The Aleba Water Confiscation

Anatomy of a Chinese Confiscation: The Aleba Water StoryEd Morrison!Chairman, Xi’an Aleba Water Company [email protected] Learn more at www.alebawater.com

mailto:[email protected]

http://www.alebawater.com

The Overview: A confiscation of U.S. investor property by the Chinese government.01

table of contents

The Characters: We start with a list of key people involved.02The Situation: How a small group of investors sought to help China with its water crisis.03The Business: How Aleba Water grew dramatically in a tough competitive climate. 04

The Confiscation: Chinese officials conspire with a criminal gang to seize valuable property.05The Corrupt Chinese Officials: Who they are and what they have done.06

Appendix: A time line and key lessons

07 Our Demands: How the Chinese Government can attack the corruption in Xi’an.

08

China’s shame!Corrupt Chinese officials are destroying a project supported by U.S. investors with a simple goal: Provide high quality mineral water to the residents of Xi’an.

Overview

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Chinese government seizure of a U.S. investor property

A modest water factory on the outskirts of China’s ancient capital, Xi’an, provides a test case on whether China can control corruption. The short answer: It probably can’t.

Since opening to the outside world in the late 1970’s, China’s economic growth has been spectacular. Yet, for much of the past thirty years, China has been running ahead of its headlights. The country’s remarkable growth has created devastating consequences.

The contours of this devastation are only now coming into view: dangerously unbalanced real estate markets, severe pollution and worsening water shortages, widespread political corruption.

All of these forces can be seen at work in a small water factory in one of the counties surrounding Xi’an, near the famed terra cotta warriors. In the later 1990’s local officials in Lantian County invited a small group of entrepreneurs to help them develop their water resources responsibly.

The investors, based in the U.S., successfully started a mineral water company to provide healthy water to the citizens of Xi’an. By 2003, they had built a business with over 30,000 customers.

Then, almost overnight, everything changed. The initial group of local officials retired. A younger set of leaders, more prone to corruption, confiscated the factory for their private gain, with the muscle of a criminal gang behind them. This is the story of how that happened. It offers powerful insights into whether China will be able to control corruption.

Section 1: Overview

section 01: !The Overview

The two sides!On one side stands corrupt Chinese officials. On the other side, a dedicated staff committed to a simple water project. Thankfully, they are supported by skilled U.S. Embassy staff and two U.S. Senators.

The Characters

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Section 2: The Characters

section 02: !The Characters

Xi’an Aleba Water Company

Ed Morrison Chairman of the Joint Venture

Wang Hui China Manager; Lantian County officials tried to force him to negotiate with gangsters

Dei Xiao Feng Factory manager; Assaulted numerous times by criminal gang

Lantian County Government

Zhao Jidi Corrupt former Land Bureau Director who masterminded the seizure

Tang Anyi Land Bureau Section Chief responsible for preparing fraudulent maps

Chen Xiwen Corrupt vice mayor responsible for protecting the criminal gang

Wu Yongping Vice mayor put in charge of the Aleba case who refuses to take calls from Aleba

Li Yi Community Party Secretary whose investigation naming Zhao Jidi has been ignored

Xi’an Government

Wang De An Chief of staff to Xi’an mayor who briefly helped Aleba, then delegated the case to Qian Huwei

Qian Huwei Vice General Secretary who is now protecting the criminal gang and refuses to meet with Aleba

Key Criminal Conspirators

Sun Junhong Former Lantian deputy police chief and head of criminal gang in Lantian County

Wang Bao Sheng Corrupt Middle Court judge who who attempted to legitimize the seizure of Aleba property

U.S. Government Officials

Senator David Vitter Louisiana Senator who wrote letter to Ambassador Locke expressing concern over Aleba Water

Senator Mary Landrieu Louisiana Senator who wrote letter to Ambassador Locke expressing concern over Aleba Water

Ambassador Gary Locke Former U.S. Ambassador who raised Aleba Water issue in a 2012 meeting with Provincial officials

It was predictable!China’s current massive water crisis was foreseeable to anyone who cared to look twenty years ago. The founders of Aleba Water saw the crisis coming and did something about it.

China’s Water Crisis

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China’s Water Crisis

Years ago, you could see it coming: a water crisis in China. Nearly twenty years ago, officials in a county outside Xi’an did something about what they saw.

Two thirds of China’s cities face water shortages, more than 40% of its rivers are severely polluted, 80% of its lakes suffer from eutrophication – an overabundance of nutrients – and about 300 million rural residents lack access to safe drinking water.

China's current water crisis was entirely foreseeable. With a fifth of the world's population China has only about 7% of the world water resources.

Lantian County is one of the six counties surrounding Xi’an, the ancient capital of China. In 1996, Lantian County officials, armed with geological maps, sat down with Ed Morrison and Wang Hui to discuss how they might be able to responsibly develop their water resources. Morrison and Wang had worked together on several projects in China. Wang knows Lantian County well; he grew up there.

Morrison agreed to explore the possibility to drilling a test well to locate mineral water 200 to 300 meters below the surface. Working with U.S. investors, experienced in both oil drilling and consumer soft drink distribution, Morrison agreed to form a Joint Venture to explore the possibility.

In 1997, they formed the Joint Venture, approved by the Central Government’s Ministry of Commerce: Xi’an Aleba Mineral Water Company.

Section 3: The Situation

section 03: !The Situation

The tricky part!There are many complexities to launching a water business in China. Aleba mastered the process and built a business with 30,000 customers.

Business Launch

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Launching a Water Business in Xi’an

The test well tapped into a deep source of high quality mineral water. But that was only the beginning: Setting up a retail water business in China is tricky.

Among the challenges:

▪ Establishing an efficient system of retail distribution in a dense city like Xi’an; Some companies relied on expensive small vans. Aleba Water chose instead to use an network of retail shops with delivery by three wheeled bicycles.

▪ Maintaining the control of cash in a network of independent dealers poses a serious risk. Aleba devised a system of tickets to control cash. Other companies were not so smart. They quickly went out of business when retail distributors rans off with the cash.

▪ Using five gallon recyclable bottles is environmentally responsible, but it means that maintaining control of the bottle inventory is critical to success. Aleba designed and efficient logistics system that resulted in bottle losses of only 2%.

Section 4: Business Launch

section 04: !The Business

To be successful, Aleba needed to establish an

efficient retail distribution network that strictly controlled both

the flow of cash and the flow of returnable

bottles…

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The Aleba Water factory is located on the outskirts of Xi’an, China’s ancient capital.

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Lantian County is located about 30 km to the southeast of Xi’an. It is a county adjacent to the famed terra cotta warriors.

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The Aleba Business DocumentsSection 4: The Business

The original Joint Venture approval document issued in 1998 by the Ministry of Commerce under the State Council. The Xi’an Government also approved the JV.

The original map filed in 1998 that shows Aleba Water occupies 7 mu of land within a larger industrial plot of 37 mu. The Land Bureau confiscated this land in 2008, and we have fought for 6 years to reverse this decision.

The location of the factory is clearly outlined in founding documents.

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The Aleba Business PlanSection 4: The Business

Aleba management completed a detailed business plan in 2009 and an updated business plan in 2003. The 2003 business plan took note of the many strong recommendations customers provided for the water. Apparently, the high content of minerals and trace elements relieved the symptoms of auto0immune disorders. Consulting doctors speculated that as the Chinese diet moved toward more processed foods, these minerals and trace elements were being lost.

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The Aleba Water FactorySection 4: The Business

The Aleba Water factory produces high quality mineral water in five gallon returnable bottles.

The bottling equipment was purchased in the U.S. All other equipment in the factory was manufactured in China.

Our goal was to develop a mineral water factory with bottling equipment that was appropriate to the market.

We chose 5 gallon bottles for environmental reasons. A factory tour video is available here.

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Overcoming small scale corruptionSmall scale corruption is everywhere in China. Over 20 government agencies have been involved with “regulating” our business. That provides ample opportunities for small time corruption.

We overcame a lot of small time corruption actions by public officials. Here are some examples :

•We delivered water from our factory to Xi’an using large 10 ton trucks. Transportation police stopped one of our trucks and asked for a delivery bill (indicating the sale and delivery of goods.) Our driver told them that there was no such document, because we were sending bottles from our factory to our warehouse. No matter. We were fined 5,000 RMB.

• Another truck was stopped by inspectors regulating food deliveries. We were told that water is “food” and that our truck was not complying with regulations for the delivery of food. We were also fined 5,000 RMB.

• Within Xi’an, we used small vans to move bottles from our warehouse to our retail shops. One of our vans was stopped by Xi’an officials who told us that since we were transporting both goods and people (two delivery men in addition to a driver), that we needed a partition in our van separating the people from the goods. They impounded our van and charged us 10,000 RMB to get it out.

• An inspector came to our factory to measure dust levels in our clean room that surrounds our bottling equipment. He brought in a dusty case and shoes, then claimed our clean room exceeded specifications. He fined us for exceeding dust levels.


section 04: !The Business

Large Scale Corruption!Aleba confronted much a larger problem when corrupt public officials tried to take over the factory. !Converting our factory land to residential development will net the conspirators between $2 million and $3 million.

The Confiscation

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China’s Government Confiscates the Aleba Joint venture

With hard work, the Joint Venture team built a business of 30,000 customers. By 2005, the business was barely surviving. What changed? In two words: greed and corruption.

Eight years after the Joint Venture launched, the original group of Lantian Government and Communist Party officials retired, and new leaders, far less committed to developing the County’s water resources, took control Lantian County.

Their eyes were set on another target. China's real estate markets were booming, and Lantian County, now connected with a superhighway to Xi’an, provided some prime development opportunities.

Beginning in about 2005, the Lantian County Land Bureau conspired with a criminal gang, headed by the County's former deputy chief. Together, they began illegally tearing down factories and converting these properties into residential “villas” for wealthy investors.

In China's highly regulated financial markets, real estate development represents one of the few pathways to wealth for individual investors. The result: a growing real estate bubble.

Working with the criminal gang, corrupt Lantian officials could now cash in on the real estate boom. And they wanted the Aleba Water property badly. We sit in a prime location on a frontage road, a short distance from the superhighway interchange. Converting our factory to residential villas will net the conspirators between $2 million and $3 million.

Section 5: The Confiscation

section 05: !The Confiscation

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The Two Confiscation Strategies

Corrupt officials first attempted to infiltrate Aleba Water. They blockaded the factory to force negotiation. When that didn’t work, they simply wiped Aleba Water off the official land records.

Despite a factory blockade that began in 2005 and has wiped out its business, Aleba Water refuses to accept Sun Junhong as a partner in the Joint Venture. In 2007, the Central Government provided corrupt officials another opportunity. The National Land Survey, with strict prohibitions against fraud, was supposed to provide China with an accurate base map of the explosive development that had ignited in the 1990’s.

Corrupt officials in Lantian saw it as an opportunity simply to wipe out the Joint Venture’s land rights. They produced a fraudulent official map that eliminates the Joint Venture, despite the fact that Aleba Water had been operating continuously since 1998.


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The Two Confiscation Strategies

Source: Placeholder example


Confiscation Strategy Objective Why this is illegal

Infiltrate Force Aleba Water to accept a new Chinese partner controlled by Sun Junhong’s criminal gang. Use a series of sham transactions, backed up by a fraudulent court decision, to disguise the move.

Sun Junhong ran off Aleba’s original Chinese partner and claimed that he now owned a JV share. In support, the Lantian Land Bureau issued him a fraudulent license. There are two problems with this approach.

First, under the JV agreement, the Chinese partner is obligated to sell his interest back to the original investors. Aleba refuses to negotiate with Sun Junhong or recognize him as a partner.

Second, Lantian Land Bureau Director Zhao Jidi violated Chinese law in transferring land to Sun Junhong. He also defrauded the Government of millions of RMB by failing to collect any fees from Sun Junhong.

Confiscate Eliminate all reference to Aleba Water from the official land control maps, called for by the National Land Survey.

In 2007, to get some measure of control over exploding land development, the Central Government mandated a Second National Land Survey. This mandate provided the corrupt officials and the criminal gang with another opportunity to squeeze out Aleba Water.

Land Bureau Director Zhao Jidi and Section Head Tang Anyi prepared fraudulent documents eliminating all reference to Aleba Water, even though the JV had been operating 10 years.


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The Factory Blockade


On July 28, 2009. the Lantian mayor refused to see us to discuss our concerns about the criminal conspiracy. Upon further investigation a couple of days later, we learned the reason he wanted to avoid contact: He had approved the sale of our joint venture land to the Sun Junhong criminal gang.

Instead of meeting the mayor, we were directed to some low-level officials, and we composed a letter making clear demands for the police to remove the locks on our factory gates. The official, reading the demands (left) then requested more time to investigate. We refused.

We did not remove these locks ourselves in order to preserve evidence of the conspiracy. By asking the police to remove them, we gained insights into who was involved in the criminal network.

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Aleba driveway

Roadway

Six feet of dirt

In subsequent years, Sun Junhong’s criminal gang has tried just about every blockade imaginable in addition to locking our gates.. They have stacked dead tree limbs on our driveway, stacked bricks on the driveway, and set cement pilings against our factory doors.

Their most imaginative blockade involved colluding with the industrial park authority to pile dirt in front of our driveway and then take away our access all together.

As of July 2014, our factory is still blockaded. We get water out one bottle at a time.

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With the support of the Xi’an government, the criminal gang has blockaded our factory. They have blocked our driveway with walls of bricks and placed locks on all the doors.

Our factory manager has punched holes through walls to gain access to our factory. Our workers now carry water out by hand, bottle by bottle.

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Stonewalling begins

Despite repeated appeals, the intervention of two U.S. Senators and a U.S. Ambassador and their own Communist Party investigation, the Chinese government is stonewalling.

Since 2005, Aleba Water has fought to end the blockade of its factory, restore its business, and get the Chinese government to follow its own laws and regulations.

▪ Repeated appeals to the Lantian Land Office, the Lantian Mayor’s Office and the Xi’an Mayor’s office have failed to loosen the stranglehold that the criminal gang has on the Aleba Water factory.

▪ The Communist Party refuses to discipline its members even though its own investigation showed that Land Bureau Director Zhao Jidi has “used his public office for private gain”. (Conclusion of Lantian Communist Party Secretary Li Yi.)

▪ In 2012, Louisiana Senators Vitter and Landrieu wrote to Ambassador Gary Locke. Ambassador Locke raised the issue with Provincial level officials, but these officials have been unwilling and unable to control the corruption in Lantian County. See the full correspondence in a separate document: Aleba Water Correspondence.


The Chinese Government cannot control local

corruption that their own Communist Party has

confirmed took place in Lantian County. This fact raises serious questions about the current highly

publicized push to combat corruption in China. It is not

likely going to work.


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Stonewalling


For over six years, we have tried to gain unobstructed access to our factory and a legal land license to recognize that we have been in continuous operation for nearly 20 years.

We have written over 100 pages of letted appealing to the Xi’an Mayor, the Lantian Mayor, the Lantian Party Secretary and the Lantian Land Bureau. Our request is simple: follow Chinese law and regulations.

Former Xi’an Mayor Chen Baogen directed

lower officials to resolve the Aleba

matter by “following Chinese laws and regulations”. They

ignored him.

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Stonewalling


In April 2012, two U.S. Senators raised our case with U.S. Ambassador Gary Locke. Ambassador Locke then raised the issue with provincial level officials in Shaanxi Province.

In response to these requests, the Xi’an Mayor’s Chief of Staff met with us in June 2012. We made the only small progress we have made in six years. For a brief three months, the gangsters lifted the blockade of our factory.

Then it came back, worse than ever. Added to the blockade, the physical threats have grown. Sun Junhong, the head of the criminal gang, has told our factory manager, Dei Xiao Fueng, that the gangsters can “make him disappear”.

When the intervention of two U.S. Senators and the U.S. Ambassador cannot influence the Chinese government to follow their own laws and regulations, then corruption in China has reached a tipping point.

The Corrupt Networks!In China, corruption networks create complex inter-dependencies. When corruption is exposed, one network has gained the upper hand over another. Here’s a look inside the network operating inside Lantian County.

Corrupt Officials

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The Lantian Corruption NetworkSun Junhong

A former Deputy Police Chief in Lantian, Sun now runs a ruthless criminal enterprise in the County. Sun stands at the center of the network. Virtually every Lantian official is now beholden to Sun. His criminal gang has seized property and beaten residents who dare to oppose him. His gang regularly threatens the Aleba Factory Manager, Dei Xiao Feng.

Zhao Jidi

As Director of the Lantian Land Bureau, Zhao participated in the illegal seize of Aleba Water property. He was instrumental in the illegal destruction of factories to make way for Sun’s residential developments.

Qian Huwei

Qian is the highest ranking Xi’an official we have been able to link to the Lantian corruption network. He is actively protecting Sun, and under his supervision, Sun has erected new blockades to the factory and threatened physical harm to the Aleba Factory Manager.

Chen Xiwen

A Vice Mayor of Lantian, Chen protected Sun Junhong by pushing Aleba to negotiate with Sun Junhong. He was later removed from our case and demoted, when it became clear that he was advocating too directly for Sun Junhong.

Tang Anyi

A Section Head within the Lantian Land Bureau, Tang was responsible for developing the forged documents under the National Land Survey. These documents effectively stripped Aleba Water of all land use rights to the 7 mu of land on which the factory has operated since 1998.

Wu Youngping

The Lantian Vice Mayor who has taken over the Aleba case from Chen Xien. Wu has pressed Aleba’s China Manager, Wang Hui, to negotiate directly with Sun’s criminal gang.

Section 6: Corrupt Officials

section 06!Corrupt Officials

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The Corruption Network


Retired Deputy Chief of Police

Sun Junhong now head of a criminal

gang

Director of the Criminal Court

Lantian People's Court

Li (retired)

Lantian Industrial Park

DirectorMu Xifeng

Lantian Police Industrial Park

Station Xi'an Middle Court Executive

Judge

Suen's Body Guards

Lantian MayorMiao Zhizhong

Lantian Director Housing Bureau

Hao Gaojing

Former DirectorLantian Director

Land Control Bureau

Zhao JidiLand Bureau Section Head

Tang Anyi

Lantian Vice Mayor

Chen Xiwen

Lantian Vice Mayor

Wu Yongping

We have used maps to understand the relationships among corrupt officials and Sun Junhong. This is a map drawn in about 2010.

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The Faces of Corruption


Qian Huwei, is the most senior level official now protecting the criminal activity in Lantian County. He refused to meet with us in July 2014.

On May 11, 2013, he visited our factory and claimed that no U.S. interests were involved in the Aleba Water controversy. He further interfered with JV operations by encouraging our factory manager to leave.

He asked our factory manager, “Why do you keep staying here doing this (water business)? What is the use of your being loyal to the Americans? Will the Americans take you to live in the United States?”

Ever since Qian Huwei got involved in our case, the attacks and threats from the criminal gang have intensified. In June 2014, Sun Junhong, the head of the criminal gang, threatened our factory manager, “I can make you disappear.”

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The center of corruption in Xi’an is the Lantian Land Bureau, where public property is converted for private gains by the Sun Junhong criminal gang.

The criminal gang has torn down 17 factories and converted them to real estate developments.

In October 2010, we interrupted a staff meeting of the Land Bureau and demanded to see the director. We were told the director was not in the building. We later learned that he was in his office. (See the next page.)

Lantian County Vice Mayor Chen Xiwen (inset) has steadfastly protected the corruption in the Land Bureau.

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The Corruption Network: Violence and Intimidation


Physical threats and beatings have replaced Chinese law in this Lantian County.

As we entered the Lantian Land Bureau in October 2010, we encountered this woman sitting on the floor. She was crying out, "The Director has beaten me. I want to see him."

She is a peasant woman who had come to the Lantian Land Bureau to make a complaint.

She continued crying, "The Director has beaten me." When we asked her where the Director was, she said "Right inside that door", pointing to the door over her shoulder.

The Land Bureau staff had told us that the Director was not in the building.

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Vice Mayor Chen Xiwen is the closes government collaborator with the Sun Junhong gang in Lantian County.

He protected the Land Bureau operations and the barricade of our factory. He refused to intervene in any way to lift the blockade.

We took this picture with a cell phone during a meeting with Chen in October 2010. As soon as he figured out we were taking a picture, he got angry and told us to put the cell phone away, if we wanted to talk to him.

In 2010, we repeatedly asked Chen to remove the

gangster’s barricades from the driveway that we built.

He refused.

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In a meeting on July 8, 2014 we confronted Lantian Vice Mayor Wu and Director Li, director of foreign investment in Lantain County, with a simple demand: end the blockade of our factory, so our workers can get water out of the factory.

Their response: Go and negotiate with the gangsters.

We have steadfastly refused to negotiate with the gangsters. Rather than supporting U.S. investors and the people of Lantian, Wu and Li are protecting the criminal conspiracy.

You can see a video of our confrontation with Wu and Li here.

Vice Mayor Wu Director Li

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The Corruption Network: Violence and Intimidation


The Sun Junhong criminal gang has been placing locks on every door in the factory. As a result, we have had to cut through walls in order to get our water out.

In June 2014, Sun Junhong,, the former deputy police chief in Lantian County and head of the gang, showed up at our factory in yt another effort to intimidate our factory manager Dei Xiao Feng.

He punched our manager and then tried to smash his head with a brick. You can listen to him tell the story here.

The local police are useless. You can see what happened when we tried to repot another assault. The police simply ran away. You can see what happened here.

In June 2014, the head of the criminal gang came after our factory manager and tried to smash his head with a brick. Sun Junhong earlier told our employee that the gangsters could “make him disappear.”

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The Corruption Network: Victimizing the People of Lantian County


The Xi’an and Lantian Governments want us to sit down and negotiate with the criminal gang. We refuse to have any contact.

In June 2014, a flyer appeared on the streets of Lantian County, describing how the Sun Junhong criminal gang has been illegally confiscating property and turning these properties into private profits for its criminal network.

‹#›Source: Placeholder example

With this 2008 document, the Lantian Government completed the confiscation of the Aleba Water property. Our Chinese lawyers have assembled a complete documentary record of the seizure, bot no official in the Xi’an government has asked for this evidence. !Their investigations have been a sham. !China’s State Council Order 518 makes clear that individuals preparing false documents and forgeries, like this one, in connection with the National Land Survey are punishable under criminal law. !Aleba filed a formal corruption charge against Zhao Jidi in July 2014.


Relentless Pressure!In China, corruption networks create complex inter-dependencies. When corruption is exposed, one network has gained the upper hand over another. Here’s a look inside the network operating inside Lantian County.

Our Demands

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Lift the blockade of our factory

The criminal gang has blockaded our factory since 2008. Except for a brief three-month period in 2012, we have in unable to make large-scale deliveries using trucks. Currently, the criminal gang has locked all the external doors to the factory and has obstructed our driveway.

We have not taken any steps to remove these obstacles on our own. To do so would play into the hands of corrupt officials. They are promoting a story that the controversy is between two private parties and the government is not involved.

Reality is different. Corrupt officials are using the criminal gang to convert their public power in the private profit. They have confiscated our land with fraudulent documents.

The first step in resolving this controversy involves removing all of the barricades to our joint venture factory.

The first step to resolve this controversy and restore our rights under Chinese law involves removing all of the barricades from the Joint Venture factory.

Demand 1

section 07!Our Demands

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Protect our employes from physical assaults

Physical assaults are all part of the dangerous criminal game in Lantian County. The criminal gang intimidates local residents with physical beatings.

Although we have insisted that the Xi’an government protect our joint venture employees, they have been unable to stop the attacks.

The local police are under control of the criminal gang. When we have gone to the local police in order to report these assaults, the police simply run away. Watch a video.

In a recent incident, we were forced to make an emergency call to the U.S. Embassy to stop an attack on one of our employees.

Demand 2


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Provide access to our Joint Venture bank account

The Xian government has blocked access to our Joint Venture bank account. this step represents another effort to force a joint venture to cease operations and give up its land to the criminal gang.

We have continued our operations and monitored our cash. every year we have had a certified public accountant verify our books. However, since 2010, the Xian government has blocked our efforts to file annual financial reports.

In addition to opening our bank account, the Xi’an government should construct its registration office to accept our financial reports.

The criminal gang in Lantian County reaches deep into the Xi’an Government. Our bank account has been blocked, and the Xi’an registration office refuses to accept our annual financial reports.

Demand 3


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Issue a valid land license to Aleba Water

Since 1998, the Joint Venture has been in continuous operation on the seven mu of land specified in its founding documents. Since the announcement of the National Land Survey in 2007, we have made repeated requests for the issuance of a valid land license.

Investigation by her Chinese lawyers has uncovered extensive fraud used by officials in the Xi’an and Lantian Land Bureaus to convert Joint Venture property illegally and place it in the hands of the criminal gang.

The Joint Venture has been operating on the same piece of land continuously since 1998. Despite this fact, Xi’an officials have refused our application for valid land license. They want this land to go to the criminal gang.

Demand 4


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Compensate our Joint Venture for business losses

The actions of the Xi’an and Lantian governments to promote the interests of a criminal gang over the interests of a legitimately established commercial Joint Venture has inflicted heavy losses on the Joint Venture.

The Joint Venture demands compensation for these losses in order to restart its business providing high-quality mineral water to the residents of Xi’an.

The Xi’an Government’s inability to follow Chinese laws and regulations has inflicted commercial damages on the Joint Venture totaling $2.7 million.

Demand 5


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Punish officials who used their office for private gain and violated Chinese law

Zhao Jidi and Tang Anyi orchestrated a corrupt plot to defraud the Joint Venture of its rightful land license. In doing so, they violated State Council Order 518, as well as other Chinese laws and regulations.

Former Lantian County Communist Party Secretary Li Yi investigated and found that these officials had use their public offices for private gain. Corrupt political leaders in 110 County block the results of this investigation from being forwarded to a prosecutor's office.

We have filed complaints with the Communist Party disciplinary committees. these officials, and others, should be punished in accordance with Chinese law.

Corrupt officials should be punished according to Chinese law.

Demand 6



Appendix: Timeline

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The Timeline

section 07: !The Timeline


Appendix: Lessons

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Takeaways from Aleba Water

Corruption in China has reached a tipping point. Based on our experience in Xi’an trying to get the Chinese government to follow its own laws and regulations, this province is no longer safe for U.S. investors.

In their new book, The Fourth Revolution: The Global Race to Reinvent the State, Micklethwait and Wooldridge explore the prospects of government innovation across the globe. While they have some good things to say about China, they point out, “China’s governmental efficiency falls apart at the local level.”

Indeed, it does.

While it is always a risk from extrapolating too far from one case, we have spent the last six years mapping a secret corruption network that has taken over Lantian County and Xi’an. We have studied these issues deeply, primarily because we desperately wanted the Chinese to resolve the problems of Aleba Water by simply following Chinese law and regulations.

We have concluded that they cannot. In the course of our work, we have learned some important lessons about doing business in China that deserve to be passed on.

These lessons are not based on the personalities we confronted, but the systematic failures we encountered. These same failures are, we think, deep enough that they cannot be easily erased by local circumstance.

Appendix: The Lessons

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• The Communist Party cannot effectively police itself; corruption in China will spread inexorably. !• Corruption is driven by widespread hidden networks within the Party that cannot be easily identified or

controlled. !• As a rule, because of the pervasiveness of corruption, party officials will not turn on each other. When a

corruption case becomes public, it is generally the case that one political faction has defeated a rival faction. The challenge of defeating corruption involves probing for these fissure points. !

• Lower levels of government can easily ignore the directives of the Central government. Local officials can easily ignore provincial level officials. !

• Chinese laws and regulations offer no protection to U.S. investors. !• Chinese judges are easily compromised and prone to corruption; decisions can be bought. In the U.S. litigation

costs go to lawyers. In China, they go to judges. !• Chinese prosecutors are not independent; they are subject to political control.!• The Central Government’s push to resolve corruption at lower levels of government only makes matters worse. !• Corruption in China has reached a tipping point; Foreign investors should be fully aware of the risks and avoid

some regions and cities, like Xi’an.

The Lessons of Aleba Water

See page 67 to 81 at www.slidedocs.com

http://www.slidedocs.com/

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AcknowledgementsWe were social entrepreneurs before they invented the term. Little did we know that we were heading for a graduate education in Chinese corruption.

We started with a simple idea: Provide clean, healthy water to the residents of Xi’an. We did not know the path would be so treacherous. We need to thank a number of people who have helped us along the way.

▪ The U.S. Embassy staff in Beijing — Andrew Billard, Betsey Shih, Michael Wang — have spent more time than we deserve on trying to solve this challenging problem.

▪ The staffs of Senators David Vitter and Mary Landrieu both took up our case and took the time to learn its intricacies.

▪ Senators David Vitter and Mary Landrieu for raising the profile of our case with the State Department.

▪ Former Ambassador Gary Locke, who pushed our case with provincial officials in 2012.

▪ Our Chinese legal team who has worked tirelessly to sort through the fraud and illegal acts.

▪ Mostly, though, we owe a debt to many honest citizens and former government officials who helped us. They deserve a better China than what they have.

Hat Tips

We cannot name the many citizens of Lantian and

Xi’an who have helped us over the years. Reprisals

are a real risk. They deserve a better China

than they are getting from their government.

Aleba Water Web Site!You can get additional information from the Aleba Water web site: http://www.alebawater.com !Background on Ed Morrison at LinkedIn

Aleba Water Web Site

http://www.alebawater.com

contact information!For more information, please contact Ed Morrison at [email protected] [email protected] 216-650-7267 !or Ed Crawford Atco Investment Company [email protected] 318-

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