China Resources arm faces theft accusations

A subsidiary of China Resources Group, the Hong Kong-listed Chinese conglomerate embroiled in corruption allegations, has been accused of theft and illegal asset transfers in a previously unreported case involving British investors in the Chinese resort island of Hainan.

Executives of Bloom World, a subsidiary of the China Resouces group that employs 400,000 people and boasts assets worth more than $120bn, are alleged to have forged documents in order to illegally transfer land in 2011 out of a company controlled by Keith Darby, a British real estate developer and former steeplechase jockey.

The latest revelations come as a Hong Kong court on Monday began hearing a case against China Resources board members brought by minority shareholders who allege the company massively overpaid for several coal mines in northern China in 2010.

The court case has been accompanied by public accusations of "suspected enormous corruption," levelled by journalists working for Chinese state media and aimed at the company's chairman, Song Lin, who holds a rank equivalent to vice-minister in China.

Investigators from the Communist Party's top anti-corruption body have already launched an investigation into the various allegations involving China Resources, according to one person with knowledge of the matter.

On Monday, a spokesman for China Resources directed questions to the China Central Discipline and Inspection bureau, which declined to comment on any ongoing investigations. Song Lin could not be reached for comment.

China Resources is one of the country's largest state-owned conglomerates, with businesses spanning pharmaceuticals, real estate, power, consumer goods and finance.

In 2006, a British Virgin Islands-registered subsidiary of China Resources called Bloom World established a joint venture with Mr Darby's company to develop a luxury resort on the tropical resort island of Hainan.

Most of the land was injected into the joint venture by China Resources while Mr Darby's company provided the bulk of the initial investment of Rmb125m with funds from British investors managed by a subsidiary of South Africa's Standard Bank based in Jersey.

Mr Darby's company held 97 per cent of the joint venture and he was named company chairman while Bloom World held the remaining 3 per cent.

Construction on the resort was halted after British investors missed a payment and in late 2009 Bloom World applied for an arbitration ruling in China.

However, before all legal proceedings were completed, two Bloom World executives allegedly broke into a safe in the offices of the joint venture in March 2011 and stole the company seals. The allegations have been made by Mr Darby in court filings and in police reports seen by the Financial Times.

In China, a company's seals or "chops" are crucial for doing business as they must be stamped on all official documents and without them a company is unable to carry out the most basic functions, such asaccessing its own bank accounts or filing tax returns.

After allegedly stealing the company seals, executives used them to transfer the plot of land from the joint venture to another China Resources subsidiary.

In transferring the land they valued it at less than one-seventh of the price it was valued in the initial deal in 2006, despite a property boom in Hainan that had seen the value of the transferred land increase more than sixfold, according to an appraisal from CBRE.

Bloom World and its executives have not responded to a legal case filed by Mr Darby in a Hainan court at the start of 2012.

The China Resources subsidiary that received the transferred land shares a number of executives with Bloom World, but the recipient company wrote to the court saying it had no knowledge of the case and refused to get involved.

The court appears to have accepted that response and has told Mr Darby's lawyers that it has been unable to find Bloom World or its executives.

On Monday, Bloom World officials declined to comment.

Mr Darby's complaints to the police and party officials and attempts to sue Bloom World in Hainan and Beijing have so far mostly been ignored.

Mr Darby, 69, believes his phones and computers are bugged. He says he has received threats and physical intimidation and he says he worries for the safety of his young children and wife, who is a Chinese citizen.

"We have filed more than 20 police reports, legal cases and complaints to government departments in the last two years but so far nobody has paid any attention," Mr Darby told the FT. He said his efforts to obtain justice in China and Hainan had been frustrated.

After more than two years of legal battles with Bloom World and China Resources, Mr Darby was barred from leaving the country earlier this year by a judge in Hainan after another creditor sued his company for unpaid bills.

Mr Darby insists his company would easily be able to pay those bills if he were able to access its assets but without the official seals the company remains paralysed.

Mr Darby has brought his case to the attention of British Prime Minister David Cameron and other UK ministers and he has been receiving consular support and advice from British officials in China.

China Resources declined to comment further on the case.

Additional Reporting by Gu Yu

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