The "Princelings" Might Not Inherit Any Crowns

As members of China's political class jockey for advancement, a special group in business is focused on protecting what it already has. Known as the princelings, they are the sons, daughters, nephews, and nieces of China's most powerful people. With nearly half of China's top politicians set to leave their posts soon, this fortunate young clan with its foreign education, lavish way of life, and powerful connections could well face a reckoning--especially if it is involved in dealings that anger the public. "If the fathers lose favor," says a Beijing political scientist, the princelings "could be badly affected."

President Jiang Zemin, Premier Zhu Rongji, and National People's Congress Chairman Li Peng all have kids who have done well for themselves. Jiang's son, Jiang Mianheng, 48, is vice-president of the Chinese Academy of Sciences and a major player in Shanghai's telecom and semiconductor industries. Zhu's son, Levin Zhu Yunlai, also 40ish, is an executive at China International Capital Corp., in which Morgan Stanley holds a minority stake. Li Peng's youngest son, Li Xiaopeng, 42, heads Huaneng Power International Inc., and has recently been named vice-president of the State Power Corp. A daughter, Li Xiaolin, just past 40, is a vice-president at another power-generating company, China Power Investment Corp.

No powerful family stirs public resentment more than Li Peng's clan. Ordinary Chinese have never forgotten Li père's role in the Tiananmen Square crackdown. There is no evidence that Li's relatives have been involved in anything illegal. But in November, a Chinese securities weekly subtly criticized Li's relatives--in particular, for the ease with which they have won permission for simultaneous company listings in Hong Kong, New York, and Shanghai. It was an unusually bold attack--and a few days later the publication ran a retraction and an apology.

Not so easy to play down are regular demonstrations by angry shareholders protesting the loss of their savings in the collapse of a Beijing brokerage, Xinguoda Futures, four years ago. The protesters reserve much of their ire for Li's eldest son, Li Xiaoyong, who they claim had close business dealings with the management at Xinguoda--a charge the family has never responded to. In January, Beijing protesters demanded that Li senior help them get their money back.

The old leaders are no doubt worried that the likely waning of their influence could prompt investigations into the business dealings of their offspring. Says Carleton University China expert Jeremy Paltiel: "If the economy runs into trouble, the simple political opportunity would be to go after the most obvious example of conspicuous wealth--to show one was on the people's side, not the fat cats' side." No surprise then that the next generation of leaders has so far refrained from obvious nepotism.

By Dexter Roberts in Beijing

    Before it's here, it's on the Bloomberg Terminal.