LinkBack URL
About LinkBacks
trying to guess the timing of the coming implosion of china..
Woes of a windfall
By Jamil Anderlini
Published: August 7 2009 19:13 | Last updated: August 7 2009 19:13
Visit the town of Shanghang in south-east China and what first catches the eye is a thicket of giant colourful billboards that advertise everything from fancy villas to wealth management services. The rows of car lots filled with shiny new sedans and sport utility vehicles stand out against the backdrop of lush tea-growing hills and the legendary Purple Mountain.
Just 20 years ago, most people in this part of Fujian province had never even seen a tractor. But today it is home to the exceptionally opulent peasants of nearby Tongkang village, the wary targets of all this modern marketing. How they came upon their wealth is a uniquely Chinese story of luck, greed, corruption, repression and urbanisation in a society where the pace of change in the past 30 years has lifted more people out of poverty than at any time in human history but has left even more behind.
The ancestors of the villagers, who all share the surname “You”, migrated from central China 31 generations ago to settle on the slopes of Purple Mountain, where they grew tea, sweet potatoes and rice and panned for gold in the streams. In the mid-1990s, the state-owned Zijin Mining began blasting and drilling for gold and copper on the upper slopes of the mountain.
Tongkang’s village committee was supposedly a shareholder in the company but, although they were able to get temporary jobs as drivers or labourers in the mines, the villagers saw little other benefit and watched helplessly as their water supply became increasingly polluted.
Nine years ago on Saturday, a tailings dam from the mine burst – and washed away most of the houses and crop fields in the village. Although no one died, the villagers lost their homes and livelihoods. Taking their land, the company relocated them to the county seat of Shanghang, where they were clustered into a compound of boxy concrete apartments on the outskirts of town.
The cash compensation they received was not enough to build new homes in the town and Zijin told them it did not have enough cash to pay them the full amount to which they were entitled for their farmland. “Zijin Mining was quite a small company and very poor at that time,” says You Jinlan, a Tongkanger in his 40s sporting a tailored shirt and gold earring. “In fact, it was nearly bankrupt, so it gave us shares instead of a cash settlement.”
The farmers accepted their fate but insisted that the local Communist party committee divide the shares evenly among the villagers instead of holding them on their behalf. “We didn’t trust the corrupt local officials, so we forced them to divide the shares up immediately,” says You Facai, a chain-smoking, plainly dressed villager in his late 50s.
In June 2001, each of the 1,068 registered residents received a plain little ledger book with handwritten entries showing they now owned Rmb1,338.85 ($196, £117, €138) worth of equity in the mining company, which had been transformed from a state-owned enterprise into a limited liability company a few years earlier. “We were now landless peasants and we thought those shares were not even as useful as waste paper we’d use to wipe our bottoms,” says You Facai, shaking his head in disgust. “Many of the villagers wanted to sell them for cash immediately but there were no buyers.”
In the first year, around seven families sold their shares for slightly more than face value, according to You Tiancheng, a villager who acted as a broker for neighbours who wanted to sell their stock. He recalls one family of six who sold all their shares for Rmb10,000.
Then came the first sign that prospects could be changing for the displaced people of Tongkang. In December 2003, Zijin Mining listed on the Hong Kong stock exchange. It had expanded quickly by buying up a large number of productive mines and became one of many companies in China, where annual economic growth has averaged 10 per cent over the past decade, to have gone from struggling to world-class in the space of a few years.
The villagers held domestic Chinese shares that were not allowed to be traded in Hong Kong. But they could undertake private, off-exchange transactions just as with any unlisted company. So when a Hong Kong bull run began in 2006, in private trades an allotment began to change hands for as much as Rmb70,000. “As the value rose, our hearts hurt terribly because we wanted to sell but to sell was like throwing out a bowl of water, there was no way we could get it back,” says You Facai.
As the price passed Rmb200,000 and then Rmb400,000, more than 100 villagers found the temptation irresistible and sold their shares to investors who were by now coming from all over the province.
In the next crucial development, Zijin listed on the Shanghai stock exchange in April last year. But that came in the midst of a collapse in Chinese stock prices. As Zijin’s shares plummeted, many villagers felt they had missed their chance of riches. A year on, however, a lock-up ended and the local government and the mining company informed them that their shares had finally become publicly tradeable in Shanghai, which had meanwhile undergone a rally. The stock would be sold on their behalf and each person who still held an allotment would receive Rmb800,000 cash – or 600 times their original compensation amount.
Of the original 1,068 villagers, around 230 had already sold out, for prices ranging from the face value of Rmb1,338.85 to Rmb652,000 ($95,000). “Some people who sold early regret it so much they want to jump in the river and drown,” says You Facai, whose household had sold one allotment for Rmb100,000 to build a new house but still retained seven that were together worth Rmb5.6m, an unthinkable fortune for a subsistence farming family in an area where a brand new 100-square-metre apartment in town costs only around Rmb250,000.
In the years since the dam burst on August 8 2000, many of the now landless farmers had joined the human flood of migrant workers that feeds the factories and the construction sites of China’s coastal boom towns. Most of them could hope to earn no more than Rmb1,000 a month. For those who stayed behind, their best option was temporary work for Zijin Mining, where they were often paid as little as Rmb6 a day.
As soon as they were told of their riches, many of the villagers bought new cars, flat-screen televisions, gold bars and other trappings of middle-class life, while others celebrated by visiting the high-stakes illegal gambling dens in nearby cities. In spite of their attempts to keep it quiet, news of their great fortune spread quickly. Soon the advertisement hoardings went up and a steady stream of salesmen and scam artists were making the long winding journey to visit them in Shanghang.
“We have people from the banks and insurance companies trying to sell us wealth management products and real estate agents trying to sell us apartments,” says You Jinlan. “Some companies even drive dozens of Audis and BMWs up here to our village and hold car fairs outside our door.”
But their luck also prompted a bitter response from many of their neighbours and relatives. In 1995, part of Tongkang (which translates roughly as “prosperity for all”) was submerged by the building of a hydro-electric power station and 261 villagers were relocated with what they say was woefully inadequate compensation. These villagers, most of whom left siblings, parents and children when they moved, were not included in the Zijin Mining share allotment. When they heard about the pay-out they began petitioning the government, the mining company and the courts to try and get what they saw as their share of the bounty.
Meanwhile, the villagers who still had shares received a nasty shock of their own. In May, local government officials suddenly decided to charge taxes of up to 45 per cent on the new-found wealth. On June 4, the 20th anniversary of the Tiananmen Square massacre and a particularly sensitive day for Chinese authorities, around 300 villagers staged a protest outside the Shanghang offices of Zijin Mining.
The sit-in lasted more than nine hours and was eventually dispersed violently by as many as 300 helmeted police wielding electric batons and backed up by paramilitary troops and firefighters. As many as 60 villagers were injured and 20 were detained. Most were released after their relatives paid “bail” of Rmb50,000 each, but five, including a woman in her late 50s, remain in custody. According to the local government, the five face charges of “inciting a disturbance of social order”, which carries a maximum penalty of seven years in jail.
Despite the heavy-handed response, the protest worked and the government waived the planned taxes. The villagers received the full Rmb800,000 per allotment in their bank accounts by the end of June. But they say they will not be satisfied until their relatives are released.
“We have no land to pass to our children and this money is not very much if you divide it among all our future descendants,” says You Jinlan. “This money has brought so many sorrows and troubles and it is worthless if our relatives remain in jail for standing up for our rights.”
Additional reporting by Eliot Gao. Given names of the Tongkang villagers have been changed at their request to protect them from reprisals
Copyright The Financial Times Limited 2009
FT.com / Comment / Analysis - Woes of a windfall
Reply With Quote
Originally Posted by Kleinbok
Bookmarks