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The Coup

In 1997, in the full flush of success, Jun'an Securities started an ownership makeover. By means of management buyout (MBO), Zhang Guoqing, Yang Jun, and other management members bought back corporate equity, causing the government-owned business to be secretly controlled by private shareholders. This resulted in the well-known Jun'an incident.

Upon incorporation, three government-owned companies—Shenzhen Heneng Real Estate Development Ltd., ABC (Shenzhen) Trust and Investment Corp., and CITIC Industrial Bank (Shenzhen Branch)—had a 75 percent stake in Jun'an Securities. With the approval of the People's Bank of China, in November 1996 the company increased its share capital from CNY 50 million to CNY 700 million. After the increase, Shenzhen Xinchangying Investment and Development Co. Ltd. and Shenzhen Taidong Industrial Co. Ltd. controlled the company, and ABC (Shenzhen) Trust and Investment Corp. and CITIC Industrial Bank (Shenzhen Branch) withdrew from the company.

Zhang Guoqing and Yang Jun were legal representatives and members in the boards of directors and supervisory boards of Xinchangying and Taidong, respectively. They were also members of the board of directors and the management of Jun'an Securities. According to the corporate information filed with the administration for industry and commerce, Shenzhen Xinchangying Investment and Development Co. Ltd., the largest shareholder of Jun'an Securities, was incorporated in May 1994. It had a registered capital of CNY 500 million. Zhang Guoqing acted as legal representative. The firm had three shareholders—Shenzhen Gensheng Industrial Co. (50 percent), Shenzhen Minyifu Industrial Co. (30 percent), and Wuhan Yihui Economic and Trading Co. (20 percent). Gensheng also held an 80 percent stake in Minyifu and was controlled by Jun'an Securities' Labor Union Committee (with a 60 percent stake), Jun'an Property Management Co. (with 10 percent), and Shenzhen Hemu Investment Co. (with 30 percent), which was also controlled by Jun'an Securities' Labor Union Committee (with 75 percent). Shenzhen Taidong Industrial Co. Ltd., the second-largest shareholder of Jun'an Securities, was incorporated in June 1994. It had a registered capital of CNY 250 million. Acting as legal representative was Yang Jun, who was also the incumbent vice president of Jun'an Securities at the time. Two other shareholders were Hemu (50 percent) and Minyifu (50 percent).

Clearly, both Xinchangying and Taidong, the largest and second-largest shareholders, were controlled by the management of Jun'an Securities, which controlled the company via such a holding structure. After an increase of share capital in 1996, the company was renamed Jun'an Securities Co. Ltd. According to the new company's Articles of Association, a shareholders' meeting would be the highest authority of the company. Its board of directors had the three members: Yang Jun, Zhang Guoqing, and Yin Ke. Zhang Guoqing, as the controlling shareholder's representative, would be elected chairman of the board and president of the company. Yang Jun and Yin Ke would be elected vice presidents. All three were members of management.

Factions led to the fall of Zhang Guoqing. A deputy general manager, who was in charge of corporate finance but lost ground in office politics, blew the whistle on the MBO scheme and disclosed all accounts. In the final act, the authorities found that Zhang Guoqing was suspected of embezzlement of government-owned assets and fraudulent conveyance of government-owned assets into private ownership in a disguised form.

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