In May, the Shanghai Stock Exchange (SSE) imposed disciplinary sanctions on the Beijing Xinwei Technology Group Co. (Xinwei Group) and its chairman, Wang Jing. The sanctions included the delisting of the company’s shares and disallowing Wang to serve in any managerial capacity of listed companies for 10 years.
The Nicaraguan Canal Hype
Xinwei Group created a scandal when it failed in its promise to build a navigable waterway through Nicaragua that would have rivaled the Panama Canal in size.In 2012, Wang initiated contact with Nicaraguan authorities to discuss getting permission to build a Nicaraguan canal. Xinwei Group formed HKND Group, a private company in Hong Kong, that would oversee the construction of this major canal.
Wang’s plan was to complete the Nicaraguan canal within five years, after which the main investor, HKND Group, would be granted rights to use the canal and its facilities for 100 years. In the meantime, more than 400,000 jobs would be created, although this wouldn’t prevent local members of the South Atlantic Autonomous Region from protesting and saying: “Our land is not for sale and will not be given away,” “Chinese people get out,” and “No canal.”
Despite the public protests, the Nicaraguan government agreed to proceed. Wang increased the canal’s total investment to $50 billion. On the day that construction began, the world watched as Wang and Nicaraguan President Daniel Ortega were photographed cutting the ceremonial ribbon.
Exposing the Scam
After concluding the Nicaraguan canal agreement in June 2013, the Xinwei Group began to leverage the project’s growing prestige to attract investors and shell listings. In September 2013, it announced a shell listing of the Beijing Zhongchuang Telecom Test Co. for a total consideration of $4.2 billion. Over the next two years, its market value exceeded $31 billion, and it was listed on the SSE 50 Index.Wang profited handsomely as well. According to Forbes China, Wang’s 1.01 billion shares in the Xinwei Group grew to $6.6 billion in 2014, making him one of China’s top billionaires. The Xinwei Group enabled three additional Chinese investors to become billionaires: Jiang Ning, Wang Yongping, and Wang Qinghui.
The Xinwei Group’s initial appeal would eventually evaporate due to its weak foundation, mysterious dealings, and lack of transparency. The group was originally formed in 1995 by Datang Telecom, a Chinese state-owned entity. It didn’t do well financially and was acquired by Bonade Investment Co., which declared Wang as the principal shareholder. From there, Wang, the owner of Beijing Changping Bathhouse and a drop-out from Jiangxi University of Traditional Chinese Medicine, transformed into the chairman of Xinwei Group.
After taking over as chairman of the Xinwei Group, Wang claimed that the company had turned a loss into an $88.4 million profit, due to a large order of $466 million from Cambodia. But an investigation report by NetEase Finance in 2016, “Xinwei Group’s Surprising Game: Hiding Huge Debts and Mysterious People Cashing Out,” stated that Wang’s report was fraudulent.
The profits he reported were based on an illusion created by Xinwei Group and its subsidiary, Cambodia Xinwei.
The investigation discovered that the subsidiary had agreed to order $466 million in products from parent company Xinwei Group. The parent used the order as collateral to obtain a $466 million loan from the China Development Bank. The borrowed funds were then used by the subsidiary to fund its order from the parent. That’s equivalent to using the guarantee for revenue.
Relying on the same fraudulent business model used in Cambodia, Xinwei Group began expanding its operations into Ukraine, Russia, Tanzania, Nicaragua, and other places.
Wang used international hot projects to grab public attention within China. He was instrumental in forming Beijing Skyrizon Aviation, a company that was sanctioned by the United States for attempting to acquire a Ukrainian aviation engine company. Other projects included building a deep-water port in Crimea, acquiring an Israeli satellite company, and getting involved in overseas security. Wang even threw out the idea of an “air and space information network,” with the intent to launch one rocket that can carry four satellites within three years and to launch 32 or more satellites by 2019 to form a satellite communication system covering the world.
These hot projects and dreams made media and investors excited and helped the company to obtain new loans to pay back its old debt.
NetEase Finance confirmed that Xinwei Group’s apparent growth was based on lies and fraudulent practices. In fact, the company was heavily indebted and had enabled many of its mysterious shareholders to reduce their holdings or cash out their shares before any problems were exposed. Specifically mentioned were investors Wang Yongping, who salvaged $35.38 million; Wang Qinghui, who obtained $26.85 million; and Lu Dalong, who picked up $19.24 million. Wang Jing personally received at least $1.6 billion in cash in 2017.
It’s alleged that Wang has disappeared after pledging 35 percent of his Xinwei Group shares to major Chinese financial and securities companies, including China Development Bank and Shengjing Bank.
The scams perpetrated by Wang created havoc and financial ruin for thousands of people in China and around the world. It also brought suffering for the Nicaraguan people. The Nicaraguan government still holds the land and land development rights that were forcibly expropriated for the canal construction, and local residents are still upset with having been evicted from their properties. Many landowners were incarcerated, injured, or killed during conflicts with police and government authorities.
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