Ten telecommunication companies reported 25 billion yuan of impaired receivables. Remarkably, all the unpaid bills can be traced to a single person.
By GUO Jingjing
On May 30, Shanghai Electric Group disclosed a “significant impairment” in 8 billion yuan (US$1.2 billion) of receivables, an amount close to 5 percent of the company’s revenue last year. In the two months since, eight more companies have come forward to reveal similar intrigues. Weak accounting, deception, poor protocols, insufficient oversight, and outright criminal intent appear to be behind the disappearance of as much as 25 billion yuan. It seems likely that the actual total is much higher, as other victims, for whatever reason, choose to keep their worries to themselves,
All the transactions involved “private telecommunication networks” (PTN). None of the victims has any clear idea of what they bought, who they bought it from, or why. Nevertheless, they paid suppliers upfront and received 10 percent of their orders.
The paper trails are long and meandering but all lead to one man: SUI Tianli, the major shareholder in Shanghai HighSea Telecom. HighSea admitted Sui had been out of reach since the end of July, he was taken by the police.
In December 2019, telecommunication equipment maker Huaxun wrote off 348 million yuan of receivables. Two months later, it went delinquent on a 100-million-yuan loan and its assets were frozen. In June 2020, Huaxun failed its annual audit and the extent of mismanagement became public.
The audit report was flagged for its financial statements and internal controls, standard signals of suspected fraud. The auditor was unable to verify many large transactions, and the military-backed telecommunication giant was on the verge of being delisted.
The matter was all very regrettable; an unfortunate, anomalous incident. Lessons were learned, corrections were made. Then Shanghai Electric fessed up to losing sight of 8.3 billion yuan, blaming delayed payments by state-backed clients. One of these clients, Fushen Industry Co., was a name all too familiar to those acquainted with the Huaxun case.
The next domino to fall was Shanghai Hongda New Material. The producer of organosilicon for semiconductors reported irregularities in PTN contracts involving 400 million yuan in unpaid invoices. The arrangements were unusually intricate. Two months later, Hongda admitted that some of its delinquent suppliers and non-paying customers were connected to telecoms “expert”, Sui Tianli, another name from the Huaxun case.
Seven more companies have since reported similar dubious arrangements, with 2.5 billion yuan in limbo. It does not need much detective work to find the fingerprints of Sui all over these losses. The companies concerned make little attempt to conceal their connection with Sui through shareholdings or board positions.
Kanglongda (15 million yuan in unpaid invoices) is not even a telecommunication company. It makes gloves and got involved in the PTN business last year through a second-tier subsidiary. All 15 million yuan is owed to Hangtian Shenhe, whose chairman is none other than Sui Tianli.
So just what is a private telecoms network? It’s not as complicated as it sounds. Two children talking via soup cans connected by a piece of string are using a PTN. Your office intranet is a PTN. From the intercom in your apartment building to the military hotlines that connect superpowers, the definition is very broad, so broad indeed as to be no definition at all.
Any company or government agency can have its own internet and phone network, which is not open to the public and is seen as more secure. An equipment maker buys basic semiconductor parts from suppliers and builds the network to the client’s specifications. Network providers work closely with clients and know exactly how everything is designed and what each device is used for, even in cases that involve sensitive or classified information.
This is apparently not the case when dealing with Sui. Sui controlled the equipment makers. Suppliers were nominally owned by business partner YANG Xin (coincidentally also Hongda’s largest shareholder). Numerous companies are listed under the pair’s contact information.
“We were told to buy from this supplier [Yang] and deliver to that client [Sui], and to use specific means of transportation as well. But I have no idea what happened after we handed the products over to the clients,” the head of procurement and installation at an affected company told Jiemian News. Another manager said it was unclear what the networks were used for.
Of the ten companies who have opened up about their difficulties, some listed PTN as their main business, some are mobile internet providers, telecommunication equipment distributors, or simply telecommunication businesses. The devices they make — transmitters, wireless routers, hard drives, etc. — are not particularly sophisticated. Some, Hongda for example, are simply processors of intermediate parts. Others, such as glove maker Kanglongda and former textile supplier Jiangsu Skyrun, seem to have just wandered into trouble. Despite the risks of dealing with naive or inexperienced clients, Sui had no particular concern when signing hundred-million-yuan contracts with these newbies.
The contracts, however, were all remarkably similar. The network providers paid their suppliers in full but only received around 10 percent upfront from clients. This, according to people in the business, is “definitely not the industry norm.” The percentage of the down payment is usually determined by an assessment of the project and the client’s finances.
Who is this Sui Tianli? How did he make ten large companies, most state-backed and publicly traded, agree to such absurd terms? One factor seems to dominate: “He has an aura about him. We thought the terms were reasonable,” many who got involved in the PTN deals said so.
This “aura” on one hand is simply the charisma of a slick con artist. On the other, it’s down to a government background – one which might even be real. A stalwart of the business community, Sui recently sat on the panel of a high-profile national innovation and entrepreneurship contest. He is described on the contest website as having over 30 years of experience as a leader of state-backed infrastructure initiatives. Sui claims to have been a director of CESTEC, a Ministry of Industry and Information research institution. Similarly, he describes himself as a former executive at the military-backed China Electronics Technology Group.
Sui is a major shareholder in HighSea Telecom, but the company’s 2020 report makes no mention of his experience at CESTEC or China Electronics. Easily accessed public records reveal that CESTEC and China Electronics have been HighSea’s No.1 and No.3 suppliers since 2016 when Sui became affiliated with the company. Clearly, Sui is not easily deterred by conflict of interest.
At this point, his scheme is plain as day. Using his government background, Sui was able to talk unsuspecting network providers, some with meager qualifications and eager to endear themselves to big industry players, into buying from suppliers he controlled. But some of his victims were no rookies in the telecommunication game. How did they fall so easily? For a while, Sui’s power worked just fine, until it didn’t.
“He came to us with papers and said if we deal with his companies, we would be exempt from disclosing a potential conflict of interest. We believed in him and his power,” bemoaned one victim.
“The first few projects were paid for on time. Then the flow stopped. In hindsight, there might be a broken link in the chain. Someone was in trouble and unable to pay. Then the whole thing fell apart.”
The potential “broken link” might be Huaxun. Around the time its mismanagement was exposed, Tan Jianbo, then in charge of China Electronics, was convicted of accepting kickbacks through fake transactions
From 2016 to 2019, China Electronics helped someone surnamed Yu obtain favorable bank loans or inflate operating revenue by entering into multiple fake contracts. The transactions only existed on paper. No money or goods changed hands. A number of large, influential companies were involved, Huaxun among them. China Electronics was a big client of Huaxun, which owes a huge sum to another telecommunication company Nanjing Hengerhui, controlled by Yu.
In a related case, a witness testified that she had signed fraudulent contracts and receipts for Nanjing Hengerhui. The papers were pre-stamped with (allegedly forged) chops of No.55 Institute (a state-owned telecommunication equipment maker who has denied all involvement), Unistrong Science & Technology (connected to Sui Tianli), and Huaxun. Unistrong buys from Nanjing Hengerhui but has large outstanding receivables with No.55 Institute, which also owes money to Huaxun. Huaxun, enmired in multiple frauds, paid 196 million yuan to Xingditong, another of Sui’s companies. Allegedly, Xingditong has not delivered anything since 2019.
Further complicating the already fraught situation, Huaxun is in dispute with Beijing Ctrowell, a company responsible for 350 fake transactions with 1.6 billion yuan in over four years, according to past court rulings. Huaxun claims that it has delivered over 195 million yuan of digital gadgets to Beijing Ctrowell as agreed in six contracts signed in 2016, but has not received any payment. Beijing Ctrowell claims the contracts were fake and created purely for fraud. There was no evidence of actual goods delivered. The court has so far sided with Ctrowell.
The truth is perhaps more obscure than ever. A possible, perhaps oversimple explanation is that Huaxun’s troubles expanded until the cracks appeared and the precarious scheme collapsed.
This story still has a long way to run. New details emerge almost daily. There is no telling where Sui Tianli and his captivating aura may turn up next and his stolen billions remain incalculable.
