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China Detains Mogul Suspected of Loan Fraud

Zhou Zhengyi becomes the latest prominent businessman to run into legal trouble.

June 03, 2003|Sam Howe Verhovek | Times Staff Writer

BEIJING — One of China's richest and most flamboyant businessmen is being detained for alleged loan fraud, becoming the latest executive to run afoul of a central government that alternately celebrates and cracks down on the country's highest-flying moguls.

Zhou Zhengyi, a 41-year-old Shanghai native who rose from selling noodles and underwear on the streets to No. 11 on last year's Forbes magazine list of the 100 wealthiest people in China, is being held in connection with an investigation into his financial dealings, according to the state-run media.

Zhou, who is chairman of Shanghai Land Holdings and Shanghai Merchants Holdings, is being investigated by the China Banking Commission and the Communist Party's Central Commission for Discipline Inspection, said the 21st Century Business Herald. Several dozen government agents were reportedly combing through files at his offices and homes in Shanghai and Hong Kong.

The whereabouts of Zhou, whose fortune is estimated at about $325 million, were unclear Monday. One business publication, China Management Daily, said Zhou was in Beijing in the custody of the State Security Ministry. Others said he was under house arrest in Shanghai.

A spokeswoman for one of Zhou's Shanghai companies said that she did not know where he was and that there would be no comment on reports he had been detained.

The businessman has long had close ties to Liu Jinbao, who was head of Bank of China's Hong Kong division until he was abruptly removed in May.

The investigation into Zhou appears to center on loans of roughly $500 million he procured from the Hong Kong division of the bank last year, which he may have obtained by pledging collateral that was actually another loan from the bank.

Zhou is the latest prominent businessman to run into trouble with the Chinese government.

Yang Bin, who ran agricultural and flower businesses and was ranked in 2001 by Forbes as China's second-richest man, is about to be tried on charges of tax evasion.

Yang Rong, an auto executive who was No. 3 on the Forbes 2001 list, is believed to have fled the country rather than face tax-evasion charges.

Many ordinary Chinese are fascinated by the rise of such magnates, and the government views them as useful models of industriousness. But there is a flip side to their success stories. They can wind up widely resented, exacerbating tensions over the growing gulf between China's haves and have-nots.

Zhou at one time seemed a poster boy for the fruits of entrepreneurial zeal.

He grew up poor, gained only a primary-school education and was a street vendor through the early 1980s. He saved enough money to travel to Japan in 1983, where he had jobs in a factory and a restaurant and saved $20,000 by living frugally, according to several profiles of him that have appeared in Chinese and Western magazines.

He returned to China after a few years and started a design company in the Shenzhen special economic zone. Before long, he had branched out into restaurants and real estate, employing hundreds of people. He became known for his high-living style.

Zhou drove a red Ferrari as well as a Mercedes around Shanghai, lived in a million-dollar home, wore Italian designer suits and frequently used the Westernized name of Alex Chou.

His land-holding companies in Shanghai are facing growing controversy. He is in a major legal tussle with more than 2,000 Shanghai residents over compensation for their forced removal from a neighborhood where he is undertaking a huge development project with the blessing of the local government.

A municipal court in Shanghai is hearing a lawsuit filed on behalf of the residents, who say they have been forced far from downtown, many of them unable to afford housing comparable to what they were compelled to leave. Residents have staged protests over their treatment, and some have been arrested.

Zhou is also a well-known figure in Hong Kong, along with his wife, Mo Yuk Ping.

Hong Kong authorities reported Monday that the government's Independent Commission Against Corruption had arrested 20 people on fraud charges, and two Hong Kong papers reported that Mo was one of them. The spokeswoman at Zhou's Shanghai office said she knew nothing about such an investigation.

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