Caixin’s investigation of CEFC and Chairman Ye Jianming

On March 1, Caixin broke the news that Chairman Ye Jianming of the China CEFC Energy Co. has been detained by PRC authorities, and is under investigation for suspected criminal activity.

The company initially tried to refute this as “irresponsible” reporting, but investors opted to believe China’s leading investigative journalism outlet, and the company’s bonds dropped by 33% in a day.

But the party-state authorities’ ban on reporting about Chairman Ye and his empire of enterprise (documented here in 2017) remains in place, so Caixin‘s scoop was expunged from the PRC internet within hours.

The news was officially confirmed more than two weeks later, on March 19, when the Czech Republic sent a delegation to find out what was going on with its major source of foreign investment. The delegation was told that Chairman Ye, an advisor to Czech President Milos Zeman, was indeed “being investigated for a suspicion of breaking the law.”

CEFC was ranked 222nd in the Fortune 500 in 2017, and last year stunned the international energy industry by securing agreement to buy a $9 billion, 15% stake in Rosneft, Russia’s state oil giant.

Now the company’s future is as murky as its past.

Caixin reporter Ji Tianqin 季天琴 spent the most of 2017 interviewing CEFC executives, tracking down former associates of Ye, and tracing CEFC’s constellation of satellite companies through the financial records. And the crowning glory: she interviewed Ye himself twice, finding all manner of holes in the stories he told her.

Ji Tianqin is famous in Chinese journalism circles for her award-winning deep-dives addressing, among other things, Wang Lijun’s reign of terror in Chongqing. Considering the difficulty of being an investigative reporter in China today, she really ought to be famous outside China too.

This epic investigation into CEFC reveals how, through party and military connections, turnover figures massively inflated by fake trading, and relentless pursuit of international photo-ops and status symbols, Ye Jianming was able to sell domestic and foreign audiences a mostly vacuous narrative about his rising global energy and finance colossus.

Suffice to say, these revelations extend my record of getting some things right about CEFC, but not very many. I’ll leave that discussion for another post, as my purpose here is to urge China-watchers to invest the time in dipping into the 16,000-word translation below — and to please share thoughts on what it all means. I’d also welcome any translation corrections from people more familiar with financial and business terminology.

This is a spectacular work of Chinese investigative journalism that may contain some profound implications for understanding the PRC’s economy, politics and international relations.

~

Ye Jianming under investigation, what fate will befall CEFC?

叶简明被调查中国华信命运如何？

Caixin Online

By Ji Tianqin

March 1, 2018

Preserved full Chinese text | Deleted Caixin original

Forty-year-old Ye Jianming built China CEFC into a Fortune 500 company virtually overnight, another great enigma in the miraculous world of Chinese business.

On the first floor of the “Chairman’s Building” at 111 Xingguo Rd in Shanghai’s Xuhui District, headquarters of the China CEFC Energy Company Limited, is a room that resembles a miniature Great Hall of the People. There, CEFC board executive Li Yong [李勇] and several other board members and supervisors waited with this Caixin reporter for Chairman of the Board Ye Jianming to appear. Uniformed staff frequently stepped forward to deliver hushed updates on the movements of “The Chairman,” adding further to the sense of occasion.

Within CEFC, Ye is described in terms similar to a hermit king — the ruler who is rarely sighted. On April 6, 2017, when he sat down with Caixin for the first time, his face mostly remained as expressionless as a stone statue. Amidst the gilded surroundings, his canvas shoes had an eye-catching plainness.

This 40-year-old businessman from Fujian has been accustomed to closely guarding his image. He was displeased that Caixin had been doing interviews with other sources. “We don’t much care for your mischievous methods,” he said. “But I do understand why you do this. If not, I wouldn’t meet you.” With this opening, Ye Jianming made sure his superior status and mental advantages were on display.

He said he wasn’t trying to put on airs — there were simply too many people seeking him out. “All those Provincial Governors and Party Secretaries in China, do you think they wouldn’t want to meet me?”

According to publicly available materials, Ye Jianming is a young giant in the world of business. On July 26, 2017, CEFC appeared in the Fortune 500 for the fourth year in a row, rising seven places to 222nd, with US$43.7 billion in turnover. Ye was leading a delegation to Myanmar at the time, meeting with Aung San Suu Kyi and holding talks with its Minister for Planning and Finance, Minister for Electricity and Resources, and the Myanmar Central Bank.

Ye Jianming’s resumé on the CEFC website is devoid of any detail. His profession is summarized as “industrialist, philanthropist.” His origins and the true state of CEFC’s operations are unclear even to those within the company. “His management style is compartmentalized, other areas will always be mysterious to you, this way there can be no information collusion,” said one person who knows Ye.

In his public activities as a private entrepreneur, Ye Jianming is always walking alongside important foreign political figures. He has been photographed with world leaders such as Israeli President Peres, Turkish President Erdogan, Chadian President Deby, and European Commission President Juncker. He has met with the Crown Prince of Abu Dhabi, and the Prime Minister of Bulgaria held a feast to welcome him. Ye Jianming is also the first Chinese businessman to advise the president of a European country. In April 2015 he was appointed by Czech President Milos Zeman as “Special Adviser for Chinese Economic, Diplomatic and Investment Affairs.” According to CEFC Party Secretary Jiang Chunyu [蒋春余], “CEFC is good at binding itself to state activities.” Sixty-two-year-old Jiang is a retired military officer who served as the Head of the People’s Armed Police Shanghai Political Academy.

One high-level manager who joined CEFC in 2017 was left stunned after flying to Israel on Ye Jianming’s private Airbus A319 (his other rides include a Gulfstream business jet) and witnessing his conferral with the title of “Yakir of the Jewish People” amidst all kinds of celebrations. The contrast between the reverence engendered by Ye’s mysterious aura, CEFC’s charge into the Fortune 500, and the company’s actual operations left the experienced former central SOE financier privately confessing that he “couldn’t make sense” of his new employer.

Outsiders are even more bamboozled. CEFC has “China” in its name — rare for a private company; its early high-level directors were known as a “Standing Committee”; there is both a Party Committee and a Discipline Inspection Commission within the company, run by retired ranked military officials; and the honours of Ye Jianming himself continue to stack up. Just last June, on a trip to South Korea, he was granted an honourary doctorate in politics by Gyeonggi University as well as the title of Chief Protector of the Buddha in the Taego Order of Korean Buddhism.

On September 8, Ye Jianming obtained an even more powerful blessing. Swiss global energy trading giant Glencore announced it was selling the 14.16% stake in Rosneft, which it owned jointly with Qatar’s sovereign wealth fund, to CEFC for approximately US$9.1 billion. In a single leap, CEFC would become the third-largest shareholder in Russia’s national oil company, behind only the Russian Government (50%) and BP (19.75%).

Russia is China’s biggest supplier of oil. Rosneft is Russia’s biggest oil company and the largest listed corporation in the global oil and gas industry, with well-known close links to the Kremlin. The influence Ye Jianming was purchasing through this transaction was conspicuous. A BP executive, upon hearing the news, could only repeat the word “astonishing.”

But the great game hasn’t only brought Ye Jianming splendour and opulence. On November 18 Patrick Ho [何志平], former Hong Kong Home Affairs Secretary and current Secretary-General of the China Energy Fund Committee, CEFC’s think thank, was arrested in America. The US accuses Ho of paying millions of US dollars in bribes to Ugandan and Chadian high officials in pursuit of commercial gain for CEFC. Some of the transfers passed through the US banking system, violating its Foreign Corrupt Practices Act.

It is difficult to say why the US took this action against CEFC, and what connections it might have to its sanctions against Russia and Rosneft. But China’s officials have remained remarkably silent on CEFC’s massive investment in Rosneft. It is said that CEFC received approval for the deal from the National Development and Reform Commission, Ministry of Commerce, Central Bank of China, and State Administration of Foreign Exchange at the end of December 2017. CEFC planned to obtain the capital for its $9.1 billion purchase via a $5b bridging loan from a Russian bank that would be taken over by the China Development Bank (CDB), with the other $4b being raised by CEFC itself. However, other information sources say the CDB loan and the CEFC capital-raising “will both be difficult to achieve.” Institutions including the People’s Insurance Company of China (PICC) that once intentionally lent money to CEFC have now become cautious.

In CEFC’s official words, the company’s lightning rise has been based on “the organic combination of finance and energy, and the industrial-financial development model of walking on two legs.” Ye Jianming, this Fujian businessman who 12 years ago failed to be selected as one of the “Top-10 Outstanding Young Entrepreneurs of Nanping City,” has created another great enigma in the miracle-filled world of Chinese business.

Ye Jianming is fond of using politics to explain himself, speaking of his “national sentiment” and of how “CEFC serves the strategy of the country.” He appealed to Caixin to focus on his future, not his past: “You’re asking all about these things from my infancy and adolescence, but what about this person’s mission in his period of strength, isn’t that much more important?”

Everyone is curious as to what Ye Jianming’s mission is. Now the answer is about to come into view, for Caixin has learned that Ye Jianming has recently been placed under investigation by relevant departments.

Jewel in the crown

The first day of October, 2017, at Ye Jianming’s office at the Jingyuan residential complex at 58 Xingeng Rd in Shanghai’s Xuhui District. Every few paces, staff members wearing an earpiece shepherded this visitor to the next spot. Most of them were young women wearing smart clothes and bright faces.

Caixin met Ye Jianming for the second time, sitting on a high-backed golden chair in a parlor with a thick rug. The stiffness of the first interview was replaced with a beaming smile: “Since fate has brought us back together I’ll be very open with you. That’s not to say I want to interfere with your reporting, but I hope we can be more like friends.”

September had been a crucial month for Ye Jianming. He had been called in to “explain situations” [请去说明情况] following the downfall of Wang Sanyun [ 王三运] a former governor and party secretary of Anhui and Gansu Provinces, and Deputy Director of the National People’s Congress Education, Science Culture and Health Commission. Ye’s ambition to embrace the world had also come up against a stumbling block in the form of the US’s Committee on Foreign Investment (CFIUS). When he first met Caixin in April, Ye Jianming was touting his acquisition of a $100m, 19.9% stake in well-known shareholding company Cowen Group as a symbol of his glorious expansion. “This purchase is second only to Morgan Stanley,” he said. But the transaction didn’t go through smoothly. On September 15, CEFC and Cowen Group announced they were retracting materials submitted to CFIUS, and that the transaction would be subject to additional review.

In the afterglow of the Rosneft deal, this setback didn’t seem too major. As Ye Jianming told Caixin, the Rosneft purchase was the realization of a long-term dream: CEFC had hoped to do business with Russia since back in 2011-2012, when “our good friend” Czech President Milos Zeman, “with a great spirit of loyalty,” pulled strings and built bridges with high-level Russians.

Zeman, who was re-elected in January 2018, is indeed the EU’s staunchest ally of Russian President Putin, and Ye Jianming is indeed an Adviser to Zeman, but the story is questionable when one considers that in 2011-2012 CEFC was a struggling trading company, that Zeman was only elected in 2013, and that CEFC’s relationship with the Czech Republic only began with the series of acquisitions it made in 2014.

Ye Jianming and Rosneft CEO Igor Sechin visited each other’s headquarters in June and August 2017. According to the CEFC website’s news release, the talks at Roseneft HQ in Moscow on June 14 produced consensus on establishing a joint platform to launch cooperation on upstream and downstream oil and gas projects, and comprehensive cooperation in the financial domain. On August 2, Sechin led seven Rosneft Vice Chairmen to CEFC HQ, where the two sides signed a strategic cooperation framework agreement: CEFC and Rosneft would establish long-term effective mechanisms in areas including upstream and downstream oil and gas and assets exchanges, and financial services, and advance Sino-Russian trade and investment cooperation in energy, finance, infrastructure and other domains.

Relevant CEFC personnel told Caixin that Rosneft initially took a hardline stance and that the negotiations often ended acrimoniously. That was why the September 8 announcement of CEFC’s buy-in to Rosneft was so unexpected.

“The reason the Rosneft negotiations proceeded so quickly was that it served the needs of both sides,” Ye Jianming explained.

The transfer of the Rosneft stake is shrouded in secrecy on all sides. On December 8, 2016, a financial grouping formed by Glencore and Qatar’s sovereign wealth fund purchased 19.5% of Rosneft for €10.2 billion (~US$11.6 billion). Four days later, Russia’s second-largest state bank VTB provided the buyers with a bridging loan for the full amount as the money was required to enter Russia’s national treasury by the end of the year. The repayment period and interest rate of this loan have not been made public, but AFP has quoted Russian bankers as estimating the bridging loan’s interest rate at around 11-12%.

According to the terms of the deal, Glencore and the Qatari sovereign wealth fund formed a 50-50 joint financial group, putting in €300m and €2.5b of their own money respectively, with Italy’s Intensa SanPaolo providing a credit guarantee for €5.2b, and €2.2b more coming from a Russian bank. The actual funding process has never been clarified, but what is apparent is that Glencore’s role was merely transitional.

Rosneft CEO Sechin told the Russian media that Glencore and Qatar’s sale of most of their stake to CEFC just nine months later was because of exchange rate fluctuations that had raised the interest and debt burden.

“Glencore and Qatar were entrusted holders [代持], but the Russian side didn’t foresee how prolonged America’s sanctions against it would be, so it came up with the idea of selling to China,” said Ye Jianming. He said he saw this as an opportunity. “The Qataris lost US$300m and wanted Russia to compensate them politically. They sold to us at a loss.”

Both transactions were denominated in US dollars, and when Glencore and Qatar sold CEFC the 14.16% stake in Rosneft after nine months, the value had increased by US$1.1b — so Qatar’s loss indicates the profit realized from the share sale was insufficient to cover the interest payments.

CEFC charged into Rosneft like a kamikaze squad, without adequate capital preparations. Ye Jianming described two structures for raising the funds. One was to establish a stock fund, “We would put in part of the money as the inferior, and seek foreign and domestic investors to be the superior.” But on the road to reality, CEFC chose a second structure combining bank loans with other finance. “Russian banks were willing to lend to us, and we ourselves could easily raise US$2 billion, so we planned to sell off about half of that amount,” Ye Jianming explained. “There was no lack of money, there were lots of people wanting to join us, there were several [Chinese] central SOEs rushing to join. We wanted to a strategic partner enterprise with end-terminus advantages, but there were other banks and financial management companies who were willing to provide capital.”

After the purchase became public, Sechin said the deal was being submitted to the two countries’ supervisory approvals processes, which would be completed by the end of 2017.

In mid-October 2017, CEFC announced it would obtain a $5.1b bridging loan from Russia’s VTB bank: “The two sides are currently in talks, and could reach formal agreement by the end of the year.” Ye Jianming’s assistant and the Deputy Director of CEFC Chairmans’ Office Sun Yunfeng [华信主席办副主任孙运峰孙运峰] said the draft agreement set the length of the bridging loan at two years, but that CEFC could choose to repay it early after one year: “The annualized interest rate is 4%, lower even than in China.” Caixin sought confirmation of this from VTB, but did not receive a reply.

The reason CEFC had to seek a bridging loan was that it was still seeking support for the project from the China Development Bank.

Now, this major overseas investment is going anything but smoothly. An informed source revealed to Caixin: “Since the Americans arrested that Hong Kong Home Affairs Secretary and CEFC think tank Secretary-General late last year, no foreign banks dare to lend to CEFC. Its people have gone around the globe in search of money, including from Citibank and HSBC, and all refused saying they needed a lawyer’s letter promising the money wouldn’t be used in a transaction with Russia because Rosneft and Sechin are targets of US sanctions. And because the [Chinese] government hasn’t taken a public position, Chinese capital from CDB, China Merchants Bank, PICC has wavered.” A ceremony planned for mid-January marking further advancement of cooperation between Rosneft and CEFC has been cancelled.

On January 19, Russia’s Business News reported that Rosneft’s sale of a 14.16% stake to CEFC could be completed within a fortnight. “The two sides have already drafted the final agreement, and are planning to sign it in a grand setting.”

But it appears the troubles were much greater than either Sechin or Ye had imagined. “By the end of February, if CEFC has not come up with the money, the transaction may be canceled and Glencore and the Qataris will demand a penalty.” The above-mentioned informed source says Russia has been pounding the propaganda drums, presenting the deal as a case of breaking through America’s blockade. “It’s finding it hard to dismount from the tiger.”

Ye Jian-ming, Ye Hongming, Ye Jianming, Ye Youming

Among the various speculations about Ye Jianming, the most suggestive is a statement posted in Chinese and English on the CEFC official website, which has now been erased.

“Formal Statement of Ye Jianming of China CEFC: “Owing to the emergence of untrue speculation about me personally, I hereby state that I am not the son of Maj-Gen Ye Xuanning, nor am I the grandson of Marshal Ye Jianying. “July 11, 2002. Hong Kong.”

Ye Jianming explained why he issued the statement: “Good friends around me were all saying you’re from the [Marshal Ye Jianying] clan — too many were saying it for me to change their views.”

This statement from 15 years ago raises even more doubts: all of its important elements are out-of-place chronologically. In 2002, CEFC had not yet been founded. Its English rendering “CEFC” would not be seen until more than eight years later. In 2002, Ye Jianming was still called Ye Jian-ming [叶建明].[1] And why would a 25-year-old youth in the north of Fujian Province have any need to clarify his connections with the famous Ye family?

Over the years, through all kinds of settings, Ye Jianming has revealed only isolated fragments of his past. He attended Jian’ou No.1 Middle School in Nanping City. A person who had contact with Ye said it was a very good school, but Ye was among its weaker students.

The Ye Jian-ming of 2002, with some others in Jian’ou County, established five small companies under the name Xinye [新叶]. Their business encompassed hygiene products, biochemical fertilizers, wood and bamboo processing, and firefighting equipment.

“Jian’ou is a strong agricultural county, mostly forestry and bamboo — the mountain-dweller lives off the mountain [靠山吃山],” said Zhang Qi [张奇], one-time founding partner of Ye and an early “Standing Committee” member in CEFC.

CEFC emphasizes that Ye Jianming became a permanent resident of Hong Kong in 1999, and came back to the Mainland as an investment promoter. Regarding the early “Xinye” companies, Li Shuai [李帅], assistant to CEFC executive board member Li Yong, said that “it wasn’t many people starting up many little shops, it was an entrustment by Chairman Ye’s family that was quickly transferred [是叶主席家族的代持，快就转让了].”

From publicly available materials, “Ye Jian-ming” could hardly be described as prominent in the local business world. In 2004, “Ye Jian-ming” participated in the first annual “Top-10 Outstanding Young Entrepreneurs of Nanping City” competition. This was reported in the Window of Fujian‘s “county and city reports” section, which described Ye Jian-ming as a “diploma-educated high-level economist, currently Chairman and CEO of the Fujian Juli Industry (Group) Company Ltd.”

The 27-year-old “Ye Jian-ming” failed to win the award. Zhang Qi offered no insight into what Ye’s activities actually were at the time: “In a small place like that the pond was too small, it couldn’t contain him. He encountered some sufferings, and left.”

These “sufferings,” Zhang Qi explained, were difficulties encountered in real-world industry. “Just doing industry is stupid.” Zhang said that after some losses, Ye Jianming awoke to how things are done.

It was not local specialty industry that led “Ye Jian-ming” to the city and provincial level. “In Jian’ou he first took the PAP and firefighting route [武警消防那条线], dealing in parts for the Armed Police and fire trucks. The local leaders dispatched him around to different places, so his connections were broadened that way,” said an early CEFC high-level manager.

In September 2005, the Fujian CEFC Holdings Company [福建华信控股公司] was founded in Fuzhou. A classified advertisement from the time lists its location on the 7th floor of the Fujian Provincial Prevention and Control Command Centre [福建省防控指挥中心], with an operational focus on “finance” and a contact person of “Ye Hongming” [叶洪鸣]. This was his second alias.

By the time of the move to Shanghai around 2009, his third name Ye Jianming [叶简明] appears. A worker in the early Shanghai CEFC recalls that “the name was a reference to the ‘ultimate simplicity of the great truth’ [大道至简].” Caixin has also learned of yet another alias, Ye Youming [叶油明].

Ye Jianming explains that before he went to Hong Kong in 1999, Ye Jian-ming was his real name and Ye Hongming was his alias. He said he has been called Ye Jianming ever since arriving in Hong Kong, and has never been called Ye Youming. “After Hong Kong I didn’t have a PRC hukou, only a [Hong Kong] ID card.”

CEFC’s website lists Ye Jianming’s nationality as Hong Kong, China. Relevant documents show he possesses hukou for Shanghai and Jishou in Hunan Province, and was born on February 23, 1977, not June 5, 1977 as stated on the company site.

Not only have his name, hometown and date of birth frequently changed, the origins of Ye Jianming’s involvement in the energy industry are extremely unclear. In an interview with Fortune’s Chinese-language magazine, Ye Jianming claimed he had taken over permits from the Xiamen Huahang Oil Company in 2006 [厦门华航石油公司] after it became embroiled in the “Yuanhua Case.”[2] One of Ye’s early founding partners revealed that CEFC took over not only Huahang Oil’s licences, but also subsidiary assets in areas including property. The Fujian Provincial Assets Trading Website shows that 100% of Huahang Oil’s shareholdings were auctioned on June 30, 2006 to an unknown buyer.

In his first interview with Caixin, Ye Jianming’s story was somewhat different: “The auction was complicated, afterwards the other party turned against us and wouldn’t sell to us, so we talked with some Huahang people about how to do things in the oil industry, and they ended up coming over and joining us.”

By his second interview, Ye Jianming’s wording had been revised again: although the auction was unsuccessful, “after Huahang Oil got banned, Xiamen had spare oil [import] licences, so we went to the provincial authorities to discuss getting them, and told them that a bunch of our people had come across from Huahang. The Ministry of Commerce came and did an inspection, and gave us the licences. It would have been impossible for Huahang just to give them to us.”

At present there are two executives from Huahang Oil in CEFC’s top management: CEFC executive Chen Qiutu [陈秋途][3] was Assistant General Manager in Huahang, and Hong Kong CEFC International Holdings Co. Ltd. [香港华信国际控股有限公司] General Manager Zhuang Miaozhong [庄苗忠] was Huahang’s Deputy General Manager.

The “Chief” and the “Standing Committee”

Until its relocation to Shanghai in 2009, CEFC’s business was mainly in bulk commodities trading. Before Shanghai, what was the scope of Ye Jianming’s asset portfolio? According to one early CEFC high-level manager, “At that time [the company] often could not pay wages. The bosses who followed Ye Jianming from Fujian to Shanghai brought money with them, and took out a lot of high-interest loans. The Standing Committee had to bring money or resources, as a demonstration of their commitment [投名状].”

This collective buy-in form of capital accumulation, somewhat analogous to the Lülin shanzhai of the Outlaws of the Marsh, is probably the origin of CEFC’s self-description as a “collective private enterprise” [集体民营企业]. In a 2011 edition of the internal company periodical CEFC New Horizon Ye Jianming is quoted saying: “More than 100 bosses have put money and assets into our CEFC. Hundreds of thousands are hard for a person to let go of, but for the sake of CEFC’s undertakings, we’ve all made this sacrifice, myself included.”

Besides “Chief” [盟主] Ye Jianming himself, other major investors included Zhang Qi and Zhou Lin, who both were listed as “Standing Committee” members of the early CEFC board.

Zhou Lin [周林], born in 1979, hails from Zhouning County in Ningde City, in the northeastern mountain region of Fujian. Zhang Qi, two years younger, is a local of Jian’ou County like Ye Jianming. Based on accounts from numerous sources, the trio of young Fujianese bosses were basically similar types of people when they made their assault on Shanghai: none had obtained an education beyond high school, all were full of ambition and desire, and capable drinkers who appeared frequently in KTVs. In one alcohol-related health episode Ye Jianming had to have part of his stomach cut out.

While not highly educated, Ye Jianming was professorial in his understanding of the nature of people. The early high-level manager says CEFC bought several dozen homes in Shanghai’s Xuhui Gardens, and assigned each member of the executive an apartment and a car. “When they went to see local leaders there was always a fleet of Mercedes 560s and above — they didn’t have that much money, most of the cars were second-hand. But it built an image, while satisfying the vanities of the bosses.”

“Standing Committee” member Zhang Qi had responsibility for CEFC’s “diplomatic” affairs, mixing with high-level cadres. He recalls: “The Chairman gave me one dream, one vision of the future. A great man is one who can plant his own thoughts in the brains of others, and put other people’s money in his own pocket. His objective was exactly where I wanted to go, he merely told me how to get there.”

On the question of when CEFC went to Shanghai, the company’s materials claim that Shanghai CEFC Energy Holdings [上海华信能源控股公司] was founded by Chen Qiutu, Zang Jianjun [臧建军] and Zhuang Miaozhong in 2008. But the State Administration of Industry and Commerce’s (SAIC) systems contain no record of such a company. A 2012 Ye Jianming resumé dates his relationship with Shanghai back five years further, listing him as having served as Deputy Secretary-General of the Shanghai Association for International Friendly Contact from 2003 to 2005.

The SAIC systems do show that in late April 2009, a Shanghai Hangyu Goods Co. Ltd. [上海航昱物资有限公司] was founded with Su Weizhong [苏卫忠], one-time CEFC board member responsible for Shandong CEFC, as its legal agent. This was the prelude to CEFC’s registration in Shanghai. In January 2010, Hangyu Goods was renamed Shanghai CEFC Oil Group Co. Ltd. [上海华信石油集团有限公司] (later Shanghai CEFC International Group Co. Ltd. [上海华信国际集团有限公司], referred to subsequently as “Shanghai CEFC”).[4] In November 2009, China CEFC established another subsidiary, Beijing CEFC Oil Group Co. Ltd. [北京华信石油集团有限公司] (later renamed Beijing CEFC International Holdings Group Co. Ltd., and then again as Beijing CEFC International Energy Co. Ltd. [北京华信国际控股集团有限公司、北京华信国际能源有限公司], and referred to subsequently as Beijing CEFC).

“Li Guangjin gave Ye Jianming many pointers,” according to early core member of CEFC. The company’s entry into Shanghai happened in lockstep with Li Guangjin’s reassignment to Shanghai. Li Guangjin [李光金] became a member of the Fujian CCP Standing Committee and the Political Commissar of the Provincial Military District [省军区政委] in 2006. In May 2009 he was transferred to Shanghai, where he served as Political Commissar of the Shanghai Garrison [上海警备区] until his retirement in July 2010. “Right after CEFC came to Shanghai they held a lot of calligraphy and painting exhibitions for generals [搞了很多将军书画展], these were all Li Guangjin’s doing.”

Ye Jianming says he and Li Guangjin are friends who share similar inclinations and values, and that Li Guangjin’s involvement with CEFC was “tantamount to not receiving wages, just doing charitable work.”

Among a number of related connections, CEFC established links with Yang Qinglong [杨庆龙] of central SOE Zhuhai Zhenrong [珠海振戎公司], through an introduction from Wang Hongyuan [王宏源], former Deputy Director of the CMC General Office’s Management Bureau with responsibility for financial post-operation construction. The now-deceased Yang, known as the “Li Yunlong of oil,” founded Zhuhai Zhenrong, the world’s biggest buyer of Iranian crude oil. Many sources gave Caixin descriptions of all kinds of scenes involving CEFC office-bearers drinking with Yang.

Ye Jianming’s English-language resumé indicates that from 2007 to 2008 he was Chairman of the Board of Shanghai Zhenrong Co. Ltd.. But this company was only established two years later. In March 2010 CEFC, together with Xiamen Taolüe Investment Co. Ltd. [厦门韬略投资有限公司], Zhuhai Zhenrong, and its subsidiary Guangdong Zhenrong Energy Co. Ltd. jointly established Shanghai City Zhenrong Oil Co. Ltd. [上海市振戎石油有限公司]. Zhuhai Zhenrong and Guangdong Zhenrong held 50% of its stock, Xiamen Taolüe 12% and CEFC 38%. Xiamen Taolüe was controlled by the boss of Taiwan’s Bamboo Union [竹联帮] gang, the “White Wolf” Chang An-lo.

“CEFC did a lot of public relations work, and Shanghai Zhenrong was actually operated by CEFC,” said a relevant person. As a central SOE, Zhuhai Zhenrong possessed fairly high overall access to credit, and this was Zhenrong’s contribution to CEFC.

The early CEFC launched the concept of “economic collectivity” [经济共同体] to serve its approach of “trade-driven-finance” [贸易带动金融]. According its its internal magazine CEFC New Horizon, the internal core of the collectivity is a system of relatively centralized authority, with satellite enterprises forming a “federation” of decentralized power. Its unique organizational structure serves the “five unities”: unity of leadership, unity of program, unity of orders, unity of action, and unity of movement.

In fact, besides CEFC, the “economic collectivity” also included a series of Zhongnengs, Dashengs, Shipings, Julis, Wuzhous, and Yidians [中能、大生、世平、巨力、五洲、益电等系列] — enterprises under the names of each of the Standing Committee members. Although they were satellite enterprises, they played a crucial role within CEFC. According to the above-mentioned early CEFC high-level manager: “In order to obtain support from financial markets, the satellites had to include upstream and downstream enterprises. These enterprises held each other’s stocks, guaranteed each other’s loans, and formed each other’s upstream and downstream trade partners.”

The collectivity showed all the flexibility private enterprises are known for. “Bosses” could bring their companies into CEFC, or bring assets across, and CEFC could assist them in establishing their own satellite companies, and grant them “Standing Committee” or “Committee” positions with benefits and management of enterprises corresponding to their capital and resources.

At that point deployments of human resources had only just begun. “Zhou Lin and Zhang Qi had no idea about operations,” declared a CEFC Committee member who had been a department-level [处级] cadre working on foreign trade in Fujian. A number of CEFC top executives who had studied finance and accounting at local Fujian schools and institutes, including Chen Qiutu, took up professional management roles. And in 2010 some workers from local Sinopec subsidiaries joined CEFC.

Credit notes and borrowed time

CEFC chose Shanghai for its headquarters because it saw a rosy capital future there. Zhang Qi said Shanghai’s human talent and financial scene were both superior to Fujian’s, which opened up additional possibilities. “Fujian’s bank bosses have lending limits of ¥1 billion, but Shanghai’s can do ¥5 billion.”

The CEFC that arrived in Shanghai had its own genes, but was also in constant flux. The “Shiping” part did steel trading, for example; commercial property and rubber were within Ye Jianming’s purview. But the most important area, the one that all the satellite systems were involved with, was trade.

According to a relevant CEFC person, the so-called “trade-driven finance” approach meant, at first, the cashing of credit letters to obtain short-term finance more cheaply than via high-interest loans. The capital obtained was used for trading and real estate, with CEFC purchasing property in Hong Kong as well as the top managers’ apartments in Shanghai’s Xuhui Gardens. “At the time Lin Honghui [林鸿辉] was doing rubber, for a period he made a buck and times were good.” Lin Honghui was the legal representative of CEFC satellite company Shanghai Dahua Guohua Oil Co. Ltd. [上海大华国化石油有限公司] (later renamed Shanghai Yaxu Oil Co. Ltd. [上海亚旭石油有限公司]).

According to the same person: “The financial cycle of a credit note was often 90 days, and ideally it could even be 180 days. Downstream enterprises would get credit notes from banks, pay less than 20% of the guarantee amount, or sometimes even nothing, the bank would give the money to the upstream [enterprise], then the downstream had a few months to repay the bank. [This was] CEFC’s method of cycling cash through associated companies to increase its financial leverage.”

Ye Jianming explained this use of credit notes to cycle cash for trade finance as follows: “In China there are 3 and 6-month credit notes, but this arrangement has a problem. You need at least a year to order and sell goods and make repayment, meaning repayments were unable to keep pace with the rigid repayment dates of the credit notes. In 2009, whether bulk goods or real estate, prices were continuously increasing, so many companies made trading into a tool of finance.”

“A private enterprise’s greatest difficulty is finance. At first there was no other way.” Ye Jianming cited the names of several real estate businesses, saying they also used the same method. “Of course, there were some higher-class entrepreneurs with long-term grand objectives, who gradually perfected their management and eliminated these problems.”

Shanghai CEFC is the main force under the CEFC banner, and its shopfront. “Shanghai CEFC is China CEFC,” said Ye Jianming. Shanghai CEFC’s operations were mostly trade in aromatic hydrocarbons, PX, fuel oils and the like. Before 2012 aromatics constituted 60% of its trade, afterwards the share of oil products continuously increased, reaching 80% by the first quarter of 2015.

In CEFC’s credit-note trading finance, the trading partners were overwhelmingly its own associated companies and the enterprises that made up the economic collectivity. It was constantly passing from the left hand to the right to create turnover. This type of practice often conceals fake trade and manipulation of false VAT fapiao. Says a person within the industry: “Much of the time, this practice involves the goods being moved on paper only. The goods can be idle, or there may even be no goods at all. A boatload can sit at the port for a year without moving, all the while being transferred dozens or even hundreds of times between associated companies.”

Shanghai CEFC’s capital-raising prospectus offers a footnote on its trade-finance method: since 2011, Shanghai CEFC’s major upstream and downstream trading partners were all associates of the “CEFC Economic Collectivity,” including satellite companies such as Zhongneng, Dasheng, Shiping, Juli, Shengzhou and Yidian, as well as an offshore entity named China Ocean Fuel (Hong Kong) Co. Limited. Take the example of Shanghai CEFC’s second-largest provider of PX products, the Xiamen Nanhu Petrochemical Holdings Co. Ltd. [厦门南湖石化股份有限公司] (now renamed Xiamen Yidian Energy Holdings Co. Ltd. [厦门益电能源股份有限公司]). This company’s legal representative Pan Kairong [潘恺蓉] was simultaneously also the legal representative of Shanghai Shiping Investment Co. Ltd. and Shanghai Yidian Energy Co. Ltd. [上海世平投资有限公司、上海益电能源有限公司]. The latter became Shanghai CEFC’s second-largest provider of aromatics in 2013, with ¥1.22b worth of sales to Shanghai CEFC, and its largest in 2014 with ¥2.66b.

The capital-raising prospectus only lists the top-five suppliers and buyers of Shanghai CEFC’s PX, aromatics and oil products, accounting for 40-60% of Shanghai CEFC’s total business, so there is no way to describe the whole picture. With trading this intricately intertwined, and the volume of business so massive as to be calculated in the hundreds of billions, even the early CEFC high-level manager says God would struggle to accurately understand the details.

“Within CEFC, this was referred to as the stringing out of business [业务串一串],” said the early high-level manager. Around 2011 CEFC’s total credit was a few hundred million, so it had to rely on financing to cover its old high-interest loans and advance its bank credit. By increasing its turnover and expanding credit it continuously opened up credit notes, using this borrowed time to survive.

Although CEFC lists major oil companies among its downstream [partners], they have never appeared on its tables of major buyers. The above-mentioned CEFC high-level manager says: “To take an example, Mercuria is a globally famous bulk commodities trader that oil businesses can deal with directly, but when CEFC is involved [华信要是插一杠] there will usually be a complicated chain of trades.” Here, A, B and C are all CEFC or its satellite companies:

Upstream (such as Mercuria)

↓

A

↓

B

↓

C

↓

Downstream (oil company)

“This way, they increase their turnover, and the downstream company can get the goods at market price or below, so they don’t care about the intervening processes.”

What this also implies is that trade is the shortest route to increased revenues. “Incoming and outgoing items can both be counted in trade revenue, as allowed by the [National] Audit Office,” Zhang Qi says. Before a consignment reaches its true final destination, there may be hundreds of opportunities to trade it. The reason to create turnover through high-frequency transactions is that operating revenue affects a company’s position in rankings, branding, access to credit and negotiating leverage. Asked whether this practice involved the falsification of VAT receipts, Zhang Qi did not offer a clear answer.

Ye Jianming explained that the economic collectivity format meant “all were brothers together, financial affairs were not managed as strictly back then, turnover could allow them to get things done, it was helping their performance, we did not realize that taking the turnover route would have problems. Our awareness, including my own, was insufficient.”

However, the benefits were not one-way but mutual, as CEFC’s own turnover rapidly increased too. For example, Shanghai CEFC’s operating revenues were

¥0.335 billion in 2009,

¥3.807b (2010),

¥12.691b (2011),

¥30.35b (2012),

¥102.659b (2013),

¥177.1b (2014),

¥206.589b (2015), and

¥247.255b (2016)

— a more than 700-fold increase in just seven years. And while in 2012 Shanghai CEFC only accounted for 22.4% of the total revenue of China CEFC, by 2015 this had grown to 78.5%.

Ye Jianming introduced CEFC’s revenue calculation method as follows: “Basically it was calculated from the upstream incomings, and later, making an assault on the Fortune 500, some downstream was counted too.” This upstream and downstream also included the turnover from cooperation among the “brothers.”

In 2012-2013 Shanghai CEFC stated its the volume of its trade with associates at ¥8.187b (2012) and ¥15.19b (2013), making up 27% and 14.8% of total annual revenues respectively. The associates included Beijing CEFC and joint stock company Fujian Dasheng Holdings Co. Ltd. [福建大生控股有限公司]. But the relationships of CEFC with other CEFC-controlled trade partners such as Shanghai Zhenrong, Shanghai Chengyan Industry Co. Ltd. [上海承砚实业有限公司], and Zhenjiang Runde International Trade Co. Ltd. [镇江润得国际贸易有限公司], are not properly noted in the Shanghai CEFC financial prospectus.

An early CEFC high-level manager revealed that there were even some trades that did not even involve any actual property rights, or which were pure fictions invented to get money from banks. This is an even more serious fake trade issue than the stringing out of turnover. Ye Jianming flatly denied that this occurred.

Expansion amid crisis

Passing from the left hand to the right really was an easy way to increase turnover, swapping time for space and access to capital. But behind the astounding revenue growth lay extremely thin profits. Shanghai CEFC, for example, might have increased its revenue by 700 times over seven years, but it gross profits were only in the 2-3% range. In 2012 and 2013 they were just 1.27% and 1.72% respectively.

Bulk goods trading carried hidden dangers, too. For CEFC, always squeezed for capital, 2011-2012 was its “tightest period.”

The first to fall was Lin Honghui’s rubber business. Lin was described by a former colleague as “too much of a gambler.” In 2011 a two-year bull market for rubber came to an end, with the price falling from a record high of ¥43,000 per ton down to ¥26,500 across the year. Lin “went all-in in the first half of 2011; by the first half of 2012, he was finished.”

One early “Standing Committee” member revealed to Caixin that CEFC had stored up 40,000 tons of rubber, resulting in a ¥700 million loss. Ultimately CEFC cut ties with Lin. Ye Jianming says Lin lost ¥170m, “but in the early days he made money, in the end I had helped him make more than ¥10m.”

CEFC’s official personnel announcements date Lin’s departure to April 2012. Lin refused to be interviewed, saying he “had left his position many years ago.”

A “steel trading catastrophe” struck the same year. From March to September 2012, the price of rebar dropped from ¥5,300/ton to ¥3,300. Zhou Lin’s steel trading business was punished for its adventurousness. A person who knows Zhou and CEFC’s steel operations said: “This was the chaos of the financial system at that time, you could take the same consignment around to every bank and use it to get finance everywhere. As soon as the price of steel dropped, the whole chain collapsed.”

The failure of the rubber and steel operations held back CEFC’s entry into the oil and gas sector. In 2011, in addition to starting up Shanghai Zhenrong in partnership with Zhuhai Zhenrong, CEFC also teamed up with Shandong Huanghuaihai Investment Group [山东省黄淮海投资集团] to found Shandong New Energy Co. Ltd. [山东省新能源有限公司]. But both finance and industry access determined that CEFC would be unable to genuinely get into either upstream oil and gas resources or downstream refining. “Ye Jianming’s approach was thus to target the middle, building oil storage,” says the early CEFC high-level manager.

In September 2011 CEFC held a ceremony marking the commencement of construction of its Yangpu Storage Base in Hainan. Attendees included several generals (including one four-star general) who all travelled to Hainan especially for the event, as well as all four Hainan Provincial team leaders [海南省四套班子领导]. But work would not actually start until two more years had passed. “At that time we had to handle payments to all sides, and in the end it was like having 10 bottles but only three lids. There wasn’t the money to start work on Yangpu,” says the early high-level manager. Only in October 2013, two months after China Development Bank provided a crucial ¥2.44b loan for the first stage of Yangpu, equal to 80% of the investment value of the project, did work begin on the Yangpu Storage Base.

From then on, it became the place for Ye Jianming to take people whenever they doubted CEFC’s capabilities. It not only provided an excellent fixed asset to allow CEFC to obtain finance, it also became a staple in the oil story Ye would sell to the outside world.

It was also in the second half of 2011 that Ye personally led a delegation to Guangdong to apologize to Zhuhai Zhenrong. According to Li Yong and several others, CEFC used Shanghai Zhenrong’s line of credit to create receipts and business factoring receivables [做商票和应收货款的商业保理] and failed to repay around ¥200 million it on time. SAIC materials show that Zhuhai Zhenrong and CEFC’s partnership ended in 2012.

During this period Ye Jianming tried to use the media to ease CEFC’s financial pressures. In September 2011, Hong Kong’s Ming Pao reported “Mainland oil baron buys HK$200 million Bel-Air residence,” with Ye Jianming as the protagonist. “He didn’t actually buy the villa, he was sending a signal to reassure his Mainland creditors,” says the early high-level manager.

When trade-driven finance was insufficient to resolve the succession of financial problems, Ye Jianming tried backdoor listing. He called for “getting some Mainland-listed companies as platforms to finish the construction of the Hainan and Shandong storage projects.”

In December 2011 Fujian Nanzhi [福建南纸] (600163.SH, later renamed Zhongmin Energy [中闽能源]) announced that its holding entity Fujian Qingfang (Holdings) LLC [福建省轻纺（控股）有限责任公司] planned to sell 29.8% of its listed stock to Shanghai CEFC for ¥1.148b. But in June 2012 the reorganization was halted, with public reports claiming the two sides had failed to reach agreement on workers’ placements.

Just one month after that Fujian failure, in July 2012, Anhui Huaxing Chemicals Joint-Stock Co. Ltd. [安徽华星化工股份有限公司] (002018.SZ, later renamed CEFC Guoji [华信国际][5]) announced that Shanghai CEFC would undertake to purchase 60% of its stock for ¥1.971b. This had been foreshadowed by a visit one year earlier by then-“Standing Committee” member of CEFC Zhang Qi to leading officials in the provincial capital Hefei. The above-mentioned early high-level manager claims this benefited from introductions by Li Guangjin to his old colleague and then-Governor of Anhui, Wang Sanyun.

“At the time, no one below deputy governor rank could make decisions about resources of shells of listed companies,” said Zhang Qi, who was responsible for CEFC’s diplomacy at the time. Zhang considers himself gregarious and good at making friends. “I did things to prepare the way, then others followed in. I’ve come from the wild side [江湖], so there are some things I’m well suited to doing. Chairman Ye’s brilliance is his ability to make the correct use of people.” [Translation of first sentence in this paragraph is corrected, thanks to Jiri Hudcek]

CEFC paid almost none of its own capital in this Huaxing Chemicals backdoor listing. On May 20, 2013 Huaxing Chemicals issued 729m additional shares priced at ¥2.65 each to Shanghai CEFC, raising ¥1.931b. Shanghai CEFC became Huaxing Chemical’s controlling shareholder with 60.78%. On May 25, Huaxing announced that Shanghai CEFC had on May 21 pledged its 60.78% stake with Huarong International Trust LLC [华融国际信托有限责任公司]. Based on the May 21 closing price of ¥8.32, CEFC had made a floating profit of ¥4.133b. Assuming a 60% pledge discount (before May 20 Huaxing Chemical’s share price had ranged between ¥6.88-8.28), Shanghai CEFC obtained finance of at least ¥2 billion with this move.[6]

Protect CEFC, or save the satellites?

If the Nanping businessmen who landed with Ye Jianming brought capital and business volume, they also brought black holes of debt. After stumbling through 2011-2012, Ye Jianming amputated his own hands, excising the major disaster areas within the satellite companies. After Lin Honghui, two other “Standing Committee” members followed — Zhou Lin and Zhang Qi. According to CEFC’s announcements, the pair both left in February 2013. But several early high-level managers recall 2014 as being when CEFC and Zhang Qi completed their severing of ties.

The “Shiping” arm’s board was headed by Zhou Lin, with Zhang Qi as deputy. The latter also controlled the “Juli” arm. A former high-level manager of Shiping says its capital was used in the Shiping Finance Guarantee Co. [世平融资担保公司], which became embroiled in debt-related disputes after 2013, while also purchasing more than 10,000 square meters of commercial space at Beimei Plaza in Shanghai’s Yangpu District. Banks looked favourably on this type of collateral.

Zhang Qi says Zhou’s whole family was in steel. “All his aunties and uncles had their money parked there.” When the steel trade crashed in 2012 Zhou Lin faced a slew of demands for refunds. “His cash was all tied up in that building [Beimei Plaza], for which the property deeds still weren’t ready, and the banks couldn’t lend, so there wasn’t enough for anyone.”

That property was both the final straw that crushed Shiping, and the life-buoy that saved Zhou. A high-level manager in Shiping explained how the scene was cleared: “The severing was done by the end of 2013, Shiping had no cash, but it did have property, so we said to Boss Ye this property is worth ¥500m, but we’re done for, so it goes to you.”

“Zhou Lin came undone before me,” said Zhang Qi. “But that building basically erased his debt, so he was luckier than me.”

If Lin Honghui and Zhou Lin’s falls were due to the market and their own judgement, Zhang Qi’s debt issues later resulted partly from his luxurious lifestyle, and partly from carrying the cross for CEFC by bearing its debt burden.

The Juli Global Holdings Co. Ltd. [巨力环球控股有限公司] under Zhang’s name had revenues of ¥23.87b in 2013, and it was ranked 153 in the “Top 500 Chinese Services Enterprises” in 2014. Along with other enterprises in the “Juli system” such as Fujian Juli Piston Co. Ltd. and Qingdao Juli Import Export Co. Ltd. [福建巨力活塞有限公司、青岛巨力进出口有限公司], it has also been listed many times on credit blacklists.

“In total I lost more than 2 billion,” Zhang told Caixin. At its apogee he had finance of nearly ¥5b, including ¥4.2b in bank loans, as well as ¥650m in non-governmental loans [民间借贷].

A relevant person from the Juli system said that in 2012, by cooperating in the bolstering of turnover, Juli’s lending amount grew to around ¥4.2b over the course of 8 months. “There were some second-generation rich people who parked their family’s capital with Zhang Qi. They couldn’t see what he could, though some cooperated in stringing out receipts [串单].

Zhang Qi’s cash-out business was like a closed chain, relying on continuously expanding loans to hold it together, with new debt covering old debt. At the start of 2013 the banks stopped lending. “The hole couldn’t be filled,” said the relevant person.

Caixin met with Zhang Qi just before Qingming Festival in 2017, in a peaceful clubhouse on Hangzhou’s Lingyin Rd. He was then still responsible for more than ¥1 billion of debt. He had brought his child, enrolled at an international school, along with a driver and nurse, to live in the clubhouse, explaining that the property was rented for him by a friend. In the past he lived in even more splendid surrounds, with an ¥8 million Rolls-Royce, first-class flights to Africa, and his “easygoing nature” generating successful external liaisons. When associating with officials he would “never mind what the price is, I’ll get you the best hotel.”

As Zhang Qi told it, “The Chairman” was almost a prophet, father and brother at the same time. He said he had cooperative relations with CEFC, “At the time Boss Ye urged me not to expand too quickly.” When he did, and his business duly collapsed, Ye still helped him. As recently as 2016 Ye Jianming paid a ¥100m-plus loan back for Zhang Qi.

“CEFC emphasizes affect and loyalty,” said Ye Jianming. He explained that at CEFC, Zhang Qi “just did outside diplomacy, and he did it well. There were times when CEFC needed capital and he put some in, but that was only short-term, most of the time he used us to inflate his turnover.”

A former Shiping high-level manager said the reasons the satellite companies like Shiping and Juli had to be excised were firstly strategic need, and secondly their negative influence. “If CEFC goes down, wouldn’t that mean the whole unit goes down? You definitely have to withdraw your best forces first, and get others to provide them with cover — then when the main force regenerates, it can come back and save them.”

Coming alive on SOE loans

As it severed itself from the debt holes of its satellites, CEFC floated on a precious stream of trade finance from SOEs to clear some dangerous shoals. An early high-level manager described this method of operation as “SOEs granting loans.” He said: “Many SOEs have turnover targets to meet so they need to inflate their scale. So you’re in the Fortune 500 but you have no business, what do you do? You buy. You can’t pay, so what do you do? They lent money to CEFC, or helped them get bank loans with their backing, before repaying the loans through trade with associates.”

The ingenuity of this method is that it expanded the turnover of all participants, including CEFC. Relevant materials show this type of operation began in the second half of 2012. Huadian (Xiamen) Energy Co. Ltd. [华电（厦门）能源有限公司] (“Huadian Xiamen”) is listed as one of CEFC’s top buyers in 2012 and 2013. Information revealed by its parent company, the listed diversified clean energy company Huadian Fuxin [华电福新] (00816.HK) which is under the flag of China Huadian Group Co. [中国华电集团公司], shows that Huadian Xiamen began commercial trading in August 2012, and within 4 months realized sales revenues of ¥4.429 billion. The direction of these trading operations, from upstream to downstream, was:

CEFC and satellite companies (Shanghai CEFC, CEFC Oil Guangdong Co. Ltd., CEFC Oil Hainan Co. Ltd., Qingdao CEFC Liangang Petrochemical Co. Ltd., Qingdao Zuode International Trading Co. Ltd.)

↓

Huadian Xiamen

↓

CEFC satellite companies (Wuzhou Maofa Holdings Co. Ltd., Shanghai Dahua Guohua Oil Co. Ltd., Shengzhou Holdings Co. Ltd., Wuzhou Maofa Beijing Import-Export Co. Ltd., Fujian Juli Piston Co. Ltd., etc.)

Although net profits were only ¥3 million, this four months of trading accounted for 31.48% of Huadian Fuxin’s annual revenues.

CEFC executive director Li Yong says: “Huadian wanted to increase its volume of business, their boss came and sought us out.”

CEFC was also a major customer of Fujian Province Funeng Electricity Fuels Co. Ltd. [福建省福能电力燃料有限公司] (“Funeng Electricity”), a subsidiary of local Fujian SOE Fujian Province Energy Group LLC [福建省能源集团有限责任公司] (“Funeng Group”). Between 2015 and 2016 Funeng Electricity’s sales to Hainan CEFC reached ¥5.159 billion. The direction of the trades was:

CEFC satellite companies

↓

Funeng Electricity

↓

CEFC

With CEFC’s cooperation, Funeng Group’s business volume showed a steady expansion: ¥27.479b (2014), ¥31.385b (2015), and ¥36.98b (2016). The proportion of port trade logistics within this increased across these three years from 44.14% to 50.06% to 60.1%, exceeding the combined revenues of its coal, chemicals, building materials, real estate and hotels businesses.

Another SOE that benefited from trading with CEFC was the Huainan Mining (Group) LLC of Anhui [安徽的淮南矿业（集团）有限责任公司] (“Huainan Mining”). In 2016, CEFC’s sales to Huaihai Mining exceeded ¥20 billion, with Hainan CEFC accounting for ¥13.06 billion of that. That year, Huainan Mining’s revenue was ¥59.76 billion, of which trade and logistics accounted for 46.55%.

People in the industry point out that these kinds of “buying and selling trade operations” are an extension of the idea of seeking credit notes from banks to obtain finance. On one hand, besides loans secured by credit notes, it also adds in prepayments and accounts receivable from particular enterprises, as well as other parties that could offer guarantees to the bank. On the other hand, because both sides are doing it to increase their turnover, it is liable to produce collusion on fake trading.

Ye Jianming explained to Caixin that the advantage of working with SOEs are, first of all, that they possess capital, and second, that SOEs’ credit backing is beneficial. There was a portion of cooperation that was “SOEs supporting their stocks” [国企托盘], “a consignment of goods may not be sold within 3-6 months, so I first give you the goods as guarantee, then you give me capital to use, with an account period, to accelerate the use of capital.”

An even greater SOE “golden boy” for CEFC was the Port of Rizhao Group [日照港集团], owner of the “Eastern Terminus of the New Eurasian Land Bridge” and Shandong’s only listed port company. An early CEFC “Standing Committee” member says that “Port of Rizhao’s capital was crucial for CEFC, resolving its desperate situation,” adding that then-CEFC board member and Planning and Execution Bureau Executive Deputy Managing Director Wu Benzhi [华信原董事、计划执行局常务副总经理吴本志] spent late 2012 besieging its leaders with “weapons” such as Maotai.

Caixin has found that Port of Rizhao Group began trading with CEFC through subsidiaries such as Port of Rizhao Import-Export Trade Co. Ltd. [日照港进出口贸易有限公司] in 2013. Before this, the group’s operating revenue had consistently been around ¥10 billion, but from 2013 to 2015 it shot up to more than ¥20 billion, with revenues reaching ¥16.338b in the first 9 months of 2016, 60% of which was from trading. Gross profit from trade was ¥81m (2013), ¥415m (2014) and ¥374m (2015).

Port of Rizhao Group’s operational cooperation with CEFC was similar to that of Huadian Xiamen. For example, 2015 saw the following flow:

CEFC companies (Shanghai CEFC Group Hong Kong Co. Ltd., Shandong CEFC Oil Co. Ltd, Shanghai CEFC, etc.)

↓

Port of Rizhao

↓

CEFC satellite companies (Hong Kong Guomao Joint Investment Co. Ltd, Shengzhou Holdings Co. Ltd., China Ocean Fuels Hong Kong Co. Ltd., Shanghai Yidian Energy Holdings Co. Ltd., etc.)

Before its involvement in trading with CEFC, the Port of Rizhao Group’s accounts receivable and prepayments totalled ¥2.47 billion (2011) and ¥2.74 billion (2012). Afterwards they increased dramatically. In 2013 the Group’s accounts receivable were ¥1.734 bililon (¥1.629b of which was owed by Hainan CEFC), while prepayments were ¥5.73b (including ¥1.654b to Shanghai CEFC, and ¥1.369b to Shandong CEFC Oil). All up, in 2013, using the forms of accounts receivable and prepayments, the Port of Rizhao Group lent around ¥4.367 billion to CEFC.

In November 2016 Du Chuanzhi [杜传志], Port of Rizhao’s chairman of the board and party secretary, who had worked in the Port of Rizhao Group for 34 years, was transferred to the Rizhao City State Assets Commission, and one month later was detained by the Discipline Inspection Commission. In April 2017 Du was formally charged, with the Rizhao City Discipline Inspection Commission announcing his serious violations included “illegally lending a large amount of capital, and setting up a private mini-treasury.” Others including Port of Rizhao Import-Export Trading’s former manager Zhu Tongxing [朱同兴], and Port of Rizhao Group Financial and Budgeting Department’s former director Lü Chuantian [吕传田]. had earlier been expelled from the party and charged over serious disciplinary problems.

According to the Report of the CCP Port of Rizhao Group Co. Ltd. Committee on the Situation of Inspection and Reform, during Du Chuanzhi’s tenure problems included looseness in investment, trade, contract management, serious leakage of state assets, and insufficient oversight of the auditing and finance departments. “Provision of guarantees for private enterprises through real or fake trade, or providing capital to private enterprises through prepayments, created a large volume of accounts receivable and prepayments, with uncontrolled risk management, causing enormous losses and potential losses.”

Regarding his cooperation with the Port of Rizhao Group, Ye Jianming initially told Caixin, “We don’t care how they use their capital, we are more about helping them improve their performance,” but later claimed that “when we were in trouble in 2013-2014 they helped, it wasn’t as much as the 4 billion you’re talking about, it was around 2 billion, and all of it was paid back by 2015-2016.”

But between 2014 and 2016, CEFC and its satellites continued to appear on the Port of Rizhao Group’s major debtors list. In 2014, CEFC satellite China Ocean Fuels (Hong Kong) Co. Ltd. owed the Port of Rizhao ¥507 million in accounts receivable, and Port of Rizhao paid ¥860 million in prepayments to Shanghai CEFC. In 2015, the Port of Rizhao made prepayments of ¥2.47 billion to Shanghai CEFC and its satellites. In the first half of 2016, the Port of Rizhao’s list of accounts receivable included two Hong Kong-based CEFC satellites owing ¥1.214 billion, and its prepayments included ¥862 million to Shanghai CEFC and ¥627 million to Shandong CEFC.

Asked why CEFC and its satellites still appeared on the Port of Rizhao’s lists of debtors, Ye Jianming explained that Wu Benzhi had accepted ¥60 million in favours from the Port’s leaders: “Our financial departments answered to him.” Although the Port of Rizhao appeared on paper to have moneys receivable from CEFC, “in fact the money had been doled out by them [Port of Rizhao’s leaders] themselves.”

Wu Benzhi, who is currently released on surety, denied he had received ¥60 million in favours, calling this “complete nonsense.” Wu said the Port of Rizhao made ¥800 million in profits from cooperating with CEFC, and any deficits had nothing to do with CEFC, but were rather due to the corruption of its leaders and incorrect disciplinary reporting,

Regarding details such as the proportion of real trade to fake trade, and the amounts of money involved in the case, staff at the Port of Rizhao Group’s propaganda department said calculations were still being made. Rizhao City Discipline Inspection Commission personnel said, referring to the reform report, that financing through fake trade had been widespread in Shandong in recent years, and the case had already been turned over to the Procuratorate.

Huainan Mining and Funeng Group personnel said it would not be convenient to be interviewed about cooperation with CEFC.

Asked about the issues of credit-note financing and fake trade, Ye Jianming declared, “Two thirds of ours is real trade with the end customer, a proportion (was for performance), and we were forced into it.”

He emphasized several times: “Of course, we will entirely cease this type of business.”

With the cooperation between its satellite companies and relevant SOEs, CEFC’s revenues have continued to steadily increase since its entry into the the Fortune 500 in 2014, and it has moved up in the rankings. CEFC revenues were

US$34.134 billion (2014, 349th),

$34.699b (2015, 342nd),

$41.845b (2016, 229th) and

$43.7b (2017, 222nd).

“Even if you make it into the top 100, if you’re relying on trade that’s nothing, people in industry will look down on you. In future we are going to eliminate it entirely.” Ye Jianming explained that CEFC’s ranking in the Fortune 500 hasn’t advanced more quickly because “we have been increasingly held back.”

“If all trade was counted, (CEFC revenues in recent years) would be in the trillions, we’d be number 1.”

A visible edifice

Relief having arrived, Ye Jianming set about upgrading his life among the rich and powerful.

In late 2013, Hong Kong CEFC obtained a US$35 million Gulfstream G550 business jet on a seven-year lease via ICBC International Financial Leasing subsidiary Sky High XVIII Leasing. Two years later, CEFC subsidiary SHX Cayman Company Limited used a similar method to lease a US$60 million Airbus A319-115, the leasing and finance only being fully paid by 2023.

People who know Ye say this reflected his deep understanding of human nature: private aircraft and luxury residences can conquer people’s hearts. “CEFC’s current high-level management all have their own places at Bel-Air in Hong Kong.”

The same year, CEFC moved its headquarters to 111 Xingguo Rd in Shanghai. This complex with 20 garden-residence buildings is like a pyramid-shaped kingdom, with Ye Jianming’s personal “Chairman’s Building” at the apex, the “CEO’s Building” shared by several executives, and the other high-level managers dispersed around the other buildings.

From 2012 to 2014, besides the purchase of the ¥1.1 billion Xingguo Rd property, CEFC’s other real estate investments included the ¥960 million Jinheng Business Plaza in Guangzhou, and floors 7 to 32 of the ¥4.808 billion Mingtian Plaza on Nanjing West Rd in Shanghai. Like its later real estate purchases, these were also used as guarantees for CEFC’s finance.

While building his business empire, Ye Jianming was also making social gains. This is the origin of much of his mysteriousness to the outside world

Just as it was staring into the abyss in 2011, CEFC established two foundations:

The Shanghai-based CEFC Charitable Foundation [华信公益基金会] with former Shanghai Garrison Political Commissar Li Guangjin as Executive Chief Councillor [执行理事长] and former CMC General Office Management Bureau Deputy Director Wang Hongyuan as Executive Director [常务理事]; and The Hong Kong-based China Energy Fund Committee [中华能源基金会] with former Hong Kong Home Affairs Secretary Patrick Ho as Chief Secretary.

In 2012, Ye Jianming established a Party Committee in CEFC, with retired Deputy Political Commissar of the PAP Shanghai Corps and Dean of the PAP Shanghai Political Academy Jiang Chunyu as Party Secretary. Ye Jianming demanded that CEFC be capable of linking up with Shanghai City’s social work party committee which aimed to work among the “two new types of organization” (economic and social). Jiang Chunyu said the PAP had implemented localized tasks, so he brought advantages in terms of local resources, and was relatively well versed in organization, propaganda, discipline inspection, and security. “If your people aren’t familiar, linking up will be slower.”

Jiang was generously rewarded for this. Zhang Qi says, “Jiang Chunyu has probably made more in these few years than his whole life’s wages in the military.”

A CEFC director who is a former military political work cadre told Caixin he had no operational knowledge, but offered advantages in personal connections. “In the past, being in the military and making some money wasn’t a problem, but now that would be breaking the rules, so I naturally took off the uniform to develop economically.”

Even former Ye Jianming collaborators who disagree with his ideas say they are amazed at his ability and boldness in maneuvering and integrating political and economic resources. “Resource integration is the genius of CEFC, using money to bring in resources, and then turning those resources into more money.”

Besides being Executive Director of the CEFC Charitable Foundation, former CMC General Office deputy army-level [副军] official Wang Hongyuan, who set up links between Zhuhai Zhenrong and CEFC, also has another role: Secretary General of the China CEFC Consultancy Centre [中国华信顾问中心秘书长].

Wang, who is originally from Yiwu in Zhejiang, used local and military connections to operate a group of generals as CEFC consultants. CEFC internal publications say the consultants went to each subsidiary company and lectured on how to “deeply learn from and implement the spirit of Chairman Ye’s important speeches.”

Hong Kong-based China Energy Fund Committee fulfils a “popular public diplomacy” role. Several CEFC high-level managers including Jiang Chunyu praise the “international” personal connections of its Secretary-General, Patrick Ho. Educated in both the West and China, Ho organized for the foundation all kinds of events with of flashy celebrities and international political figures.

After 2015, Ye Jianming dug out a trove of “bureau-level” [局级] cadres from central SOEs in relatively internationalized industries like oil and finance. Whether attracted by high salaries or consideration of the economic collectivity’s satellite company format, these high-level talents established joint ventures with CEFC, splitting the profits.

In August 2014, CEFC purchased a ¥1 billion stake in Fortune-CLSA Securities [财富里昂证券], changing its name to CEFC Securities [华信证券]. In April 2016, former Deputy Managing Director of Huitianfu Funds Management Chen Canhu [汇添富基金管理公司原副总经理陈灿辉], who had brought Huitianfu to the forefront of the emerging online finance industry, joined CEFC Securities as CEO. In July 2016, former Shanghai United Assets and Equity Exchange [上海联合产权交易所] Vice President Wu Hongbing [副总裁吴红兵] joined CEFC as Deputy CEO/Vice President [副总裁].[7] In February 2017 former China Merchants Bank Head Office Corporate Banking Department General Manager and Shanghai Pudong Development Bank Vice President Jiang Mingsheng [姜明生] joined CEFC, also as a Vice President. And in June 2017 Yu Zhiliang [于志良], Jiang Mingsheng’s former colleague and former General Manager of the Wealth Management Department at Pudong Development Bank’s Head Office also jumped over to CEFC as General Manager of its Human Resources Department.

“You won’t lose by bringing in talent, and our remuneration was on the mark,” said Jiang Chunyu. “In banking and finance you reward (performance) down to the decimal point.”

Financiers with a government work background were even more desirable to CEFC. When LDX Capital Management (Shanghai) Co. Ltd. [量鼎资本管理（上海）股份有限公司] was established in December 2014, with former Shanghai Municipal Government Finance Office Deputy Director Xu Quan [徐权], as legal representative, two CEFC-controlled companies put in a combined ¥25 million to take 50% of its stock. In October 2015, Zhongye Capital Management Co. Ltd. [中叶资本管理有限公司] was founded, with another former Deputy Director of the Shanghai Municipal Government Finance Office, Ma Hong [马弘], as legal representative, CEFC Financial Holdings Co. Ltd. [华信金融控股有限公司] put in ¥30 million for a 30% stake.

This new form of cooperation is described by CEFC as a partnership system. Jiang Chunyu explains: “We give you a platform and a place to work, the operations are your own, and the benefits created from the cooperation are distributed among the two sides. There is both cooperation and independence.”

Says a person familiar with Ye Jianming: “Who would refuse a golden olive branch from someone, especially when they say they are fighting overseas for the country’s discursive power [话语权]?”

The Presidential Advisor’s cloak

From 2014 onwards, all kinds of titles and honours followed Ye Jianming like a second shadow wherever he went. Co-President of the Club of Rome, Honorary Chairman of the US Energy Security Council, Special Honorary Adviser to the President of the UN General Assembly . . . too many to count.

Ye Jianming is full of excitement regarding his travels to various countries paying visits to political figures and big-shots. From the CEFC website’s vast collection of photographs of his meetings with important people, and his own anecdotes about his exchanges with leaders, Ye Jianming projects the image of being not only an entrepreneurial giant, but also a major figure on the international political stage.

A person who knows Ye Jianming said: “He does a two-card trick, taking Chinese resources to go and pry open the outside world, then taking his stories of the outside world to have a say domestically. Back home they don’t understand this, so it seems mysterious.”

In 2015, Ye Jianming was appointed as a civilian adviser to the President of the Czech Republic, and CEFC announced the establishment of a European second headquarters. CEFC viewed this as a crucial time that heralded the arrival of a golden period. Looking beneath that mysterious cloak, probing its outlines, brings its true form and direction into view.

“Establishing contacts with major figures isn’t difficult, and intermediaries play an important role,” a member of the CEFC board told Caixin. CEFC’s representative in the Czech Republic, Jaroslav Tvrdík “was responsible for at least half of the impact.” [Thanks to Jichang Lulu for the correct diacritics]

Tvrdík was Defense Minister of the Czech Republic from 2001 to 2003, and became President of Czech Airlines in 2004. But he resigned in 2005 after union accusations of misconduct concerning his elevation of management salaries and purchase of luxury vehicles. Since then he has provided consulting services to companies. From 2012 Tvrdík travelled to China as Chairman of the Czech-China Friendship and Cooperation Association, and in 2013 he was appointed in a non-official capacity as China Affairs Adviser to the President of the Czech Republic.

Publicly available materials show Tvrdík visited CEFC’s Shanghai headquarters in September 2014, together with the Speaker of the lower house of the Czech Parliament, Jan Hamáček. One month later in Beijing, on October 27, in the presence of the two countries’ top leaders, a signing ceremony was held in the Great Hall of the People to mark CEFC’s purchase of a stake in Czech firm J&T Group. CEFC announced it would inject €643 million of capital into J&T Financial group via a series of private placements [定增] and allotments [配股] for a 30% stake. By capital, it was the largest deal ever signed between Chinese and Czech enterprises.

J&T Financial Group has total assets of €9.39 billion, with possessions including Czech Republic’s sixth-largest bank J&T Bank, and the Slovakian Postal Savings Bank, known respectively as Czech’s second-largest financial group and Slovakia’s largest. At the time the Czech economy was in trouble, with J&T among others urgently requiring support, so Chinese enterprises looking to invest overseas were warmly welcomed in Czech Republic like a new generation of Arab billionaires. On April 23, 2015 in Shanghai, Ye Jianming met with the Director of the Czech President’s Office Vratislav Mynar and others, and Mynar read out Ye’s letter of appointment as Adviser to the President.

In May 2015, CEFC Group (Europe) Holdings Co. Ltd. was established, and injected a further US$78.95 million into J&T Group to take a 5% shareholding. From there, CEFC launched a Czech investment spree. In September 2015 CEFC took a controlling share in Czech’s fourth-largest brewery Pivovary Lobkowicz for US$78.46 million, bought a 60% stake in near-bankrupt Czech First League football club Slavia Prague from former Transport Minister Aleš Řebíček, and became a shareholder of media companies Medea and Empresa, one of which was owned by a former Czech Tourism Minister. CEFC also bought two iconic buildings, the Martinický Palace in Prague’s Presidential Plaza and the Zivnobanka Building located next to the Czech Central Bank. In 2016 CEFC bought control of the ZDAS steel company for US$100 million, and paid US$310m for the Florentinum office building in central Prague, which houses the Bank of China’s Czech branch.

CEFC’s investments in Czech seem to have been heavily shaped by the personal history and tastes of its agent, the Slavia Prague fan Jaroslav Tvrdík. In 2015 and 2016 CEFC increased its holdings in Czech travel and airline service company Travel Service from 10% to 49.92%, a company with a one-third stake in Czech Airlines, of which Tvrdík was a former CEO. And in order to “create a tourism hub,” CEFC also bought two five-star hotels, and invested in an online travel e-commerce enterprise.

In CEFC’s official account, it will use its second headquarters to launch investments in international investment banking. Its high-level managers are frank about the company’s lack of preparations: “When the Czech purchases were happening we brought together all the company’s foreign language-speaking professionals, but it wasn’t enough. So we relied heavily on the foreign team, in part because we didn’t have people to send out there.” Besides Tvrdík, who was the main person responsible, CEFC’s foreign team included numerous former Czech government officials and even Presidential Office employees.

In interviews with Caixin, Ye Jianming also indicated that industrial and equipment operations, including Czech tourism, aviation and steel, would in future be separated through the method of “core high-level management” transfer. This would be both to repay bank loans and to focus on finance and energy platforms.

CEFC materials show that it has invested around US$1.5 billion in the Czech Republic. Among the investments, the one Ye Jianming on which places his greatest hopes is J&T Financial Group. The CEFC website presents the company’s future as walking on the two legs of energy and finance, with financial and hydrocarbon platforms providing services to each other: “use the profound international resource advantages accumulated through many years of international energy cooperation and popular public diplomacy to realize the two-wheel-driven combination of industry and finance.”

The J&T Financial Group is the key to the financial aspect: CEFC plans to set up a J&T foreign commerce independent capital bank in Shanghai, launch cross-border settlements and payments and business in common areas [开展跨境同业业务及结算支付], and to cooperate with the China Development Bank to make J&T Bank its European lending portal and overseas account settlements centre; and for J&T Bank to represent the Czech government alongside China’s ICBC as the main initiator of a Central and Eastern European Investment Fund, modelled on the Asian Infrastructure Investment Bank, encompassing joint participation from 16 central and eastern European countries, and facilitating the linking of Chinese enterprises with “Belt and Road” investment cooperation.

But this purchase has not seen plain sailing. In March 2016, CEFC announced it would increase its shareholding in J&T to 50%; but two months later CEFC’s A-listed company CEFC Guoji (002018.SZ) announced that due to the need for approval from many countries’ central banks, including the Czech Republic, Slovakia and Barbados, and the complexity of such approvals processes, the timeline was uncertain, and could possibly halt the purchase. The latest information on this transaction is that the European Central Bank approved it in September 2017. Other countries’ approvals remain pending.

Lingering diseases and fallback positions [后遗症与后手]

Despite years in the Fortune 500, Ye Jianming is not blind to the sand beneath CEFC’s foundations. “Our structure is undergoing transformation, there are still some lingering illnesses that are like aftershocks following an earthquake, but the adjustments have basically all been completed as of now,” Ye said.

The leftover diseases probably refer to the tenuousness of using of trading links to obtain credit-note finance, and the likelihood of questions being raised about fake trade. As of June 2017, Shanghai CEFC’s total assets amounted to ¥160.19 billion, with debts of ¥116.7b. Looking only at enterprise debt, CEFC has failed to make on-time repayments of ¥21b in RMB, and $250 million in US dollar debt. CEFC’s main creditor is the CDB. As of March 2017, Shanghai CEFC’s available credit totalled ¥52.1b, ¥34.907b from the CDB, of which ¥34.789b was already used.

Li Yong said the CDB credit was largely trade financing, pledges and transfer accounts receivable from CEFC to CDB. Sun Yunfeng said: “We will repay the CDB loans [by the end of] 2017, and then seek CDB project finance for the Rosneft purchase.”

“The reported figures reflect the allocation of rights and interests, in reality the total money that we owe is ¥60 billion to banks, which includes ¥30 billion to the CDB. We are going to repay all of this 60 billion this year (2017),” Ye Jianming said. These ¥60 billion of bank loans would be repaid through asset sales: “There are some assets at home and abroad, as well as considerable shareholding investments, including in aviation and trade systems, all of which we are going to be divesting this year. If these are sold, like I’ve already told you, there will be nearly ¥70 billion. The assets that remain will be oil and gas rights and financial platforms.

“This year (2017) we’ve had four internal meetings on this.” Ye claimed that the excising of businesses including the trading system was the common policy of the “economic collectivity.”

But it’s not that easy. As of March 2017, trade continued to comprise around 95% of the revenues of Shanghai CEFC, which in turn provides around 80% of the whole CEFC system’s revenues. Its backdoor listing CEFC Guoji is not highly valued, and its ¥8.937b in revenues for the first half of 2017 was driven by rubber and petroleum trading. Meanwhile, the question of how the members of the “economic collectivity” — the satellite companies that had cooperated with CEFC in stringing-out receipts [串单] — might peacefully be peeled away also tested Ye Jianming’s ability to maintain internal balance.

“Peeling away does not mean breaking up CEFC, it means helping everyone to carry out differentiation of industries and domains. We can’t go to society to sell because people would think we have already stripped the assets, so we will sell to our core pillars [核心骨干].” He added, “It’s like Dasheng doing agriculture, while Shandong CEFC is taking its next step into military industries, they [the core pillars] take money and buy [into other sectors], I don’t want the money back; there are rumours saying they would have to give me 10% of the stock, but I’m willing to give them what I give them. We’ve already negotiated some of the core pillars — Shanghai CEFC’s Li Yong is going to stay with headquarters, but none of the others are staying.”

In the new dual-core strategy outlined by Ye, one core is energy, the other is finance. For this reason, he has in recent years put his feelers out into the finance domain in an attempt to secure cheaper and more direct finance. After buying into the securities company in 2014, Shanghai CEFC took a controlling stake in Zhengzhou-based Wanda Futures [万达期货], which it then renamed CEFC Futures. This entity’s registered capital has now expanded to ¥1.83 billion, with Shanghai CEFC controlling 90.32% of the stock. Ye Jianming points out that with a robust and free financial system, “we have our own hen that can lay eggs” to advance the company’s business development strategy.

A mid-level CEFC manager outlined how, as it moved towards becoming a financial platform, “CEFC altered its direction while running.” The unchanging theme of this company is its hunger for capital. A former CEFC person related to finance says: “At present CEFC’s situation is no different from what it was at the beginning, it’s only the level of capital volume required that is different.”

In terms of asset management arrangements, CEFC Securities is leading the way. Its fixed-term wealth management product “Jinyu Mantang One-Month [金玉满堂一月期]” is used to supplement the issuer’s operating funds, with issues around ¥30 million, now up to issue no. 1271. Its high-end “Huarong Zunxiang [华睿尊享]” series is up to issue no. 51. Twelve of these (¥5.87b worth) have been taken up by CEFC satellite Dasheng’s companies, and three more (totalling ¥2b) by those of another satellite, Guoneng.

The registered agent of the Guoneng Business Group Co. Ltd. [国能商业集团有限公司] is Niu Fang [牛芳], who spoke as a delegate to the 2015 China CEFC General Managers’ Meeting. Li Yong and two other China CEFC general managers Deng Guochi [邓国池] and Xiong Fengsheng [熊凤生] have all served as Guoneng’s legal agent and supervisor. Several CEFC personnel say Niu Fang is honest and obedient, that his father was a Deputy Department-level cadre [副厅级] in the Hebei Provincial Public Security Department, and that many of CEFC’s properties and assets are in Guoneng’s name. At present, Shanghai CEFC’s publicly declared investment property portfolio is worth around ¥7.4 billion. But that is not the whole picture. In 2016 alone, Shanghai CEFC purchased 89 apartments and parking spaces in Shanghai’s Jiahui Plaza, a property in which Guoneng owns a 50% share. Among other properties in Guoneng’s name are the Anhui Mingtian City Plaza Development Co. Ltd. and Hainan real estate companies.

On October 12, 2016 Guoneng Hong Kong Co. Ltd. [国能香港有限公司] purchased a 66% shareholding in First Takson [第一德胜] (00918.HK) for HK$487 million, and 75% of LC Group [良斯集团] (01683.HK, renamed Huangzhong International [皇中国际]) for HK$648 million, and through share purchases and debt-to-share conversion, acquired 29.55% of Hong Kong Building and Loan Agency [香港建屋贷款] (00145.HK) to become its largest shareholder.

Persons who know Ye Jianming say Guoneng is his fallback position. Ye denies this: “We first bought a few shells through Guoneng as finance on the Mainland was going to get tighter, and Hong Kong’s would be looser. But these shells don’t belong to CEFC, they were given to the brothers. These companies were really given to them, it’s not fake.”

Whatever the case, another sequela was about to emerge in a form that would take Ye by surprise. On November 20, 2017, the US Department of Justice revealed that Patrick Ho, Secretary-General of CEFC’s China Energy Fund Committee, had been arrested in New York two days earlier.

US prosecutors accuse Ho and former Senegal Foreign Minister Cheikh Gadio of conspiring, since autumn 2014, to pay several million US dollars in bribes to Ugandan and Chadian high officials under the guise of philanthropic donations.

The indictment states that Patrick Ho bribed Ugandan President Yoweri Museveni and Foreign Minister Sam Kutesa, and promised to split the profits from a planned joint venture with the two officials’ personal businesses. This was allegedly done for the purpose of obtaining help from the Ugandan Foreign Ministry in gaining commercial advantages for CEFC on projects including the potential purchase of a Ugandan bank.

Kutesa was President of the United Nations General Assembly from September 2014 to September 2015. Patrick Ho allegedly bribed Kutesa during this period and beyond. In May 2016, Ho allegedly remitted US$500,000 to a bank account nominated by Kutesa. The wire transfer was initiated in Hong Kong, and passed through the New York banking system before ending up in Uganda.

Prosecutors also accuse Ho of organizing Gadio to make contact with Chadian President Deby and pay him US$2 million in bribes from CEFC to seek priority rights in local oil development. For his important role in this plan, Patrick Ho allegedly paid Gadio $400,000 in gifts, with the money transfers likewise starting in Hong Kong and passing through the New York banking system.

CEFC and Ye Jianming clearly had dealings with countries including Uganda and Chad during the time Ho is accused of paying bribes on its behalf. Ye Jianming met Kutesa in Hong Kong on August 2, 2015. During that meeting Ye was appointed Special Honorary Adviser to the UNGA President, and asked Kutesa to relay his warm greetings to the Ugandan President and desire to actively advance deepened cooperation. In Beijing on October 16, 2015, Ye Jianming also paid a visit to Chadian President Deby, with the country’s Minister of Oil and Minister of Economy among other key cabinet members present for the meeting. In December of the same year, CEFC signed an agreement with Taiwan’s CPC Holdings Co. Ltd. [台湾中油股份有限公司] transferring its 35% stake in three Chadian oil concessions to CEFC. The transfer was completed in September 2016 for US$110 million.

China CEFC and the Hong Kong China Energy Fund Committee both issued statements on November 21, refuting the US prosecutors’ accusations. The statements asserted that the China Energy Fund Committee’s purpose is popular public diplomacy and the promotion of global energy cooperation and cultural exchange, and that it does not participate in CEFC’s commercial activities. CEFC has no investment activities in Uganda, and its investment in Chad is a result of financial arrangements with Taiwan CPC, which had nothing to do with any so-called beneficial relationship with the Chadian Government.

Grounded grand strategy

Unlike other private enterprises, CEFC and its new company strategy — both in energy and finance — is primarily rooted overseas. Ye Jianming has a deep understanding of how to use the foreign to bolster his own domestic importance.

In the company’s official narrative, facing the domination of the domestic oil and gas industry by SOEs, CEFC built an integrated downstream system in Europe that encompasses sales, refining and storage, and will steadily move towards other emerging markets, radiating outwards towards the Middle East, Southeast Asia and India. Relying on the depth of its own international political resources, it will open up upstream oil and gas resources in Central Asia, the Middle East and Africa. Once in control of these upstream resources, it will construct large-scale oil storage in China and elsewhere, and achieve control of market linkages and supply chains. In finance, it will develop the full range of licences, partner with large financial institutions worldwide to jointly establish global M&A funds, and create diversified stable capital channels to match the massive capital requirements of energy industry development.

This is a very different story from the CEFC of the past. The confidence behind this grand vision originates with two purchases of overseas companies that CEFC refers to as its dual cores:

51% of Kazakh state oil subsidiary KMGI for US$680 million, as agreed in December 2015; and

50% of Czech J&T Financial Group for €800 million.

KMGI began life as Rompetrol Group, the national oil company of Romania. Its registration and main assets are in Romania, and it operates refining, chemical and retail businesses in countries including Bulgaria, Moldova and Georgia.

“Our objective at this stage is to be able to get into the top echelons of oil and gas and finance, to be able to play on their level,” Ye Jianming said.

Ye divided his new CEFC plan into three stages. The first was to obtain oil and gas shareholdings. The $110 million 35% buy-in to Chad’s energy concessions in September 2016 was CEFC’s first successful deal buying into overseas oil shareholdings. The blocks have not yet been developed. According to Reuters, Taiwan’s CPC sold them due to the falling international oil prices and uncertainties associated with the country’s military regime.

In February 2017, the Abu Dhabi National Oil Company (ADNOC) announced a US$900 million deal to grant CEFC a 4% stake in its subsidiary ADCO’s onshore oilfields. Li Yong said the involvement with ADCO would be worth a total of around $1.8 billion, for which the CDB was providing an 80% project loan.

Ye Jianming said the 4% stake would correspond to 3 million tons of oil annually, and that ADNOC had also promised CEFC purchasing rights to a further 10 million tons of crude, “so in effect they’ve given me 13 million tons [annually].”

The US$9.1 billion, 14.16% Rosneft stake is CEFC’s single biggest investment yet. According to information provided by the company, Rosneft agreed to sell 11-13 million tons of Russian crude [annually], eventually rising to 42 million. Although CEFC remained in talks with VTB over the bridging loan, and the purchasing rights lay in the future, Ye Jianming bubbled with enthusiasm as he informed Caixin that between the Rosneft and ADCO projects, along with the Chad and Kazakhstan concerns, “if you add them all up we’re now approaching 80 million tons of oil [a year].”

But the acquisitions haven’t gone well. The latest figures show CEFC still only holds 17.9% of J&T Finance Group’s stock, with its further purchases held up due to J&T’s operations in six European countries, whose supervisory organs must all give the green light. CEFC’s $680 million Kazakh acquisition has also not yet gone through; the Romanian Government approved CEFC’s ownership of a 51% stake in KMGI, but it still needs the approval of other European Union authorities.

The oil industry is extremely capital intensive, so an even bigger question is where CEFC will get the money. In his first interview with Caixin in April 2017, Ye said vaguely: “we’ve invested several hundred billion in Europe, and we didn’t use China’s money, we actually used their money to buy their assets.” He did not specify whether this “several hundred billion” was RMB, US dollars or Euro, nor where it had been invested.

In his October interview with Caixin, Ye Jianming said the KMGI and J&T acquisitions would make use of use private capital: “we’ve already issued ten or twenty billion in bonds.”

Ye Jianming also told this reporter: “We also control an insurance company in Portugal. I can’t personally go and invest its capital, but an insurance company is essentially a financial group; there are some Portuguese-speaking countries like Angola where I can go and get resources, though my extraction capabilities aren’t sufficient, we can cooperate strategically with Rosneft.” According to CEFC’s website, a signing ceremony was held with Montepio Seguros, a subsidiary of Portugal’s Montepio Geral Associação Mutualista, at CEFC’s Shanghai headquarters on November 27, 2017. CEFC would acquire a controlling stake through capital increases, though this transaction will still require approval from the company’s shareholders and Portuguese authorities.

The second step in Ye Jianming’s three-step plan, after gaining control of upstream oil and gas resources, was “deep processing of oil and gas and control of supply chains.” CEFC’s website indicates planned construction of large-scale oil storage and the realization of domestic-international market linkages: establishment of large-scale oil storage facilities and development of the China’s strategic and commercial reserves; hybrid energy logistics operations with SOEs such as China Railway Engineering (CREC), China Energy Reserve and Chemicals (CERCG), China State Shipbuilding (CSSC) and the Ports of Yingkou and Rizhao, developing key oil and gas logistics nodes, creating an integrated diversified storage system inside and outside [China’s] borders; and relying on large-scale storage to establish exchange mechanisms in Europe, the Middle East and domestically in China.

But this breathtaking strategic vision remains fundamentally a grand narrative written on CEFC-branded paper. At present the only identifiable developments in any of these projects were:

Establishment in April 2016 of CREC Central Asia Natural Gas Logistics Co. Ltd. [中铁中亚天然气物流有限公司], a trilateral joint venture between Shandong CEFC, Inner Mongolia Mengtie Oil Co. Ltd. [内蒙古蒙铁石油有限公司] and CREC Special Goods Logistics LLC [中铁特货汽车物流责任公司] with registered capital of ¥100 million, with Shandong CEFC holding 50% of the stock. To date, the project’s operations have not begun.

Establishment in June 2016 of Port of Rizhao Fuhua International Wharf Management Co. Ltd. [日照港富华国际码头管理有限公司] as a joint investment between Shanghai CEFC and the Port of Rizhao Group with registered capital of ¥10 million, and CEFC holding a 25% stake. The entity’s 2016 annual report shows its number of employees as “zero.”

An investment-seeking visit to Shanghai by a delegation of Yingkou City Party Committee leaders, who discussed trade and logistics projects with CEFC.

On the oil and gas supply chain, the storage base at Yangpu Port in Hainan may be the only project with any real basis. It has a planned capacity of 12 million cubic metres. The project’s 2.8 million cubic metre first stage was finally completed in May 2017, nearly six years after its groundbreaking ceremony.

Ye Jianming’s third step was development of fuel products, which he said was “nothing more than electricity” [无非就是电]. His words came out rather like fragments of encrypted text. “Electricity, very important, and that’s not all. Because the internet era will surely become the internet-of-things era. Long-distance transmission of electricity, including solar power and all electric conversion capabilities are already strong, we have already come up with this technology through research. Add in Blockchain finance, and we are even researching beyond that . . .”

Ye Jianming is now being investigated by relevant departments. The time has come when these towers built on sand will be put to the test.

~

[1] The hyphen is added to distinguish this, his original name, from his current name, which shares identical pinyin romanization.

[2] This famous case referred to the large Fujian smuggling operation run by Lai Changxing.

[3] Aka Chauto Chan.

[4] Shanghai Stock Exchange disclosures state that Shanghai Hangyu was in fact a name given to a company that Su Weizhong, Zheng Jianding 郑坚定 and Ye Ling [叶铃] purchased on December 16, 2008. The original name was Shanghai Huanli Chemical Sci-tech Co Ltd [上海环利化学科技有限公司]. See pages 1-1-43 and 1-1-44 of this filing.

[5] Referred to here using pinyin to avoid confusion with CEFC International, the former name of Ye Jianming’s own Singapore-listed company, which he has since renamed “AnAn”.

[6] I found this paragraph a struggle to translate, so please feel free to check and correct: 借壳华星化工，华信基本没有花费自有资金。2013年5月20日，华星化工以2.65元/股向上海华信定向增发7.29亿股，募资19.31亿元，上海华信持股60.78%成为华星化工控股股东。5月25日，华星化工发布公告，称上海华信已于5月21日将持有的60.78%全部股权质押给华融国际信托有限责任公司。以5月21日的收盘价8.32元计，华信的账面浮盈41.33亿元。按四折质押折扣率计（交易前20日华星化工的股价在6.88-8.28元波动），上海华信至少通过质押融资20亿元，至少保证了收购的资本金回笼。借壳华星化工，华信基本没有花费自有资金。2013年5月20日，华星化工以2.65元/股向上海华信定向增发7.29亿股，募资19.31亿元，上海华信持股60.78%成为华星化工控股股东。5月25日，华星化工发布公告，称上海华信已于5月21日将持有的60.78%全部股权质押给华融国际信托有限责任公司。以5月21日的收盘价8.32元计，华信的账面浮