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Ad scandal derails Ministry of Railways

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The Ministry of Railways is facing accusations of corruption once again following the exposure of alleged kickbacks from an expensive advertisement used to promote the country's railways.

A screen shot of Chinese Railways, a promotional video made by the Ministry of Railways. [Photo / China Daily]

Millions of yuan were secretly taken as kickbacks during the production of the short film, which cost 18.5 million yuan (2.9 million U.S. dollars) to make, said sources close to the deal.

Auditing authorities in a recent report revealed the sky-high cost of "Chinese Railways," a promotional film allegedly directed by well-known auteur Zhang Yimou, raising doubts about the actual cost of the film, as its quality has failed to meet expectations.

Zhang said he only took 2.5 million yuan after taxes from his deal with the New Moment Film and TV Culture Development Company, the film's producer.

"I participated in the initial creative sessions for the films and provided some suggestions on the sample films," Zhang said.

A film production agreement inked by New Moment and the ministry's audio and video department indicated that the ministry originally invested 15.5 million yuan to make six versions of the video.

In 2010, the ministry spent another 3 million for a new 10-minute version, according to sources with the ministry who declined to be named.

Zhang said he did not know the exact cost of the promo video and was astonished when he read the auditors' report.

"I did not get to see the final version," he said, adding that he did not want to be credited as the film's director and signed an agreement with New Moment to that end.

New Moment said it won the industry's investment, as the ministry specifically requested Zhang's involvement and the company was able to help them get Zhang involved.

Sources with New Moment revealed that in addition to paying Zhang, the real production cost for the film was between six to seven million yuan, indicating that the other seven million yuan was given away as kickbacks.

An initial probe into the case showed that the ministry's audio and video department gave more than 14 million yuan to New Moment instead of the contracted 18.5 million yuan, leaving four million yuan missing, according to prosecuting authorities.

However, it has not yet been determined whether the missing money was taken by New Moment employees or ministry staff.

In mid-July, Chen Yihan and her husband Liu Ruiyang, ex-head of the railway ministry's publicity department and an official with the ministry, respectively, were both investigated regarding the expensive film.

Century Weekly, a magazine published by Caixin Media, reported Monday that investigators found at least 10 million yuan in cash and nine property ownership certificates in the couple's home.

The root cause of corruption inside the railway system is the excessive centralization of power, the report said, citing an unnamed supplier for China's high-speed railways.

According to China's government procurement rules, any procurement of goods or services worth more than 1.2 million yuan should include a public bidding process before any purchases are made.

Li Wei, a lawyer with the Beijing Fada Law Firm, said that by failing to include public bidding, the railway video project has violated the mandatory regulation and the contract between the railway ministry and New Moment is therefore invalid, which means the 1.85-million-yuan payment should be returned.

But the agreement between Zhang and New Moment was effective, as it does not require public bidding, he added.

With its rail network rapidly expanding nationwide, China has faced a number of corruption cases concerning high-profile officials, with Liu Zhijun, the country's former railway minister, expelled from the Communist Party of China (CPC) after being found guilty of corruption in May.

Liu was removed from office over an alleged "severe violation of discipline" in February last year. His removal was followed by the removal of the ministry's deputy chief engineer Zhang Shuguang in March 2011.

Liu's removal is believed to be linked to a high-speed train collision last July that killed 40 passengers and injured 172 others.