This week, Boston-based firm Bain Capital secured a $418 million investment to acquire a minority stake in GOME, China’s second largest electronics retailer. GOME has seen its fair share of global news coverage following the November 2008 arrest of its founder and ex-chairman, Huang Guangyu, over allegations of share-price manipulation linked to drug manufacturer Jintai Group, which was controlled by his elder brother. In the months surrounding police investigation into Huang’s activities, GOME’S share price tanked and speculation of bankruptcy began to circulate. Despite its tarnished reputation, from a profit-sharing perspective Bain Capital’s move to acquire an 18 percent stake in GOME may prove to be a very lucrative one; as reported by Bloomberg.com, shares rose 69 percent in Hong Kong following the announcement of investment by Bain and Merrill Lynch has upgraded the stock to “buy” from “underperform.”

While Bain has structured the GOME deal to protect itself from liquidity concerns with nearly half of its investment reported to be in the form of seven-year convertible bonds, the US private investment firm does not have any management control built into its contract, despite entitlement to three non-executive positions on the board. And, although the deal does possess incredible potential for Bain over the long-term, Huang Guangyu’s corruption legacy will be difficult to extricate from the company’s reputation and among the employees who have remained with GOME. White collar crime in China bears little resemblance to what we’re accustomed to in the West, which is often carried out in secrecy and among a few slick actors involved in the financial services industry. Under China’s traditions of guanxi and “rule of man,” “under the table” practices span all sectors via interwoven business and personal networks as pervasive and shared activities which are too often deemed acceptable by all parties involved.

Given these characteristics, it is difficult to believe that the purge of Huang Guangyu has wiped the slate clean for GOME; Chinese entities that have been linked with corruption have a pretty significant rate of being repeat offenders. While the risks involved in partnering with a company that only months ago found itself under the spotlight of a globally-recognized graft scandal may be miscalculated by a Western-born manager with relatively little experience in the Chinese marketplace, it can be pretty safe to assume that Bain knew exactly what kind of arrangement it was walking into. Jonathan Zhu, Bain’s Managing Director who secured the investment is not just another corporate cowboy trying to lasso a sweet deal in a foreign market. Zhu is actually a Shanghai native who, prior to assuming his position with Bain, served as CEO of Morgan Stanley’s China division- which is also no stranger to corruption scandals. Zhu has an impressive professional history of leading a number of high-profile initial public offerings in China; an online biography cites China Construction Bank, Ping An Insurance, China Shipping Container Lines, China Meng Niu Dairy, China Telecom, China Unicom, Sinopec, China Eastern Airlines, Shanghai Industrial and Beijing Enterprises among them. It is also a fact that the majority of these companies have made headlines for illicit activities, which is unsurprising given the intense crackdown by the CCP in recent years.

Another fact- corruption is endemic in China business and Western-owned firms like Bain need deal makers like Jonathan Zhu to forge successful investments with a comprehensive understanding of the risks involved. As a native-born Chinese with significant experience on both sides of the globe, Zhu has a few highly sought after capabilities that can only come with being born in China, receiving an education at top US institutions (Cornell and Harvard Business School), and simultaneously maintaining identities on both hemispheres. Considering the Huang Guangyu case and the traditions he may have left behind in the offices of GOME, does Bain’s stake come with potential problems down the road? Without a doubt. On the upside, a foreign presence in a Chinese-run company like GOME may lead to better risk management controls overall while encouraging increased accountability among individual employees. With this in mind, the GOME-Bain deal led by Zhu might yield positive returns far beyond the stock market. Of course, there are other possible outcomes. I’m hoping for the former, but we’ll just have to wait and see.

Did Bain make a smart move in securing a minority share in GOME? Is corruption still an issue, now that Huang Guangyu is out of the house? Do American firms which possess Chinese-born deal makers have an advantage in the China market? Have your say in the comments section!

Commentary Bain, Business, china, corruption, GOME, Huang Guangyu, Jonathan Zhu

This morning while waiting for a pot of coffee to brew, I went through my usual Twitter ritual which entails reviewing all the latest China-focused news links and retweeting those that I find interesting or useful. Over the past few months, this exercise has become my daily routine, replacing the hour I used to spend reading the Wall Street Journal and The New York Times. Relying on Twitter as a news source has its unique benefits, particularly since I have carefully cultivated a roster of knowledgeable and engaging people I follow, most of whom focus on China in one form or another. One particular tweet this morning caught my eye; it was a story posted in Chinese regarding a thyroid cancer epidemic in Shandong Province which was said to have been created by a chemical plant that had been erected in Dongming county in 2003. The details were horrifying and cited tens of thousands of cancer victims who had been perfectly healthy prior to the establishment of this plant. According to the article, 60 percent of the county’s population is now battling cancer and these circumstances have led to an organized counterattack among the local population. As my Chinese reading ability is incredibly lacking, I struggled through a few lines of this article and then searched for an English-language version to share with my Twitter followers, which I found easily in Google News. Upon reading the English-language report in The Epoch Times (a source that I was only mildly familiar with), I was immediately reminded of a story entitled “The Filthy Earth” that had been written by Nicholas Kristof and included in one of my favorite books of all-time, Thunder from the East.

Twitter is a complex beast which gives the average everyday user a false sense of connection to society’s major influencers and in particular, media celebrities and movie stars. The two “famous” people that I happen to follow religiously are Nicholas Kristof and John A Bryne of BusinessWeek, solely because I have incredible admiration for the work they do and find the majority of their tweets worth a read. Perhaps to my detriment, I have no sense of a barrier between me and the “stars of the day.” There are a few legitimate reasons for this which I will not go into here except to state that, after working in the trenches of New York City’s “welfare” system while simultaneously moonlighting in the nebulous world of celebrity PR, one’s social status no longer phases me in the least- it is their contribution to the world that matters most (this is why I don’t follow P Diddy, Paris Hilton, etc). After reading the Epoch Times piece, “Chinese Cancer County Resident Issues Attack Notice,” I sent a simple tweet to the attention of @nytimeskristof which included the link and mentioned the similarities between this story and the one he had penned nearly a decade ago for “Thunder from the East.” If this account is legitimate, I thought, why hadn’t any of the major news outlets picked it up yet? Furthermore, who better to explore it than Nicholas Kristof? I hit the Update button and continued on with my day, thankful to finally have that much needed cup of coffee I’d been waiting for.

When I returned to my laptop a few hours later, I noticed a tweet in response to my Kristof post from a China-focused follower which read:

RE: “Cancer County- Kristof should know better than to take an article from a “FG” publication at face value.”

Had I really just cited an article from a “FG” publication? Sure enough, after doing a bit of digging, it appears that Epoch Times was in fact established by “FG” members and is known to promote stories that further their cause against China’s government. While I have nothing against “FG,” I am well aware that propaganda surrounding the “FG” issue flows heavily in both directions. Needless to say, I was mortified. Of all people, I should know better than to tweet an article from a source that lacks legitimacy, despite the fact that the article may have some validity. Ironically, as a person who has been guilty of criticizing mainstream media for similar oversights, I myself had been caught in the act red-handed without any awareness of my misstep until receiving a single tweet that called me out on my sloppiness. Therefore, I responded: “Point taken- missed that link. Thanks for keeping me in check.”

This brings me to my argument on Western media responsibility and China, a country that is often portrayed in a very negative light by today’s most popular news sources. As writers, bloggers and reporters who are in fact Western, it can be incredibly difficult to penetrate the truth as China knows it and nearly impossible to sift through all of the sources available today- whether through printed content or firsthand interviews- without encountering bias or agenda in one form or another. Likewise, it is challenging to discern between what should be covered and what should not, given the current delicate diplomatic circumstances between East and West and our increasing dependency on stable relations. In a recent BusinessWeek interview, Guangdong Party Secretary Wang Yang stated that “if the West still doesn’t understand China, it is neither good for the West itself nor conducive to establishing a harmonious world.” I have already resigned myself to the fact that, even if I continue to focus on China for the next 40 years of my life, I will never come close to fully understanding China. I am an American with a minor obsession on another country that consumes most of my days, but I am still a native-born American who views the world through the environment that I am most familiar with. That’s precisely one good reason why the US should hire more Chinese-born journalists to cover the China beat.

Because of my slow comprehension in Mandarin and my inherent American perspective on how the world should work (as much as I try to escape that perspective), I jumped on this “Cancer County” story without giving it much thought- laziness and perceived lack of accountability on my part. Unfortunately, all writers and journalists in the world are subject to making this mistake; human error is impossible to avoid 100 percent of the time. Perhaps there is some truth in the Epoch Times report. Maybe no one has decided to give coverage to it simply because it’s already been printed time and time again, as exemplified in Kristof’s report. Or maybe, due to the economic crisis and focus on Iran, the timing just isn’t appropriate. Finally, there is a small possibility that this feature had been entirely fabricated to suit the interests of “FG.” As someone who is vigilant about getting the facts straight for the sake of my own career ambitions (let’s face it, every single one of us has an agenda), I have been thoroughly humbled by this mishap and thankful that another tweeter had the good sense to point out my error. If “Cancer County” does possess some truth, it is my hope that a skilled journalist like Kristof will cover it. As for Twitter, I think I’ll be taking my cup of coffee before I boot up the computer and will spend a little more time contemplating my own actions and responsibilities as an online media participant- in 140 characters or less.

Commentary blogging, china, diplomacy, journalism, Media, Nicholas Kristof, Tweet, Twitter