Notes 2 The Upper World 1 . According to the official discourse by the CCP, Mao Zedong is considered the core of the first-generation leadership group; Deng Xiaoping, the second- generation core leader; Jiang Zemin, the third; Hu Jintao, the fourth; and Xi Jinping, the fifth. Although Hua Guofeng, Hu Yaobang, and Zhao Ziyang also served as the head of the party, Deng Xiaoping is regarded as the real core leader of the second-generation leadership team. 2 . The Eight Great Eminent Officials, abbreviated as the Eight Elders, were a group of revolutionary leaders of the CCP who held substantial power during the 1980s and 1990s. 3 . The Politburo Standing Committee is a committee with five to nine mem- bers constituting the top leadership of the CCP and accountable to the CCP’s 25-member Central Politburo or Politburo. The Politburo is a policy-making body accountable to the larger Central Committee of the CCP, which assem- bles once a year. 4 . In 2012 the newly appointed Chinese president, Xi Jinping, reiterated, “We must never allow the Party to change its essence nor allow the Red of our mountains and lakes to fade” (Lu, 2014). His statement emphasized the prince- lings’ determination to maintain their power over the party and the state. 3 Bank Fraud 1 . In Chinese law, only those behaviors prohibited by the Criminal Law of the People’s Republic of China (last amended in 2006) and subject to the People’s Congress supplementation of, or interpretation of, China’s criminal law are considered to be crimes. Other legislation does not have the authority to clas- sify a specific action as a criminal offence. 2 . In this case, the two main suspects, Lu Jianxin and Zhu Huanliang of Shenzhen China Venture Capital Co., assisted by six other business executives, report- edly made huge profits from manipulating the price of shares of Shenzhen China Venture Capital Co. The duo raised more than 5.4 billion RMB yuan (US$653 million) between December 1998 and January 2001 from bank loans and other sources, which they distributed to more than 1,500 stock accounts 172 NOTES around the country. These accounts were used to acquire over 55 percent of the securities of the company. The China Venture Capital Co. case triggered panic among investors, which resulted in the company’s stock slumping by more than 10 percent in five days. Lu and Zhu have absconded and are still on the run. Prosecutors and judges in the case faced the problem of unfamiliarity with relevant legal and financial issues. They had to assess “several trucks” of evidence and were challenged by the escape of the two main suspects. In March 2005, after a long and difficult process, the six other accused executives received prison sentences of two to four years. 3 . In this case, Zhou Qing, CEO of Huayunda Real Estate Development Co, assisted by three key bank loan officers and two attorneys who had accepted bribes or kickbacks, falsified 257 mortgage applications between December 2000 and June 2002 in connection with Huayuanda’s Sen Hao apartments in order to obtain funds of USD$530 million from the BOC’s Beijing branch. In September 2007 the three bank loan officers and two attorneys received sentences of one to five years’ imprisonment (Beijing Number-Two People’s Procuratorate v. Xu, Shang, Zhang, Kong, and Zhan, 2007). Zhou’s case is still under investigation because he was found to have been involved in other crim- inal offences. 4 Securities Fraud 1 . According to Article 47 of the PROSIT: ”An institutional shareholder that holds 5 percent of the shares issued by a company limited by shares shall, within three days from the date on which the number of shares held by him reaches this percentage, report the same to the company, which shall, within three days from the date on which it receives the report, report the same to the securities regulatory authority under the State Council. If the company is a listed company, it shall report the matter to the stock exchange at the same time.” 2. It is unknown why Xiangfan did not appeal the unjustifiable fine of two mil- lion RMB yuan. 3 . For example, in a case quoted by the securities regulatory body, the company committing insider trading obtained illegal income of more than 11.8 million RMB yuan (Shan, 1997: 24). 4 . Civil law remains generally underdeveloped in China, partly because of the relatively short history of contemporary civil law in the country. Traditionally, the state was primarily concerned with the protection of a hierarchical order and showed little interest in developing civil law. Civil actions were usually heard at a criminal trial or resolved by community adjudicators. Civil cases were not well distinguished from criminal cases until the 1930s, when the first civil code was enacted, based on Western legislation. Although the postcom- munist Chinese government has rapidly imported many civil and commer- cial laws since 1979, judges trained in the Chinese legal education system still NOTES 173 lack sufficient knowledge and skills to deal with civil cases (see Meijer, 1967: 43–53). 5 . Rat trading is a form of front running in which fund managers use personal accounts to buy shares cheaply and then sell them at a profit after purchases from the funds they manage have boosted their value. 6. China initially had four financial asset management companies (AMCs), each paired with one of the main commercial banks: Cinda with the Construction Bank of China, Great Wall with the Agricultural Bank of China, Oriental with the Bank of China and Huarong with the Industrial and Commercial Bank of China. In addition, a further six licenses have been issued to other companies, allowing them to be involved in asset management. All AMCs remain under the supervision of the PBC with input from the State Securities Supervisory Committee of China and the Ministry of Finance. In many ways, China’s AMCs are an arm of the state. Currently, their major activity is debt-equity swaps, which are selected by the State Economic and Trade Commission (SETC) and not the AMCs themselves. In this way, the AMCs are a crucial part of the government’s overall restructuring program for the state-owned sector in China. Over the long term, the AMCs aim to recover approximately one trillion RMB yuan in nonperforming loans owed to the country’s four major state-run commercial banks by China’s loss-making SEOs. This is a major task for the AMCs, given that China’s state-owned industries are esti- mated to face US$200 billion in bad debts. The longer-term aim of the AMCs is to rehabilitate the loss-making, large, state-owned companies and eventu- ally liquidate their stakes by selling or listing the shares of the companies. However, whether the AMCs will be able to revive the companies and find a market for their shares remains to be seen. 7 . Some published studies show that public disclosure of offenders can and does facilitate the enforcement mechanism with regard to the regulation of insider trading. Obviously, in certain cases, adverse publicity could affect companies’ and individuals’ self-respect and prestige. Fisse and Braithwaite (1983) con- sider that the main advantage of formalized disclosure is the effect that it has on deterrence and therefore prevention. 8 . Securities companies developed very quickly during the period of 1991–1996. At that time, the PBC, Ministry of Finance, and specialized banks established their own securities departments, one after another. In October 1992, in con- junction with China’s stock market boom, the Chinese government estab- lished three major securities companies: Huaxia, Guotai, and Nanfang, in Beijing, Shanghai, and Shenzhen, respectively. These securities companies, which are backed by banks, gradually consolidated their dominating role in securities underwriting and other securities businesses. 9. The ISG is an information-sharing cooperative governed by a written agree- ment among its members. It was created in 1983 by the major US securities exchanges to meet the increasing need among these marketplaces to share information regarding securities trading. In 1990 organizations not regu- lated by the USA were allowed to join the ISG as affiliate members to facilitate 174 NOTES further information sharing. Since then, the ISG has grown to include North American, Asian, and European exchanges, all of which have a common interest in ensuring that the securities and futures marketplaces are regulated effectively and efficiently. 6 Law and the Courts 1 . See Deng’s speech in a meeting with a delegation, including senior American entrepreneurs, organized by Time, Inc. on October 23, 1985: Deng Xiaoping, Selected Words of Deng Xiaoping , Beijing: The People’s Publishing House, 2001, vol. 3, p. 142. 2 . See Deng’s interview with Prime Minister David Lange of New Zealand on March 28, 1986, in Selected Words of Deng Xiaoping . 3 . See Deng’s talk on his visit to Tianjin, August 19–21, 1986, in Selected Words of Deng Xiaoping . 4 . Under Chinese law, only those behaviors prohibited by the Criminal Law of the People’s Republic of China (last amended in 2009) and the NPC’s supple- mentations to or interpretations of the law are considered crimes. Other legis- lation cannot determine whether a particular act is a criminal offence. Bibliography Aldred, Stephen and Irene Jay Liu. 2014. “Special Report: The Princeling of Private Equity.” Reuters, Business News, April 9. Accessed July 25, 2015, http://www.reuters.com/article/2014/04/10/us-china-privateequity-special- report-idUSBREA3900D20140410 Bacher, Jean-Luc, Martin Bouchard, Pierre Tremblay, and Julie Paquin. 2005. “Another Look at the ‘Corporate Advantage’ in Routine Criminal Proceedings.” Canadian Journal of Criminology and Criminal Justice 47/4: 685–707.