Larry Yung Chi-kin, an iconic figure in China’s transformation over the past three decades, is in the process of becoming the latest casualty of the financial crisis. One of China’s richest men with a fortune estimated at more than 2 billion dollars (432 on the Forbes list of the world’s richest) Yung (Rong Zhijian in pinyin) has an impeccable lineage: he is descended from one of China’s wealthiest families; his father is Rong Yiren, one of the few capitalists to stay in China after 1949 and later China’s vice president. Yung himself has been probably the most visible of China’s new capitalists ever since he became the chairman of HK-listed CITIC Pacific, a subsidiary of the state owned investment arm established by his father in 1979, in 1990. (Covers of Fortune, Forbes etc) At CITIC Pacific, a conglomerate with interests in everything from mining to property (of course), Yung seemed to have a golden touch, but that has suddenly come to an end with a bang. The group announced Monday night that it was taking a roughly $2 billion write off for foreign exchange losses due to “unauthorized transactions.” Two senior executives were fired. But apparently the family tradition runs strong in the Rong family and on Tuesday it came to light that the “Director, Group Finance” for CITIC Pacific was no other than Yung’s daughter, Frances. The 36 year-old however was said to be unaware of the unauthorized transactions and only received a salary cut and demotion. Meanwhile the company’s shares have plunged from around 15 HK dollars to below 5.
I don’t believe anyone thinks this was caused by the financial crisis. 水落石出 as the Chinese expression goes, which is along the lines of the famous Russian expression about when the snow melts the corpses under the snow are revealed (OK. I think I got that from Gorky Park). Nor am I the only one. A survey by Chinese fiancial website hexun asking the question, “What do you think has led to Citic’s fallout?” got the folowing responses:
A) The ongoing financial crisis: 19.83%
B) Inequitable internal corporate structure: 64.66%
C) Other reasons: 15.52%
The snow seems to be melting fast still. Expect to see lots more bodies.