Media Company That ‘Took a Slice’ From IPOs in China Has a Slice Taken From It

September 11, 2014 Updated: September 11, 2014

Top editors and executives at a widely recognized business publication in China went on the air with televised confessions recently, admitting to extorting tens of millions of dollars from over 100 businesses that were in the process of going public.

The news was reported enthusiastically by the state mouthpiece media, including most prominently China Central Television, who appeared to have gained exclusive access to the alleged perpetrators, a privilege that it appears even their lawyers did not share in.

Televised confessions of this sort have become common of late in China, and equate to a trial by media before an actual court case.

In this instance the “black details inside the financial media industry”—extortion and bribes on the promise of not reporting negative news—seem to be widely known about and quite common. But the high profile punishment of 21st Century Net, the website of 21st Century Business Herald, a respected publication, was intriguing.

“Everyone wonders whether there will be a rectification storm inside the whole industry,” said an anchor with China Central Television, in her lead-in to the report proper. The term “rectification” (zhengfeng) is used by the Chinese Communist Party to refer to a political purge, and characterizes the style of many ostensible law enforcement activities in China.

The scheme admitted to by 21st Century Net editors was simple: they would either bury genuinely negative news, or refrain from overhyping moderately negative information, in return for direct cash payments, or for juicy online advertising contracts, from private companies that are in the process of going public.

“Using advertisements is a little more refined than a protection fee,” said Zhou Bin, one of the website’s editors, with a smirk.

“When companies go public, it’s not that they necessarily fake their accounts, but the accounts of some companies do have problems,” he said.

“Public companies and their public relations firms have a very simple and direct demand from the media: ‘don’t write negative news about us.'”

He added: “This creates the so-called ‘protection fee’ opportunity.”

Public relations firms played a similar role in the scheme, according to deputy editor and head of the 21st Century Net website Liu Dong, who was also allegedly part of the scheme. They take a commission from the company, and then pay for ads in the media companies that they wish to buy off.

From April 2010 onwards, 21st Century Net signed deals of this sort with over 100 companies preparing for initial public offerings. Most of these related to taking advertising money on the promise of not running negative news. The price went from 200,000 to 300,000 (about $30,000 to $50,000) the report said. CCTV alleges that the 21st Century Net extorted over 300 million yuan (almost $50 million) from companies over the years—this figure presumably being a combination of the outright protection fees and the receipt of advertisements on the part of public relations firms.

If reporters have already prepared the attack piece, they could collect up to 100,000 yuan to kill it.

According to the CCTV anchor, the extortion of these firms was an “open evaluation criterion” inside 21st Century Net. The website is a part of and synonymous with 21st Century Business Herald, a major broadsheet based in the city of Guangzhou in southern China. It’s part of 21st Century Media, which includes other subsidiary publications like Moneyweek, Forbes China, Miss World China Pageant, and Global Entrepreneur.

Wen Yunchao, a Chinese media watcher and former visiting scholar at Columbia University, said in a telephone interview that when he saw the news, there were two scenarios that jumped to mind to explain it.

The first was that 21st Century, through its reporting, made important people very angry—and the Shanghai police, along with China Central Television, were called in to draw some blood.

The second was that the Communist Party is beginning to embark on an overall anti-corruption, or “rectification” campaign against corruption in this entire sector. That would allow for the smoother functioning of markets—so companies are not being extorted while trying to go public, or in turn, that they have their problematic management or accounts exposed to the public so that investors are not duped. Whether that ultimate goal can be achieved in the absence of an independent judicial system is another matter.

Frequently in China, politicized punishment can take place simply by enforcing the law against one or two parties who break rules that are flouted by all. The case of corrupt business journalism is a prime example, given that for decades—since the beginning of China’s media modernization and the market-driven media model in the 1980s—pay-for-play has been common. Reporters in China do not get paid very much, and receiving red envelopes stuffed with cash is also widespread.

In particular, when it comes to initial public offerings in China, “the kind of extortion described is normal,” Wen Yunchao said. He referred to major Internet portals like Sina and Sohu that allegedly do it as a matter of course. “So I don’t know why they went to work on 21st Century first,” he said.

By all accounts the authorities would not have had a tough time discovering the corruption, given how common it had become.

Tao Kai, an editor at the website who wore the obligatory orange prison garb, said in his confession to China Central Television, “Maybe in the excitement, everyone forgot the professional conduct a media should have, and the standards of justice and fairness.”

He explained why that might have been. “Companies going public were basically a piece of fatty meat. A piece of cake that we could all go and take a slice from.”