Fallen Chinese official and wife rose in politics and business

BEIJING — The intersection of money and politics in China has rarely been so glaring as in the case of ousted Communist Party official Bo Xilai and his wife.

While her husband was mayor of the booming northern port of Dalian in the 1990s, Gu Kailai represented foreign clients negotiating with the city. But she also represented the city in a lawsuit against a U.S. company, and then wrote a book about her experiences that included photographs of her with U.S. Sen. Edward M. Kennedy and Dianne Feinstein, Henry and Nancy Kissinger, and others.

Local businesses courted the powerful couple. The head of the city’s largest conglomerate flew her and her son to London to visit the exclusive Harrow boarding school and later paid the tuition, according to someone who accompanied them.

Meanwhile, Gu’s oldest sister started a company listed in official documents as the exclusive printer for the National People’s Congress and several government ministries. It also won approval to print at least some of the new social security cards that will be issued to most of China’s 1.3 billion people. Other family members are on the boards of related companies.

Gu, 53, is now being held on suspicion of poisoning British businessman Neil Heywood, who allegedly helped the family smuggle money out of China to invest overseas. Her husband, whose ambition and Maoist revival irritated the senior leadership, has been sacked from his positions as Communist Party secretary of Chongqing and as a member of the 25-member ruling Politburo.

Not until a party official falls from favor does his personal wealth come under scrutiny, so the case has exposed some ordinary truths about how the political elite and their children have used their positions to make extraordinary fortunes.

“There were many others who were doing the same things as Bo Xilai and his wife, but they did it earlier and they were smarter,” said Jiang Weiping, an investigative journalist from Dalian who fled China after being imprisoned for publishing state secrets.

Bo and Gu started amassing money and power in Dalian, where Bo was posted until 2000. After serving as China’s minister of commerce, he moved to Chongqing in 2007, where his campaign to bring back revolutionary songs and crack down on organized crime drew wide attention. By that time, Gu appeared to be devoting much of her attention to building a future for their son, Bo Guagua.

It is unclear whether any of the family’s tangled financial dealings along the way were illegal. Conflicts of interests that would make regulators blanch in other countries are commonplace in China. Communist Party ethics rules don’t rise to the level of law, and enforcement is weak.

“Using power to make money is as common as water running down a river in China. There is no precise formula for how it is done, but it is facilitated immensely by an opaque policy process and regulatory framework,” said Scott Kennedy, director of the Research Center for Chinese Politics and Business at Indiana University.

The murder investigation against Gu is one thing, said Victor Shih, an expert on the Chinese political economy at Northwestern University. “But if the investigation focuses on influence peddling, every politician in China is guilty of that,” he said. “You have princelings running all kinds of consultancies in China.”

In the parlance of Chinese politics, princelings are the offspring of the Communist Party leadership, a sort of red aristocracy. Bo’s father, Bo Yibo, was one of the party’s founders. Gu is the youngest daughter of Gu Jingsheng, a prominent general.

The couple met in the 1980s. Gu was the sister-in-law of Bo’s first wife, an army surgeon. In the midst of Bo’s messy divorce, Gu followed him to Dalian, where he rose to become mayor in 1993.

Gu was as charismatic and ambitious as her husband. Fresh out of the prestigious Peking University law school, she opened a practice that she described in a brochure as the “first independent law office founded by a woman in China.” She called it Horus L. Kai, a name she often used for herself, the first part borrowed from the Egyptian falcon deity representing war, sun and hunting.

Although people today are calling her the “Lady Macbeth of China,” in the 1990s her friends joked that she would be the country’s Jackie Kennedy.

“Gu was very smart; she was gracious, polite, unassuming. Quite frankly, I’m kind of astounded by all these allegations about her because it doesn’t sound like the person I knew back then,” said Robert Schenkein, a public relations consultant who worked on the U.S. legal case.

Although Dalian’s population of about 5.5 million was modest for a Chinese city, it was booming. Gu’s firm represented foreign clients who wanted to get a piece of the action.

She was part of a team representing the Port of Singapore in a $1.5-billion joint venture deal in 1996 with the Port of Dalian. Her husband, the mayor, also took part in those negotiations, according to others involved. Singapore also hired another well-connected lawyer, the daughter-in-law of former Singapore Prime Minister Lee Kuan Yew.

The next year, Gu was picked by the city of Dalian to represent a local company entangled in litigation with a bankrupt firm in Mobile, Ala., and won the case.

In 1998, she published a book, “Winning a Lawsuit in the U.S.,” which was made into a television movie in China. She gave frequent lectures and went to book signings. She spoke at seminars on how to invest in China, including one in the city of Xiamen in which now-Premier Wen Jiabao’s son, Wen Yunsong, was another speaker, according to a brochure in 1999.

A profile of Gu in the Chinese magazine Renwu quoted Henry Kissinger as saying, “From her, we see the image of China’s younger generation; she is a qualified representative of China’s new legal culture.”

Bo’s relatives also had considerable personal wealth, investing in real estate, technology and financial firms often through well-connected private equity firms. His oldest brother, Bo Xiyong, is vice chairman and executive vice president of China Everbright International, a division of Everbright Group, a giant state-owned company, although he uses an alias, Li Xueming, for reasons he has not explained.

Bo’s son from his first marriage, Li Wangzhi, 36, a graduate of Columbia University’s School of International and Public Affairs who once worked as an executive vice president for Citicorp, also is in private equity, investing in firms doing business in China, including one Dalian-based company raising cattle.

Tang Baiqiao, a pro-democracy activist who was a Columbia classmate, said Li had gotten enormously rich in recent years, living in an expensive home in Beijing and driving luxury cars.

“If he made that kind of money, it had to be because of help from his father,” Tang said. “There is no other way.”

At least one friend became concerned that Gu’s high profile would impede the political career of her husband, who was increasingly seen as a top player in the generation of party leaders that would take power in 2012.

“I told her: ‘If you keep running your own firm, you’re going to hurt your husband. People will talk,’ ” said Larry Cheng, a Chinese American business consultant who worked closely with Gu until 1999.

A Hong Kong newspaper, Frontline, ran a series of stories beginning in 1999 on corruption that pointed to Gu’s law firm and consultancy. The articles also alleged that a nonprofit Gu ran, the China Culture Research Foundation, was funneling money to the family.

“They were a great pair working together. Any projects you wanted done had to go through Gu Kailai’s consultancy,” said Jiang, the investigative journalist who wrote the stories. “It was a way of paying tribute to the Bo family.”

Jiang was arrested, accused of revealing state secrets and served five years in prison. He now lives in Toronto.

Perhaps as a result of the bad publicity, her law firm changed its name to Ang Dao and was registered to a new owner, Zhao Dongping, who had been a university friend of Bo’s. Behind the scenes, Gu still controlled it, said a source with firsthand knowledge of the firm’s operations.

When called for comment this week, Zhao hung up the telephone.

Gu’s family also prospered. Her oldest sister, Gu Wangjiang, a Hong Kong resident, started Tungkong Security Printing in 1996 with $10 million in capital. Another sister is a major stockholder.

According to public records, the company, which is traded on the Hong Kong stock exchange, had revenue of $124 million last year, mostly from Chinese government business. It is the designated printer for the ministries of finance and transportation, the People’s Bank of China and the National People’s Congress. In October, it was approved to print social security cards.

Gu did distance herself from the business and from Dalian, where it was considered an open secret that her husband was involved with other women. She traveled frequently to Singapore and Britain to handle the schooling of their son.

Heywood, the British consultant, had been living in Dalian and arranged an introduction for the young man to attend Harrow. At least one of the trips, around 1999, was paid for by Xu Ming, the head of the Dalian conglomerate Shide and once ranked by Forbes as the eighth-wealthiest man in China.

“Xu Ming paid for the trip to London, expenses, 100%, the tuition, everything,” said a source who was on one of the trips. Xu is believed to be in custody now in connection with the investigation.

Gu also is in custody, pending formal charges in the murder case. Reports in Chinese state media suggest that she used Heywood to funnel money outside China in violation of annual limits of $50,000 per year, but that their business relationship soured.

Many officials move money and family members to Hong Kong, Singapore, the U.S. or Europe. According to previous corruption cases, they seek foreign citizenship for family members to facilitate the transfer of money. That gives officials the option of running away if they have to, the People’s Daily said in an editorial that appeared to take aim at Bo but did not mention him by name.

In a report leaked last year, the Chinese Academy of Social Sciences said that since the mid-1990s, 16,000 to 18,000 officials from the government, judiciary and state-owned companies had fled with $127 billion.

At a news conference in March, shortly before he was sacked, Bo said his wife had given up outside work long ago.

“She now basically stays at home, doing some housework for me,” he said. “I’m really touched by her sacrifice.”

barbara.demick@latimes.com

Special correspondent Jonathan Kaiman and Times staff writer David Pierson contributed to this report.