Thursday, October 13, 2005

See the stoy below; it shows just how un-institutionalized Chinese politics still is. The State Council has supposedly consolidated budgeting for all government units. But the story below clear indicates that the 2nd Division of the Chief of Staff still keeps a sizable pot of extrabudgetary funds through Poly. The MOF now has clear guidelines against this. The reason why the State Council still can't touch Poly is that Deng's son-in-law, He Ping, is in charge of Poly. I think an audit on Poly should be really interest, but it won't happen.

China's Military Mounts Global Assault on $1 Billion Art Market Oct. 13 (Bloomberg) -- The soft voice of Chinese relic hunter Gisele Croes rises, drowning out the rainstorm that pelts the smoked windows of her black limousine.

``Drive inside,'' the 63-year-old Belgian art broker and appraiser orders as her chauffeur accelerates past the green cranes along Hong Kong's Chai Wan docklands and into the concrete warehouse of Michelle International Transport Co.

Slowly, she lowers the window and calculates what may be waiting inside the high-rise storage facility.

``The People's Liberation Army is very rich, very powerful and all-knowing,'' Croes says. ``You must keep looking over your shoulder. This is an exceedingly jealous business and I find pieces that others can't find, I know people they don't know.''

The world's largest standing army is spending hundreds of millions of dollars to bring back Chinese art treasures such as those now in the homes of collectors including Ronald Lauder, chairman of Estee Lauder International Inc.; Tsui Tsin-tong, honorary chairman of Hong Kong manufacturing and property company CNT Group Ltd.; Jack Wadsworth, advisory director of Morgan Stanley and Leon Black, founder and president of Apollo Advisors LP.

``Art collectors worldwide should be concerned about the PLA's acquisition strategy,'' explains Albert Louie, the 45-year-old chief representative of the risk-crisis management consulting firm Albert William Associates Ltd. in Beijing.

``The PLA's ambition is to control culture as it does the military and it doesn't do things according to the accepted rules,'' adds Louie, a former director of China operations for the global security company Kroll Inc. ``Acquiring art is not a money issue for the PLA.

$711 Billion

The PLA has so far targeted only Chinese art and analysts say the army's strategy over the next five years is to dip further into China's foreign-currency reserves -- some $711 billion, the second biggest after Japan -- and growing -- to buy and barrack celebrated Western masterpieces, often at prices above their auction-market value.

Climbing out of the car, the petite Croes grips her tan handbag decorated with a large linen daisy and fixes her eyes down the long, damp passageway that leads to a double set of bulky and electronically locked metal doors.

The contact man suggested a late afternoon visit, alone, without a camera. ``I left the bodyguard behind to watch the hotel room,'' Croes says of her security guard back at the Conrad. ``Important things are happening here, so I must show my face.''

``The Chinese art market is a $1 billion-a-year trade and it can be dangerous and frightening'' she says, studying the stevedores who cook their pungent lunches of rice noodles and spicy vegetables along the corridor. The aroma is familiar.

Propaganda Job

In 1965, Croes abandoned her post as a radio host for Chairman Mao Zedong's Ministry of Propaganda to immerse herself in the clandestine business of Chinese art, vying for multimillion-dollar relics against a coterie of PLA generals and corporate mandarins. Still, ``the PLA is the market powerbroker, and I've beaten them to the Xian Bodhisattva,'' Croes whispers, moments before Michelle International Managing Director Thomas Yuen uncovers the 1,400-year- old, child-sized, carved stone artifact.

``I've spent eight years waiting to see this?'' Croes says of the standing figure that represents a disciple of Buddha and was plundered from China's ancient capital of Xian, site of the country's celebrated terra cotta warrior tombs.

Bruised Bodhisattva

Touching the smooth statue, Croes suggests it was ripped from a temple wall and smuggled to Taiwan sometime during the Cultural Revolution between 1966 and 1976, where its new owner used a removable steel rod to rig the severed head to its torso and then haphazardly affixed the bruised Bodhisattva to a marble plinth.

``It's real, but not near the $500,000 asking price,'' Croes says. ``I don't see the PLA paying any more than $200,000.''

At that price, it's perhaps a deal for a country that's facing an acute art shortage. The Chinese government plans to construct 1,000 new museums by 2015, including 32 in Beijing in time for the 2008 Summer Olympics and 100 in Shanghai before the opening of the 2010 Shanghai World Fair, according to reports in China's government-controlled media.

Croes says the PLA is leading the charge to fill them.

Shopping List

At the top of its shopping list are the untold numbers of Imperial Chinese bronzes that over the centuries have been lost to the West. Those pieces include the $15 million dragon held since 1908 by the reclusive Stoclet banking family in Brussels and the bronze ``spirit tree'' funerary candelabra that Black paid at least $2.5 million for at a 1998 Chinese art auction in New York.

Black and Lauder didn't return calls seeking comment on their activities in the Chinese art market. Tsui and Morgan Stanley's Wadsworth declined an opportunity to comment.

``Their bronzes and other artworks are hugely important to the PLA,'' Croes explains over dinner after the warehouse rendezvous. ``Possession of great bronze statues is the traditional Chinese symbol of ultimate power. This is why the PLA wants to acquire great art from all over the world. It enhances their power at home and abroad.''

`The Empress'

In the trade, Croes is known as ``The Empress.''

Colin Sheaf, the 53-year-old deputy chairman of Bonhams auction house in London and the company's Chinese art specialist, says that Croes's market domain can stretch from 5000 B.C. to the present and that her realm is a boom industry.

In May, for instance, the Chinese art auction gaveled by Christie's International in Hong Kong raised more than $90 million, a record for Oriental art. Last year, Sotheby's Holdings Inc. sold a crucifixion scene painted by Lin Fengmian for $130,000, eight times the asking price. And earlier this year at Christie's in New York, Poly paid $8 million for an Imperial bronze jar. Croes only smiles when asked about her role in the sales.

She says her market is also long on cloak-and-dagger. ``I've been accused of being everything from a smuggler to an agent for the Chinese secret police,'' Croes says. ``The mystery of my reputation is only painful when it's a lie.''

``Gisele is remarkable at finding treasure,'' Sheaf says. ``She's part of the world's most elite group of dealers, handling a quality of Chinese merchandise that auction houses can only dream about.''

Army Connection

The PLA art-recovery operation is directed by officers attached to the Zong Chan Second Division, an elite unit within the PLA joint chiefs of staff charged with handling global military intelligence matters. The corporate hub of the venture is Poly Culture & Arts Co., a subsidiary of China Poly Group Corp. and Poly Technologies Inc., the business divisions of the PLA.

``Poly is the PLA's commercial arm, though the government in 1999 created a bureaucratic separation between them,'' explains Paul Godwin, a 70-year-old PLA analyst and former professor of Chinese military studies at the U.S. National War College in Annapolis, Maryland. ``It was the PLA that started out buying and selling art and other items for their own personal wealth and to seed shell companies for their operations in the West. Now it's done through Poly.''

Poly Hierarchy

The Poly hierarchy is organized like all Chinese state- controlled companies. At the ceremonial top is Chairman of the Board Shan Yihe, a protean ideologist whose duty is to ensure workers adhere to Communist Party scripture.

Poly's day-to-day activities and its art purchases are managed by Major General He Ping, the former head of Zong Chan Second Division and now described in the annual report as the firm's vice- chairman and a member of the Poly board.

Along with He, Western intelligence sources, who can't be named for security reasons, say the other seven directors -- Chen Hongsheng, Wang Xiaochao, Zhang Liansheng, Wang Xu, Ye Jiang Lieng and Ye Sheng Ning -- are senior officers plucked from the PLA intelligence unit for extraordinary duty and remain active decision- makers within military ranks.

``The PLA is conducting an economic invasion of the global art market,'' says a Western intelligence official, who asked to remain anonymous because his job involves monitoring the Chinese military's business activities. ``General He uses every resource at his command to find artworks, including foreign agents and Chinese students studying abroad.''

The Mission

The general and the other directors declined to comment.

``General He in 1997 established a global information network to track down and buy items of interest to us,'' says former PLA Major Li Nan, director president of Poly Culture & Arts. ``We are wealthy after 20 years of market reforms.'' China's gross domestic product is $1.65 trillion after two decades of an annual growth rate of 9.5 percent.

Sitting amid the priceless Imperial bronzes and ancient rice- paper paintings that decorate Poly's VIP room, the 49-year-old Li says ``the current mission is simple: repatriate China's heritage.''

And sell artillery products. Poly's 2004 annual report features photos of cannons and tanks alongside pictures of the firm's assets in real estate, telecommunications and artworks that represent only a portion of its 1,000-piece collection. Croes says Poly's vaults contain art worth at least $100 million -- a remarkable amount for a collection underwritten by a government in less than 10 years' time.

`Retrieve Action'

The report describes the mission as a ``retrieve action'' designed to reclaim treasures ``robbed away from China by western powers.''

James Mulvenon, deputy director of the Defense Group at the Center for Intelligence Research and Analysis and author of ``Soldiers of Fortune: The Rise and Fall of the Chinese Military- Business Complex 1978-1998,'' says Poly's use of arms sales to fund the operation is probable.

``The PLA clearly uses arms-sales money to fund legitimate enterprises and legitimate enterprises to cover arms sales,'' the 34-year-old Chinese military forecaster at the independent research institute in Washington explains. ``What's unclear is the full extent to which the arms sales subsidize the art purchases.''

According to Mulvenon, the PLA's commercial arm in North America, PTK International, between 1987 and 1994 sold $200 million in light semi-automatic weapons to gun dealers in the U.S.

Arms Customers

Today, Poly's biggest arms customers are Thailand, Burma, Iran and Pakistan. The company, Mulvenon says, remains the principal agent for Chinese arms purchases from Russia, including Su-27 combat aircraft, SA-10 surface-to-air missile batteries, Sovremenny- class destroyers and Kilo-class submarines.

``The PLA is a very entrepreneurial army,'' Godwin says.

Louie describes Poly's continuing fiscal relationship with the PLA as ``irresistible,'' and says it's dangerous to underestimate the political influence both groups wield within the ruling Politburo, a result of wealth and family background. General He, for instance, is married to the daughter of former Chinese leader Deng XiaoPing and is also the son of General He Long, a crony of Mao and one of the so-called Marshals of the Revolution.


The network of bloodlines that helps Poly track lost art includes Yannan Wang, the managing director of Beijing's China Guardian Auctions Co. and the daughter of former Prime Minister and Chinese Communist Party General Secretary Zhao Ziyang. Yannan's husband, Wang Zhihau, is a senior executive at Poly. Chen Dongshen, chairman of China Guardian and president of the state-controlled Taikang Life Insurance Co., for years served as Zhao's right-hand man.

``The characters get all mixed up,'' Godwin explains. ``It's a great example of how business works in the Chinese fashion.''

Chinese art appraiser Tuyet Nguyet, publisher of the trade magazine Arts of Asia, says the family and political relationships are significant. From her office in the shadow of the Peninsula Hotel in Kowloon, Nguyet has spent the past 35 years observing China penetrate the global art market.

``Decades ago, the leadership smuggled art out of China and used the hard currency to fund businesses in Hong Kong,'' Nguyet explains. ``Now Poly uses its cash to price everyone else out of the art market.''

Paying the Price

Strolling through the 130 items on display in the two-room museum housed inside Poly's Beijing headquarters, Li says ``you must pay a price to repatriate art.''

Jiang Ying Chun, a 35-year-old archeologist and Poly's chief buyer, defends the practice that has inflated prices and left auction houses scrambling to isolate great Chinese artworks before Poly can purchase them off-market. According to Croes, Poly's market maneuvers have pushed the price of an Imperial bronze worth $800,000 some 10 years ago to more than $3 million today.

``The sellers must be given an incentive to sell to us,'' Jiang says.

Li says his annual acquisition budget is flexible, though he declines to reveal the figure or where the money specifically comes from.

``We don't strictly adhere to the budget anyway,'' Li explains with a laugh. ``The amount we can spend is not fixed in stone, but it's the way of the market for our rivals to exaggerate our position and future goals.''

Government Financing

Louie describes Poly's ability to obtain government financing as ``ultimate,'' and says the company maintains ``tremendous authority to order banks to issue money with no questions asked.''

As for using that money to purchase Western masterpieces, Li adds ``at this time, it would be difficult for us to purchase Western art.'' He declined to elaborate.

Former PLA air-force fighter pilot Bonko Chan says that Poly is in a holding pattern over Western art and that the company's tactic comes as no surprise.

``Poly controls the art scene in China,'' says Chan, the 42- year-old vice president of China Assets Investment Management Ltd. in Shanghai and owner of a 350-piece art collection that includes the works of Marc Chagall and Pablo Picasso, the largest privately held Western art collection on the mainland. ``Right now, it's more heroic for them to go abroad to recover plundered relics,'' Chan says.

General's Role

Li says that General He will remain closely involved in charting Poly's future art acquisition strategy.

``The PLA isn't exactly the group we figured to be going head- to-head with when we started the China Fund,'' rues Tobias Raymond, the 44-year-old director of London-based Access Equity Management Ltd., whose China Fund unit manages client investments in Chinese art.

``The PLA is roiling the market,'' Raymond says.

It's not the first time Chinese generals have taken an interest in art.

In 1949, with China in chaos, the army of Nationalist leader General Chiang Kai-shek fled across the Formosa Strait to its new redoubt in Taiwan. In Chiang's strongboxes, Taiwanese officials say, were precisely 608,985 priceless art objects Mao had anticipated using to fund the People's Republic of China, but were instead headed to the National Palace Museum outside Taipei.

`Golden Voice'

The relics that remained behind gathered dust beneath shop- house counters and on communal kitchen shelves and were of little immediate use to Mao, who directed the regime to terrorize artists into joining the propaganda effort to kowtow praise on his dictatorship.

In 1962, armed with a degree in 17th century European literature, Croes recalls, ``my husband and I found ourselves in Beijing, living in the Peace Hotel with 300 other idealistic Maoists from all over the world.'' She was ``the golden voice of Beijing radio.''

``There were a lot of shady characters,'' adds Marcel Croes, who with his wife spent three years broadcasting propaganda to French listeners abroad and attending state banquets with Mao, Foreign Minister Chou En-lai and other key Chinese officials. ``It was no Maoist paradise,'' he recalls. ``It was a nightmare.''

Treasure Hunting

Croes says her swing from politics to art resulted from government restrictions that prohibited non-Chinese Maoists from circulating outside an 11-square-kilometer (4.25-square-mile) grid centered on Tiananmen Square. Buying a bicycle, Croes peddled the neighborhood, developing contacts and buying treasures for peanuts.

``The Communists paid us $200 a month, a fortune in China,'' Croes says. ``I spent all my money on antiques, paying less than a penny for paintings, calligraphy, furniture and sculpture that would fetch God knows how much today. My fascination with Chinese art re-oriented my entire outlook on life.''

Croes suspects Mao arrived at the same conclusion in 1963, when he sowed the seeds of the Cultural Revolution to come in a speech that condemned art as ``poisonous weeds.'' Three years later, Mao appointed his wife, Jiang Qing, the Gang of Four police chief in charge of stamping out culture, unleashing the Red Guards to use China's artistic heritage for kindling. ``Mao's fear of art's impact on China in no small part helped generate the Cultural Revolution,'' Croes says. ``We had gone to China for youthful political reasons. We left for artistic reasons.''

Cultural Revolution

Croes returned to Brussels and, atop a table set up on the cobblestones of an outdoor market, displayed her wares.

Outside the gates of the Forbidden City, the Cultural Revolution was in full swing.

Originally built in the 19th century by Empress Dowager Cixi for her chief eunuch, the Bamboo Garden Hotel in Xiaoshi Hutong is decorated with rock gardens. Yet during the Cultural Revolution, this quiet courtyard inn tucked in the shadow of the Forbidden City was the home of Kang Sheng, the ruthless boss of Mao's praetorian guard, Unit 8341, and command center for the wholesale looting of China's artistic heritage.

According to the Chinese writer and historian Jung Chang, co- author of
``Mao: The Unknown Story,'' Kang ordered Unit 8341 members to pose as Red Guards and plunder China's art treasures for his own collection or to be sold abroad to fill the regime's hard- currency coffers.

`Multibillions of Dollars'

``It's impossible to estimate how much Kang looted,'' Nguyet explains. ``We're talking multibillions of dollars.'' Nguyet, who made regular visits to China in the late 1960s, says the asset- stripping was brutal.

``Kang tortured people into surrendering their artworks,'' Nguyet says. ``People were gunned down trying to flee across the barbed-wire land border into Hong Kong with canvasses strapped to their chests and calligraphy wrapped around their legs.''

Yannan Wang says she knew stories of the lost treasure of Kang long before she left her job in 1994 as manager of the Great Wall Sheraton in Beijing to become managing director of China Guardian, the first auction house to be established in China since Mao took power in 1949.

``Kang looted the museums,'' Yannan says. ``After the Cultural Revolution, a lot of what he didn't take was borrowed by officials and never returned. There may very well be more than one treasure trove of art kept safe from the Cultural Revolution. We just don't know.''

Hidden Loot?

Rumors persist that Kang hid some of his booty inside China and that it remains to be found. Nguyet says that the richest collections were housed in Shanghai and that the port city was most likely used as a way station to move them to the West.

``Where the art landed, who knows?'' Nguyet says.

Returning to China after the Cultural Revolution with a grant from the Smithsonian Institution in Washington to study bronzes, Croes started her business plan.

``I vowed to discover China's most major items and do it better than anyone else,'' Croes says.

Croes estimates she has sold more than 2,000 pieces of Chinese art to a select and closely held client list that includes Poly and other major collectors she declines to identify. ``Buying or selling, I don't deal in price ranges,'' Croes says. ``I deal in cash.''

Back in Poly's VIP room, Li hints that his next mission is to acquire the Stoclet dragon, a 9th century B.C. bronze that now sits on a library desk in the family's Brussels home, designed by Viennese architect Josef Hoffmann and completed in 1911.

``We have interest in this dragon,'' Li says. ``The game is on and we are not going to reveal our cards.''

Croes says she isn't worried about the PLA stacking the deck.

``I played in the Stoclet house as a child,'' Croes says, pouring a cup of chrysanthemum tea. ``It's a wonderful thrill to be part of the game.''

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