second generation of Chinese entrepreneurs, argue that the corrupt ways of their forebears are no longer acceptable.

He says if his company of financial advisers decides to offer an inducement to someone to help bring in business, for example, the decision's always run past the company lawyers.

"We could say this is a commission but it's at very low-level for social cost, so that cannot be defined as corruption. We can send you small gifts but without any influence on your own judgement to take a service or whatever."

Each year in Beijing, entrepreneurs take part in the ceremonies at the National People's Congress, China's parliament.

The Communist Party has embraced them.

Mr Hoogewerf says this case shows that in return the government expects them to behave.

"There are skeletons behind every entrepreneur in China," he says, so even though these are men and women who today pay a lot of taxes and employ a lot of people "if today you are going on and employing these sharp practices and doing it a little bit too overtly, they will take you down, and I think that was the downfall of Huang Guangyu".

It's hard to be sure what really went wrong for Huang Guangyu.

Did his corruption become too serious to ignore, or was he the victim of a political plot?

The leaders of the Communist Party have acknowledged that corruption is a serious problem throughout the country, and high-profile cases like this help them to convey the message that it won't be tolerated.

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