Absolved dairy tycoon reveals plight of private firms

(Ecns.cn)--Li Tuchun, founder of the bankrupt dairy company Taizinai Group in Hunan Province, regained his freedom late last month after being detained for 15 months for illegal fundraising.

One year ago, the public security bureau in Zhuzhou of Hunan announced that Taizinai and Li had been illegally taking deposits and misappropriating funds, and that four people had been arrested, said the Global Times.

Yet the situation has taken a dramatic turn. Prosecutors in Zhuzhou, where the group was based, dropped the case against Li on February 20, saying the 130 million yuan (US$20.59 million) he had raised for loan reserves was in fact not illegal.

Police had not provided convincing evidence to back up accusations of illegal fundraising and embezzlement, revealed the Sanxiang City Express.

The former chairman of the once well-known dairy group is now in Beijing for health treatment, the newspaper added.

Following the acquittal, Li soon hit the headlines as scholars have been appealing to the government for greater freedom of private capital.

Once a junior leader in a state-owned company, Li plunged into the commercial sea at the age of 40 in a bid to make a fortune.

He established Taizinai Group in 1996 and made it a well-known name in 1997 after successfully bidding 88.88 million yuan (US$14.08 million) for a hot advertising slot on state-run China Central Television (CCTV).

The heavy investment eventually paid off with a 600-million-yuan order. In 2004, Taizinai took up 76.2 percent of the market share, becoming the nation's largest dairy producer.

The same year, ambitious Li announced a plan to invest 2 billion yuan (US$317 million) to build four new production bases in Zhuzhou, Beijing, Hubei and Jiangsu.

A year later, Li vowed to increase sales volume to over 100 billion (US$1.58 billion) in 10 years and expand the company's number of employees to hundreds of thousands.

Along with those goals came diversified development strategies. Taizinai's empire was soon expanded to clothing, spirits, real estate and catering, which required larger investments and put a strain on the company's finances.

Though the milk-based drinks manufacturer raised in 2007 a fund of US$73 million in a private placement with three of the world's leading investment institutions--Actis (US$40 million)， Morgan Stanley (US$18 million) and Goldman Sachs (US$15 million)--Taiznai still suffered from insolvency.

With debt as high as 2.7 billion yuan (US$428 million), the company was bailed out by state-owned dairy company Zhuzhou Gaoke in January 2009, while Wen Dibo, former deputy director of the management committee of the Zhuzhou Economic Development Zone, was its general manager and board chairman.

Soon after, the bailout rendered Li powerless. Wen started restructuring Gaoke, causing a dilution of Li's stakes in his dairy group. As a result, Li lost control over Taizinai in 2010.

"Gaoke's intension to swallow up Taizinai was very clear," pointed out Wang Qinghui, Li's lawyer. "As Li strongly opposed the reorganization, the relationship between the two companies broke down."

In June 2010, Li and three other company executives were placed under criminal investigation for illegal fundraising. Li was officially arrested a month later.

However, not only was Li's being charged suspicious, so was the investigative process. From detention to acquittal, the public only saw four charges levied against Li: illegally taking public deposits, dereliction of duty, secretly withdrawing funds, and misappropriating funds. Yet every time an investigation for one crime came to an end, a new charge would be added, which made it hard for the departments involved to make a clear judgment, pointed out the Global Times.

Suspicions that people had taken revenge against Li and that government officials had misused their power were also raised, added the newspaper.

In July last year, Wen Dibo was detained and interrogated by the Hunan Provincial Discipline Supervision and Investigation Committee, which created favorable conditions for Li's case.

Eventually, the local People's Procuratorate issued a nolle prosequi earlier this year to discontinue the criminal charges against Li.

Li's case has unveiled the difficult situations private companies are placed in and the abuse of power among government officials, analyzed China Newsweek.

Sharing similarities with the case of Wu Ying, formerly China's sixth-richest woman who was sentenced to death for fraudulent fundraising, Li's case reflects the dilemma that small and medium enterprises (SMEs) in China currently face, with its narrowing of funding channels and system still under development, China Enterprise News explained.

Teng Biao, a human rights lawyer, pointed out that under the current financial system it is inevitable for the private business sector to commit "illegal fundraising." In other words, most of the successful private businesses in China have probably committed Wu Ying's "crime."

"Without support from the banks, private businesses have to borrow money from the market. According to statistics, only 20 percent of short term bank loans go to private businesses. A bank survey shows that more than 90 percent of SMEs said they had failed to obtain loans from banks, and more than 62.3 percent of family businesses obtain their capital from the market," Teng was quoted by Global Voices, an international community of bloggers.

To solve the problem, the current market entry certification system should be relaxed to allow more investment from private companies, noted Bao Yujun, head of the Centre for Research of Private Economy.

Monopoly of state-owned commercial banks in money markets ought to be broken up to make room for more privately owned "grassroots banks," said Bao, adding that the capital market should also be open to private companies to encourage them to go public.