Why Chinese car maker Letin blew the whistle on the local government

Zaobao correspondent Yu Zeyuan explains the delicate relationship between private enterprises and local governments, in which both depend on each other for mutual benefit. But once the tenuous relationship runs awry, there is little recourse to right the situation.
Letin founder Li Guoxin recently lambasted Changle county party secretary Wang Xiao online. (Weibo/雷丁电动汽车官方微博)
Letin founder Li Guoxin recently lambasted Changle county party secretary Wang Xiao online. (Weibo/雷丁电动汽车官方微博)

On 14 January, Li Guoxin, founder of car manufacturer Letin (雷丁汽车), lambasted Changle county party secretary Wang Xiao on Letin’s WeChat account and in an online video.

He alleged that Wang had forced Letin to inflate its industrial and sales output value over a period of ten months in 2022, amounting to 4.683 billion RMB (US$698 million), to embellish the county’s achievements. Li further claimed that Wang has been exerting pressure on Letin and other large local enterprises since March 2022 and that tens of billions of RMB were involved.        

These allegations made by a private entrepreneur against a county party chief immediately ignited debate on the Chinese internet and became one of Weibo’s top searches.   

On the night of 14 January, Weifang city’s official WeChat account posted a statement announcing that Shandong province had put together an enquiry team of provincial and municipal officials. This team would head to Changle county to investigate and deal with the situation in accordance with the law and regulations.

But the surprise was how quickly Shandong authorities responded.

Li’s report is a bold move as it directly accused Wang of resorting to fraud for political gains. If Li’s report is true, it would mark the end of Wang’s political career. Even if Li’s claims turn out to be exaggerated, the investigation could unearth other issues that could see Wang removed.

Li Guoxin and Wang Xiao.
From left: Letin founder Li Guoxin (screenshot from online video) and Wang Xiao. (Internet)

But the surprise was how quickly Shandong authorities responded. Soon after Li’s report appeared, the Shandong provincial government formed and sent an investigation team to Changle county that evening, and even affirmed that it would deal with the situation according to the law and regulations.

Chinese officials are usually cautious in acting on reports about their subordinates, especially local party chiefs. They would often want to suss out the situation first before sending an investigation team to verify the facts. After all, many reports are just one side of the story — once an investigation team is sent to the area, the persons involved would have to put their work aside and cooperate with the investigations. Even if their names are cleared in the end, their reputation would be ruined and they would unlikely be able to continue in their post.

Thus, the fact that Li’s report on Wang received such a swift response from Shandong authorities is uncommon in officialdom, and the Shandong provincial government has won praise from netizens as a result.

Mutual interests of enterprises and local governments

But on closer inspection, the forced falsification of figures was not the main reason for the allegations. Rather, it was because the loans to Letin previously guaranteed by the Changle county government had expired, and Wang, the newly-appointed Changle county party secretary, did not renew them even after negotiations and a working team from Weifang was sent to Changle to resolve the problem.

Letin later cobbled together 3.2 billion RMB from external capital investments, but these deals also fell through because Changle authorities refused to guarantee it. At present, work and production have been suspended at Letin.

People at Letin's car show. (Weibo/雷丁电动汽车官方微博)
People at Letin's car show. (Weibo/雷丁电动汽车官方微博)

Letin was founded in 2008, and first established its brand as a producer of low-speed electric vehicles.

Given the inconsistent quality of low-speed electric vehicles and the grey areas in regulation, the sector grew unchecked. In 2018, six agencies including the Ministry of Industry and Information Technology (MIIT) released a notice on strengthening the regulation of the low-speed electric vehicle sector, calling for exchanges and buybacks and encouraging scrapping to get rid of non-compliant electric vehicles, which gradually faded out of the market.

Letin then tried to break into the larger market of new energy vehicles. In April 2018, Letin acquired Shaanxi Qinxing Automobile, to produce new energy commercial vehicles and special purpose vehicles. In 2019, Letin acquired Sichuan Yema Automobile at a cost of 1.45 billion RMB (US$216.5 million), to produce new energy vehicles and various fuel-driven passenger vehicles. In 2021, Letin launched its new pure electric vehicle (EV) the Letin Mengo, a minicar that sold over 300,000 units that year.

letin mango
The Letin Mengo sold over 300,000 units in 2021. (Letin website)

In 2022, with the impact of Covid and rising materials prices, Letin’s sales plunged and the company found itself in difficulties. China Judgements Online showed that Letin has had its assets frozen more than once due to losing contract disputes — in November 2022 alone, Letin was issued writs of execution eight times by various courts.

In China, it is common that companies approach the government when they run into difficulties, because the government has the power to set favourable policies, guarantee loans, and decide which companies to assist.

When relationships go awry

Li hoped the Changle county authorities would step in, and tried several times to get Wang to give an in-person update on the company’s standing, but Wang avoided Li, merely responding that he would not arrange for a guarantor or mortgage, and told Li to contact the relevant agencies.

Faced with no other choice, Li reported Wang for forcing the company to falsify information. But even if a private entrepreneur successfully files a report against their “parent authority” in their company’s home location, there will be no small price to pay. Li’s act was clearly a Hail Mary, a last resort.

Li’s report against Wang reflects the twisted relationship between businesses and some local governments. In China, it is common that companies approach the government when they run into difficulties, because the government has the power to set favourable policies, guarantee loans, and decide which companies to assist. Sometimes, it is not the market, but authority, that makes a difference in resource distribution.

A screen capture showing the Letin logo, taken from a Letin publicity video. (Internet)

Li could not recover after his company ran into difficulties, and could only turn to the government for help. And to Wang — who has not been the “top man” in Changle county for long — taking out a heavy mortgage to keep Letin going is clearly a heavy burden. Wang is only in charge of a county with access to limited resources, and he is reluctant to channel resources to a potential bottomless pit with little reward.

The investigation will show whether there is any merit to Li’s report. As for sorting out the relationship between the government and companies to allow the market to truly be a deciding factor in resource distribution, China still has a long way to go.

This article was first published in Lianhe Zaobao as “民营企业家为何举报县委书记?”.

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