Identifier
Created
Classification
Origin
08BEIJING3462
2008-09-05 09:07:00
CONFIDENTIAL
Embassy Beijing
Cable title:  

ARREST OF MOFCOM OFFICIAL GUO JINGYI

Tags:  CM ECON EIND PGOV 
pdf how-to read a cable
VZCZCXRO6031
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3462/01 2490907
ZNY CCCCC ZZH
R 050907Z SEP 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 9763
INFO RUEHOO/CHINA POSTS COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 003462 

SIPDIS

STATE FOR EEB/OIA
STATE PASS USTR/STRATFORD/WINTERS
TREASURY FOR OASIA/ISA
USDOC FOR MCQUEEN
NSC FOR SHRIER/LOI

E.O. 12958: DECL: 09/05/2018
TAGS: CM ECON EIND PGOV
SUBJECT: ARREST OF MOFCOM OFFICIAL GUO JINGYI

REF: A. BEIJING 03339

B. BEIJING 03363

Classified By: MINISTER-COUNSELOR ROB LUKE, REASONS 1.4(B AND D)

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 003462

SIPDIS

STATE FOR EEB/OIA
STATE PASS USTR/STRATFORD/WINTERS
TREASURY FOR OASIA/ISA
USDOC FOR MCQUEEN
NSC FOR SHRIER/LOI

E.O. 12958: DECL: 09/05/2018
TAGS: CM ECON EIND PGOV
SUBJECT: ARREST OF MOFCOM OFFICIAL GUO JINGYI

REF: A. BEIJING 03339

B. BEIJING 03363

Classified By: MINISTER-COUNSELOR ROB LUKE, REASONS 1.4(B AND D)


1. (C) SUMMARY: A Chinese publication reported on August 29
that a key official in the Ministry of Commerce has been
detained and is charged with taking bribes. The official,
Director-General Guo Jingyi played a key role in the drafting
of many if not most of China's foreign investment related
regulations over the past decade. He was also expected to
serve as China's lead negotiator in U.S.-China Bilateral
Investment Treaty talks this week in Beijing, before he was
suddenly removed from his position. Shock and speculation
abound among Guo's colleagues at MOFCOM. It remains unclear
whether the scandal will broaden or goes beyond a simple case
of one official's corruption. END SUMMARY.


2. (C) China's finance journal Caijing reported on Friday,
August 29, that Guo Jingyi, a director-general ranked
Inspector in the Mnistry of Commerce (MOFCOM) Division of
Treaties and Law, had been detained and is facing charges of
bribery. Guo had been China's lead in a U.S.-China dialogue
on a bilateral investment treaty (BIT) and was expected to
lead China's delegation in U.S.-China BIT talks this month.
Chinese press reports state that, acting on a tip from
"higher authorities," the Party Discipline Committee and the
Ministry of Supervision interviewed Guo on August 13. Guo
was subsequently arrested only days before the scheduled
start of U.S.-China BIT negotiations in Beijing September 2.
The Party Central Discipline Committee and the Supreme
People's Procuratorate reportedly are handling Guo's case.


3. (C) During his 22 years of service at MOFCOM, Guo
participated in many phases of China's reform process, and
was involved in the writing of many laws and regulations.
Those at MOFCOM and others who worked closely with Guo
expressed shock, with most expressing high regard for Guo's
knowledge and ability in drafting and implementing investment
regulations.


4. (C) The initial report and others that followed in a wide
variety of local and overseas publications and websites
suggested that the case involved bribery in a foreign-related
merger handled by a Beijing law firm. On September 4,
however, new reports in Finance Magazine asserted that bribes
may have been passed to Guo in the course of his
participation in the drafting and interpreting of foreign
investment laws, and these reports specifically cited the
2006 M&A rules as having created "loopholes" for foreign
acquisitions. COMMENT: The drafting of the 2006 regulations
was a process that included public comment and many offices,
and cannot be characterized as a "black box" process that a
single individual could control. Others familiar with Guo's
responsibilities expressed skepticism that the charges could
be based on a vague allegations of influencing the drafting
of laws; they instead believe a specific case of bribery
regarding a foreign acquisition or investment is more likely
behind the charges. END COMMENT.


5. (C) Guo previously served as the deputy director of
MOFCOM's Anti-Monoploy Office and was involved in the
drafting of the foreign mergers and acquisitions rules (AML).
He was previously quoted in the press as cautioning against
the overzealous implementation of a national economic
security screening system. COMMENT: The 2006 rules on the
review of foreign M&A were drafted without input from the
National Development and Reform Commission (NDRC),but based
on recent ministerial planning documents released in August
2008, the NDRC secured a joint role with MOFCOM in the
national security review process of foreign mergers. Some of
our interlocutors who worked with Guo have speculated that
bureaucratic competition between MOFCOM and NDRC may have
something to do with Guo's investigation. At least one
lawyer who works for a development bank and worked closely
with Guo noted that Guo had been an early and key advocate
for MOFCOM taking lead on the M and A regulatory process. He
noted that Guo had personally convinced a very reluctant Vice
Minister Ma Xiuhong that MOFCOM should move forward
aggressively to draft the M and A regulations. While
speculation that Guo's arrest is solely due to interagency
rivalry is likely exaggerated, it could have played a part in
the decision to charge Guo in such a high-profile manner.
END COMMENT.


6. (SBU) Press reports on the case also suggest that, as a
result of this matter, China will likely accelerate the

BEIJING 00003462 002 OF 002


establishment of a dual review system concerning foreign
mergers and acquisitions, including both an anti-trust review
and a national security review. MOFCOM's web site for the
newly-created Anti-Monopoly Bureau became operational on
September 1 (see http://fldj.mofcom.gov.cn/).

Alleged Co-conspirators
--------------

7. (C) Several law firms have also been implicated in the
case, including Beijing Sifeng Law Office, which specializes
in foreign investment and has a list of multinational
clients. In this firm at least two lawyers are under
investigation. These include Zhang Yudong, and a former
MOFCOM Treaties and Law staff member, Liu Yang. Liu, a
UC-Berkeley graduate, set up a separate firm - Shanxin Law
Office - in March of 2008. In a report on the case China's
21st Century Economic Report said that the case involves
bribery in a foreign-related merger and acquisition deal
during Liu Yang's time at the Beijing Sifeng Law Office. The
same report stated that the investigation is also being
conducted at an unspecified provincial location.

China's BIT Negotiation Adds Commentary
--------------

8. (C) BIT negotiations during held September 2-5 in Beijing
provided an opportunity for Econoffs to probe MOFCOM
officials about the Guo case. All asserted a lack of
information about the case. However, several who worked
closely with Guo insisted that the severity of the
allegations suggest Guo is not facing some kind of political
retribution or has not simply fallen out of favor, but that
he must have received significant bribes or, as is a common
practice, a piece of real estate in return for some service.
The officials, however, said that the obvious severity of the
case means only the highest levels of leadership - likely
nobody below a minister or vice minister - would have any
direct knowledge of the case.


9. (C) MOFCOM officials noted that the allegations were not
based on any previously public rumor. The government's
decision to suddenly take this case public (such cases are
not usually accidentally leaked to Chinese media sources),
say officials, indicates that a decision was made to make an
example out of Guo. Noting the slow progress made in the BIT
negotiations with the U.S. this week, at least one key MOFCOM
official suggested that negotiators are nervous about
everything they are doing as no one knows what Guo did wrong
and they are afraid that others working on the same issues as
Guo may come under attack.


10. (C) COMMENT: At this point, Embassy has little
information beyond what has been reported in the press. None
of our interlocutors at MOFCOM, among the local law community
or foreign law community have any information beyond the
press reporting. Speculation is rampant however, with some
suggesting inter-agency rivalry and others suggesting that
the scandal will widen to ensnare more senior officials to
whom Guo is close. He reportedly has had a close working
relationship with MOFCOM Vice Minister Ma Xiuhong, and at
least one rumor suggests one of the private sector lawyers
under investigation is even closer to VM Ma. Ma herself is
one of the U.S.'s key interlocutors on many U.S.-China trade
and investment issues and Ma was a long-time close
subordinate of former Vice Premier Wu Yi.


11. (C) Nevertheless, Embassy at this point has no
information that would substantiate rumors that the case goes
beyond Guo and the other two lawyers who were his friends.
Guo's removal, however, is in itself a negative for U.S.
interests as Guo was a sophisticated and knowledgeable lawyer
on many of the issues on which we engage MOFCOM. At a
minimum, Guo's sudden removal will slow BIT talks if for no
other reason than Guo's replacement must be brought up to
speed and was not a participant in the last 18 months of
U.S.-China preliminary discussions on the BIT.
RANDT