China Merchants Group

China Merchants Steam Navigation Company was a shipping company founded on 16 December 1872 by the then Viceroy of Zhili Li Hongzhang, who was also concurrently serving as Commissioner of the Beiyang Fleet.[5] Its purpose was to capture part of the international trade, which had been virtually monopolized by foreign companies based in Treaty ports. 80% of the company's start-up capital was provided by native Chinese, making this the first transportation company using modern technology not based on foreign ownership. It obtained government support and received a monopoly contract to transport the tribute grain from the Yangzi Valley to the capital city of Beijing. The company also received loans from government sources and monopoly rights that prevented the founding of rival Chinese steamship companies.[6]

Initially, Li Hongzhang appointed Zhu Qiang (Chinese: 朱其昂) as manager at the Shanghai office, assisted by his younger brother Zhu Qizhao (Chinese: 朱其詔). The Zhu brothers and extended family had a large and successful sea-going junk business, shipping sand, rice and other cargoes along the regional coast. Zhu Qiang had already purchased an official rank as a sub-Prefect in Zhejiang.[7]

Letterhead for C.M.S.N.Co. 19th Century

Fleet flag & funnel livery of China Merchants Steam Navigation Co. 19th - 20th Centuries

The listed Chinese name for this company in the early 1870s was Zhao Shang Gongsi Ju (Chinese: 召商公司局; lit. 'China Merchants Bureau'), although by the 1880s this had morphed into Lunchuan Zhaoshang Zongju (Chinese: 輪船招商總局; lit. 'China Merchants Shipbuilding Bureau').[8]

In 1872, the company acquired its first steamship, an old combined sail & steam-powered vessel named SS Aden.[9] The ship was previously owned and operated by the Peninsular and Oriental Steam Navigation Company (P & O).[10][11] However, the Zhu brothers lacked knowledge about modern steamships and their operations, and that they were unsuitable to head the new endeavour. They subsequently replaced Zhu Qiang as manager with the appointment of Tang Jingxing to this position in 1873. Both Zhu brothers, however, being substantial shareholders, retained positions in the company as "Rice Tribute" managers.[12]

By 1877, the company was still not turning a profit and a decision was taken to expand the fleet significantly in an attempt to break the foreign shipping companies' virtual monopoly on the China coastal trading routes. The company purchased the entire fleet of 17 vessels from the Shanghai Steam Navigation Company whose agents were the old-established American Treaty-port traders, Russell & Company.[13]

The S. S. Kwang Lee

In 1885, Sheng Xuanhuai was named the company's Director-General General to improve its fortunes,[14] following the departure of Tang Jingxing for other industrial projects.

During the Sino-French War of 1884-85, ownership of the ships was temporarily transferred to Russell & Co. in order to avoid seizure by French forces, but after hostilities had ceased, they were purchased back by CMSNCo., for the same price they had been sold for.[15]

The company enjoyed profitability for a few years under Sheng's directorship and began paying out annual dividends. However, by 1904, the company's finances had once again slipped into losses. Sheng, who had appointed a whole series of corrupt cronies to the management during his tenure, was eased out of control in 1911 when Dr. Wu Ting-fang took over as Managing Director with a view to reorganizing the company.[16][17]

By 1912, the fleet size of the company had grown to 29 coastal and river steamers, all manned by foreign (mainly British) captains.[18]

During the early 20th century up until the time of the revolution, there was a long and continual power struggle between Sheng and the various shareholders over control of the company. Following the revolution, in June 1913, shareholders of the CMSNCo. agreed to a scheme for the company to be reorganized with a new constitution. The company at this time possessed 31 ships and owned wharves and property in some 20 Chinese ports, with total assets valued at an estimated 25 million taels of silver.[19]

Following Sheng's death in 1916, Li Hongzhang's grandson, Li Guojie (Chinese: 李国杰), was appointed as a board director of CMSNCo. Li Guojie had previously served as the Chinese Minister to Belgium (1910-1912).[20] In 1924 he was elected as Chairman of the board of directors.[21]

In 1927, Li continued to head the company although the entire Chinese shipping industry was placed under the supervision of the Communications Ministry of the Nationalist government. In 1929, the Nationalist government commenced investigations into past financial dealings of the company, and in particular those of the late Sheng Xianhuai. After uncovering evidence of impropriety, the Jiangsu Provincial Government ordered the confiscation of assets from Sheng's estate. Li Guojie also came under suspicion for misappropriating funds from the company and for taking out personal bank loans secured on the company's assets. This culminated in a lawsuit again Li to recover lost monies.

The scandal escalated when on 24 July 1930, Zhao Tieqiao, a senior member of the Shanghai Investment Promotion Bureau tasked with investigating past financial irregularities, was assassinated outside the company's offices in Shanghai.[22] Li immediately fell under suspicion but lacking sufficient he was instead detained on economic fraud charges relating to obtaining personal foreign loans using state-owned assets as collateral. He was convicted and sentenced to 3 years imprisonment. However, through his political connections he was soon released. Li remained in Shanghai, heavily involved in the corrupt political power struggles prevalent in that era. He was shot outside his Shanghai home on 19 February 1939 and died soon afterwards.[23]

The firm was nationalized and reorganized as the China Merchants Group in 1935, acquiring the name it uses today.[24] During the Sino-Japanese war, the company sold four of its ships: Haiyuan, Haili, Haichen and Haiheng to the Hong Kong-based trading company Jardine Matheson & Co. Other ships were scuttled during the hostilities.

During World War II, the headquarters moved around, being for a period in Hong Kong and at Chongqing.

In 1949, following the Chinese Civil War, the company's head office was transferred together with the Republic of China government from the Mainland to Taiwan. The Taipei-based part of CMSNCo. merged with Yang Ming Marine Transport Corporation on 1 July 1995.

Meanwhile, the People's Republic of China retained ownership of some of the company's ships and of the Hong Kong subsidiary, allowing the latter to retain its name (China Merchants Steam Navigation Company Limited) to avoid legal disputes. In 1950, transfer of the original core company was moved to its Hong Kong headquarters but with overall control still being retained by the PRC.[25]

Controversy surrounds the way in which CMG acquired the 23.5% stake in the Doraleh terminal. CMG was sold the stake after Djibouti's government seized the facilities from Dubai-based port operator DP World, co-manager of the facilities since a concession agreement in 2004.[36] One year later, CMG got authorization to construct another port facility, the Doraleh multi-purpose port located within the Chinese military support base.[39] This coincided with Djibouti and CMG establishing the International Free Trade Zone.[40]

In 2018, Djibouti terminated DP World's concession rights, nationalized its shares in the terminal and handed them on to China Merchants Group.[41] Although the Djibouti government has stated it alone controls the port, media reports indicate that CMG is directing day-to-day activities.[42][43]

DP World sued CMG in 2019 in Hong Kong for allegedly causing Djibouti to revoke its concession rights.[44][4] The London Court of International Arbitration ruled in 2020 that Djibouti's actions constituted a breach of contract and ordered Djibouti to return the concession to DP World, but the country rejected the ruling.[45] Thus far, there have been seven rulings in DP World's favor in the matter, most recently in July 2021, all of which have been rejected by the Djibouti government.[46][47]

In 2017, Sri Lanka approved an agreement with CMG regarding the Hambantota port, according to which the company would take a majority stake in the port.[48] This had caused concern that the facilities could be used for Chinese military vessels and that such a large-scale transfer of land could adversely impact Sri Lanka's national sovereignty.[48]

In the years since, the port has been referred to as a "Chinese colony" by critics and an example of China's "debt diplomacy", because CMG provided $1.1 billion in funds to the highly indebted government for the port in exchange for an 85% stake and a 99-year lease.[2] This allowed China to gain a geostrategic foothold in close proximity to India, one of its main rivals in the Indo-Pacific, India, as well as to important commerce and military waterways.[49]

In 2014, the Hong Kong media reported that the CCP's Central Commission for Discipline Inspection was conducting a special investigation into CMG, along with several other SOEs, on corruption claims.[1]