Mysteries of a Railways Minister's Confidant

The owners of a well-kept home with a manicured lawn at 668 Pierre Road, Walnut, California, are somewhat of a mystery to the people living nearby.

Until early this year, local property records identified the owners as Zhang Shuguang, 55, formerly a high-level government official working for the China Ministry of Railways, and his wife, a businesswoman named Wang Xing.

Zhang and Wang might have felt comfortable living in Walnut, an upper-class suburb east of Los Angeles where more than 60 percent of the residents are Asian. The home and its tree-shaded yard are luxurious by Chinese standards.

Someone obviously cares for the property: When a Caixin reporter visited recently, he found a decorative snowflake hanging on the front door. Landscapers nearby said they occasionally saw what looked like a Chinese person coming and going by car.

But no one answered the bell when the reporter stopped by several times in December. A longtime next-door neighbor told Caixin she "almost didn't know anyone lived" in the home Zhang and Wang bought in November 2002.

How the couple managed to afford property in Walnut is another mystery. Zhang and Wang, according to Los Angeles County property records, paid a US$ 946 real estate transfer tax after the purchase. Based on that tax, the home likely cost them about US$ 860,000, or about 7.12 million yuan at 2002 exchange rates.

Zhang's railway ministry salary at that time was about 2,200 yuan per month. So where did he get the millions needed to buy an upscale home in California? From Wang's successful railcar toilet supply business? Or more sinister sources? 

The mystery of the home in Walnut is one of many swirling around Zhang, who's been detained by the Communist Party since February as a suspect in a corruption probe that also led to the ouster of his close associate and boss Liu Zhijun, the nation's former railways minister.

Authorities have yet to detail all the charges against the pair of deposed officials. Zhang served as Liu's right-hand man and confidant, adopting his boss' workaholic lifestyle and in the process earning generous career promotions.

The expensive California home is among the few, tangible pieces of evidence that might be used against Zhang. Harder to prove are charged that he accepted bribes, dabbled in amateur pimping, and tried to lie his way into the Chinese Academy of Sciences.

Nevertheless, the allegations of wrongdoing leveled against Zhang and Liu have been officially connected to the build-out of a nationwide high-speed rail system – a project that was supposed to catapult Chinese rail companies into the international bullet-train business and streamline the nation's transportation network. Zhang played a key role in the project, which Liu heavily promoted.

And the mysteries surrounding Zhang and events leading to his downfall are waiting to be revealed.

Bosom Buddies

Zhang rushed to California in mid-January and transferred full ownership of the Walnut home to his wife. That was just weeks before the party's corruption investigators moved in.

After returning to Beijing, Zhang was suspended from the high-level ministry job he'd held since 2004, falling from grace along with Liu. His "hair went white" and his diabetes flared, said a source. Zhang became "a completely different person."

Zhang and Liu were taken into custody after spearheading eight years of fast-track rail construction projects nationwide.

More trouble for the ministry followed the new minister's order last summer, however, as electric power failures disrupted newly built bullet trains on the Beijing-Shanghai line, and two bullet trains collided near Wenzhou, killing 40.

The technical problems have contributed to a scandalous atmosphere at the ministry fanned by railcar quality issues, cost-overruns and allegations of illegal contracting. Zhang and Liu, although out of sight and awaiting trials since February, have been consistently invoked as the bogeymen.

Zhang started working under Liu after the two met in 1997. Liu was a vice minister for railway acceleration testing and Zhang an engineer in the passenger railcar department.

Liu's workaholic character rubbed off on Zhang, and they labored together on many projects, even into the night. A source said the boss was deeply impressed late one night to find Zhang busy working on a technical problem – just like Liu.

"Often at midnight, (Liu) he would call people for a meeting and meet until 3 a.m.," said one source.

In time, Zhang became a Liu confidant. He helped his boss' ideas bear fruit and resolved his problems. Moreover, said a source close to Zhang, he worked with railways contractors to line up women who were willing to meet Liu for secret hotel romps.

In March 2003, Liu was named railways minister. That put Zhang in line for a big promotion that came one month later: Zhang was named deputy director of the Beijing Railway Bureau.

Less than six months after that, he was chosen deputy director of the Ministry of Railways Equipment Department and deputy director of the High-speed Rail Office, overseeing high-speed rail technology. The next year, Zhang was promoted again, this time to deputy chief engineer for the ministry and Transport Bureau director.

It was a great career leap for Zhang, the son of a Red Army soldier who had served during the Long March in the 1930s. He graduated in 1982 from the former Lanzhou Railway Institute and got a job at the Shanghai Railway Bureau's Bengbu Branch. His big break came in 1991, when he was named an engineer for the railway ministry's Locomotive Cars Bureau Inspection Office, putting him on track for central government positions.

After two years, Zhang was named deputy director of the Passenger Car Department, which drafted annual railcar manufacturing plans for local rail bureaus. That's where he apparently learned how to work with rail manufacturers on contracts and prices, and found out how to cut good deals.

A supplier company that enjoys a good relationship with the Passenger Cars Department "can become a designated parts supplier of the Ministry of Railways and sell products at a high price," explained a retired railway official.

A former colleague of Zhang's said he "excelled at social relations" and could make an extra 50,000 yuan by speaking at rail industry gatherings. But rumors about malfeasance soon surfaced among some rail parts manufacturers: According to a source, Zhang was rumored at one point to have accepted 300,000 yuan from a maker of railcar refrigerators in exchange for a contract.

Caixin learned from sources that none of Zhang's critics had hard evidence of wrongdoing at that time. But to protect him, ministry officials moved Zhang in 2001 to a job in Liaoning Province, where he was named a director's assistant at the Shenyang Railway Bureau.

Meanwhile, sources said Zhang and Liu continued building their relationship. The former soon became a "hardcore trusted follower" of Liu, said one source.

Stressful Deals

Starting in 2004, Zhang's work focused on Liu's pet project: Expanding the nation's high-speed rail network. Together, they oversaw China's rise to world leader in terms of total high-speed railway track, extending a network that was just 404 kilometers in 2003 to more than 8,300 kilometers today.

Liu's idea was to incorporate high-speed rail technologies developed by companies outside China into a "leapfrog" development plan. Zhang was the plan's leading strategist. Those participating in bidding included Kawasaki Heavy Industries of Japan, Bombardier of Canada, Alstom of France, and Siemens of Germany.

Zhang controlled each major bidding process – and played hardball with foreign companies that apparently saw the ministry's project as an inroad to the largely state-controlled Chinese railway industry.

"Zhang had the Chinese market as his support," said an engineer at China South Locomotive & Rolling Stock Industry (Group) Corp.

"He appeared very professional and very strong. Before starting negotiations over introducing technology, he did a lot of market research, becoming very familiar with the product prices charged by foreign companies," the engineer said. "If they wanted to enter China, the first thing they had to do was cut prices, which (he said) should be at least one-third below market rates. Otherwise, there was no discussion."

A source who participated in those negotiations said the ministry uses the same negotiation strategy today, and is thus able to dominate negotiations with foreign companies.

"If the Chinese side would not compromise, there was nothing the other side could do," the source said. "In terms of the strategic exchange of market for technology, no other sector could do better than the Ministry of Railways."

Citing his technical know-how and negotiating talents, many sources at the ministry and among manufacturers praised Zhang for his hard work and abilities. One described him as "very capable, quick-thinking and influential when speaking at meetings."

"He often met subordinates to study new questions," said an executive at China North Locomotive and Rolling Stock Industry (Group) Corp.

Among suppliers, Zhang was more feared than Liu because he knew the railroad industry more thoroughly. Yet high-speed rail was primarily Liu's baby, and thus it was the minister's job to follow through by securing the necessary funding from the central government.

Still, Zhang felt enormous pressure. "Zhang said privately that the pressure was great, and that he couldn't sleep at night (and) lamented he had gotten in too deep and couldn't go back," said a source close to Zhang.

Despite the job stress, Zhang in 2007 tried to advance his career further by seeking to join the Chinese Academy of Sciences. One source said behind the move was Liu, who tried to make up for his own inability to serve in the academy, due to his lack of advanced education, by helping subordinates become academicians, said a source.

Zhang tried a backdoor approach. He gathered experts from the China Academy of Railway Sciences, Southwest Jiaotong University and Beijing Jiaotong University at a five-star hotel in Beijing in 2007, a source said, and paid them to write books and application materials in his behalf that could be used for his application to academy membership.

"Room-and-board was paid by a state firm doing import-export business on behalf of the rail ministry," the source said. "From the start of writing in March, they spent two months writing three books, finally finishing in May."

Academy rules say a candidate must be selected by two-thirds of all sitting academics. Zhang's first attempt in 2007 won "very few" votes, said a source.

Zhang tried again in 2009, organizing publications of three books. Industry sources confirmed state companies solicited votes for Zhang, even organizing trips to bullet-train production plants for the experts asked to back his bid.

Rail company and China Academy of Railway Sciences officials reported these shenanigans to the Chinese Academy of Sciences. An investigation began, and in the end Zhang fell one vote short of his goal. He's unlikely to get another chance.

Staff reporters Cao Haili, Duan Hongqing, Luo Jieqi and Huo Kan also contributed to this article