By: Toh Han Shih
![](https://i0.wp.com/substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F751ebe60-540c-4095-8081-c3031a1fd6b2_781x543.jpeg?resize=781%2C543&ssl=1)
The investigation and arrest of the chairman of Brilliance China Automotive Holdings for suspected bribery in Hong Kong provides to the Hong Kong-listed agency’s historical past of scandal and controversy and presents a component of uncertainty for 2 of Europe’s most necessary carmakers’ operations in China.
On August 3, Hong Kong’s Impartial Fee In opposition to Corruption (ICAC) searched Brilliance’s headquarters and arrested chairman Wu Xiao An, the carmaker introduced on August 8. The ICAC is investigating Wu, additionally known as Ng Siu On, on suspicion of unidentified violations of Hong Kong’s bribery legal guidelines.
Wu was launched on bail with out cost on August 4, Brilliance mentioned, including that the ICAC’s raid of its headquarters and arrest of its chairman would have “no materials hostile affect” on the corporate and that its operations stay regular. Wu can be chairman of one other Hong Kong-listed firm, Xinchen China Energy Holdings, a Chinese language producer of automotive engines. On August 8, Xinchen additionally mentioned the arrest had “no materials hostile affect.”
Nonetheless, the probe and arrest pose numerous dangers to its international three way partnership companions, Jean-Marc Blanchard, the founding government director of the Mr. & Mrs. S.H. Wong Heart for the Examine of Multinational Companies, a US assume tank, instructed Asia Sentinel.
Brilliance’s principal actions embody the manufacture and sale of BMW autos in China by means of its three way partnership with the German automaker, in addition to the manufacture and sale of minibuses and multi-purpose autos by means of its subsidiary with Renault, a number one French automotive automaker, in response to Brilliance’s web site.
One threat to international three way partnership companions is operational – regular day-to-day operations could be disrupted by the uncertainty created by the raid and arrest of the chairman, Blanchard mentioned. “Such occasions typically are paralyzing, at the very least for the quick time period, as a result of firm workers will await additional authorities steerage earlier than doing the rest; workers can be emotionally affected, and workers can be hyper-cautious about taking the initiative sooner or later for concern of additional issues.”
Then there are reputational dangers, Blanchard added. “The need to guard one’s model could pressure international firms to seek out new “fixers,” change compliance procedures, and make unplanned expenditures on attorneys/authorities and public relations in China/Hong Kong in addition to Germany.”
There are additionally funding dangers, as bankers could flip cautious about offering funding to the three way partnership as a result of they’re fearful not solely of the prospects of the three way partnership but in addition of political dangers, Blanchard defined.
BMW fashioned BMW Brilliance Automotive with Brilliance in Might 2003. Brilliance bought a 25 p.c stake in BMW Brilliance to its German associate in February 2022, elevating BMW’s stake within the three way partnership to 75 p.c whereas Brilliance’s share fell to 25 p.c. The three way partnership, headquartered in Shenyang, the capital of Liaoning province, has about 23,000 workers and produced 700,000 BMW vehicles in 2021, in response to its web site. BMW Brilliance reported a income of €28 billion and an after-tax revenue of €3.6 billion in 2021.
The three way partnership between Renault and Brilliance to fabricate vehicles, additionally in Shenyang, was fashioned in 2017. The three way partnership filed for chapter in December 2021 after which launched into a restructuring.
Any firm, whether or not majority or minority shareholder, when investing in a international enterprise should have its personal consultant on the bottom, visibility on all enterprise transactions of the three way partnership, and a strong compliance program which ensures that employees understand what’s permitted and what’s not, John Bruce, managing director of JB Advisory Providers, a Hong Kong consultancy, instructed Asia Sentinel. This is applicable to any geography, not simply China, Bruce careworn.
BMW didn’t reply to Asia Sentinel’s questions. BMW, Renault, and their joint ventures with Brilliance haven’t been implicated within the bribery investigation.
Brilliance’s controversial previous
Brilliance and its controlling shareholder, Huachen Automotive Group Holdings, have histories marked by scandal. Huachen, a state-owned conglomerate based mostly in Liaoning province in northeast China, owns a controlling 30.4 p.c stake in Brilliance.
In line with an unbiased investigation disclosed on August 19, 2022, from 2019 to 2021, a number of subsidiaries of Brilliance made unauthorized transfers totaling RMB43.5 billion (US$6 billion) to firms largely owned by the Liaoning provincial authorities, whereas these Brilliance subsidiaries acquired unauthorized transfers again totaling RMB41.7 billion. Not one of the fund transfers had been reported to the board of Brilliance for approval, the investigation revealed. Brilliance incurred a lack of RMB2.35 billion from the fund transfers, in response to the investigation.
Huachen has been present process chapter restructuring since November 2020, after defaulting on a RMB1 billion bond in October 2020.
In March 2023, the China Securities and Regulatory Fee (CSRC) fined Wu RMB200,000 as a result of Huachen’s annual experiences in 2017 and 2018 contained deceptive statements, Brilliance introduced on March 10. Huachen used these annual experiences to acquire approval from the CSRC and the Shanghai Inventory Change to situation bonds. The offenses occurred whereas Wu was a director of Huachen. Wu ceased to be a director on June 29, 2020.
Qi Yumin, a former chairman of Huachen Automotive Group, was expelled from the Chinese language Communist Get together and positioned below investigation, the anti-graft company of Liaoning introduced on June 15, 2021. Qi didn’t honestly clarify Huachen’s monetary statements and took benefit of his place to corruptly present assist to others to acquire workplace, engaged in profiteering, and embezzled public funds, the anti-graft company mentioned.
Tussle with Bo Xilai
This isn’t the primary time {that a} Brilliance chairman encountered bother. Wu’s predecessor, Yang Rong, had a tussle with Bo Xilai, a once-rising political star in China. On June 18, 2002, Wu changed Yang as chairman of Brilliance, the corporate introduced on June 19, 2002.
A pioneer in China’s auto trade, Yang based a bunch of auto firms in Liaoning together with Brilliance, engineering Brilliance’s debut as the primary IPO of a Chinese language firm on the New York Inventory Change in 1992. Yang was ranked No.3 on Forbes’ China Wealthy Listing in 2001 with a web price of RMB7 billion.
Bother got here when Yang tried to determine a manufacturing facility within the metropolis of Ningbo within the japanese Chinese language province of Zhejiang in 2001, incurring the wrath of Bo, then Liaoning governor. The provincial authorities then took over the state-owned property of Brilliance and its associated firms in March 2002. Yang fled to the US in Might 2002. On October 18, 2002, officers of Liaoning province authorised Yang’s arrest for suspected involvement in financial crimes.
In September 2003, Bo instructed reporters that Yang was not a personal entrepreneur who owned Brilliance, however an agent entrusted by the Liaoning authorities to run state-owned property of Brilliance and its associated firms. Yang has denied he dedicated financial crimes, CNN reported on October 24, 2002.
Yang’s destiny turned out higher than Bo’s. After fleeing to the US, Yang fashioned a US-based electrical automobile firm known as Hybrid Kinetic Group. After being governor of Liaoning, Bo was China’s Minister of Commerce from 2004 to 2007 and Get together Secretary of Chongqing from 2007 to March 2012. In September 2013, he was sentenced to life in jail for corruption by a Chinese language courtroom.
Toh Han Shih is chief analyst of Headland Intelligence, a Hong Kong threat consultancy.