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An Zhashi (second left) and his family, standing in the corn field behind his house in Anjia. (Yu Mei/Yu Mei for The Globe and Mail)
An Zhashi (second left) and his family, standing in the corn field behind his house in Anjia. (Yu Mei/Yu Mei for The Globe and Mail)

The empire Sino-Forest built and the farmers who paid the price Add to ...

This tiny hamlet, a huddle of a few dozen mud-brick and wood homes high in the mountains that are the craggy climb to the Tibetan Plateau, is the kind of place where nothing ever happens. The pace of life is such that cattle can stand for a long while in the middle of the town’s lone dirt road without disrupting traffic, which even at the busiest times of day is only the occasional lumbering truck.

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So when a quartet of officials from the county forestry bureau arrived one day three years ago, driving all over the mountains with odd-looking machines in their hands, it caused quite a commotion. Even still, none of the nosy residents could have anticipated that the arrival of the four men with the hand-held GPS devices was a moment that would bring that rarest of commodities to Anjia: change.

The arrival of the forestry officials dumped the unprepared residents of Anjia, a corner of China’s Yunnan province that seems to exist in the 19th century, and dozens of others like it, into the world of 21st century finance. An effort to reform China’s forestry industry – which was supposed to help close the wide wealth chasm between the country’s rural and urban halves – resulted instead in a parade of swindlers and middlemen to places like Anjia, persuading the locals to sign away the usage rights to their land for a pittance, then selling it to bigger foreign and domestic companies that were looking to cash in on one of the biggest property transfers in history.

In the case of Anjia and three other towns around it, the end buyer was Sino-Forest Corp. , a Toronto-listed company run by a Hong Kong entrepreneur, Allen Chan, who devised a way to profit from that land shift and from Canadian investors’ hunger for a Chinese growth story. By accumulating tracts of forestland all over China – then raising billions of dollars from investors to do it over and over again – Sino-Forest grew to be the largest forestry firm on the Toronto Stock Exchange, at one point valued at some $6-billion, until it came crashing down this summer under allegations of massive fraud. In late August, Mr. Chan quit as chief executive officer and four other executives were put on leave or stripped of their duties while the company and the Ontario Securities Commission investigate.

Among the key allegations is that Sino-Forest exaggerated its timber holdings: It claims to manage nearly 900,000 hectares worth about $3.5-billion, mostly in southern and eastern China. Whether or not the company really controls so much forestland, and whether it is as valuable as it says, is the central question of the Sino-Forest saga, the answer to which may not be known for months.

But what is already clear is that the residents of remote villages like this one – the obscure places where Mr. Chan and others like him built empires based on land and trees – saw only a tiny fraction of that money, just enough to cause a brief spark of prosperity that disappeared as quickly as it came. In Anjia, life has already returned to the normal it knew before the national forestry reforms began.

At first, it all seemed like change for the good. The men with the GPS devices came down from the mountains with startling news: Under a new policy drafted in Beijing, the forestland around Anjia now belonged to the hamlet’s 420 residents. Six decades after the Communist Revolution outlawed private landholding, the bewildered villagers were handed little green booklets outlining how much of the surrounding mountains each of them now owned. Many shrugged, unsure of what it really meant given that they considered the thin forests of Yunnan pine to be almost useless. “The trees are no good,” said Yang Wusa, a corn and potato farmer in the nearby hamlet of Nongchang. “We cannot even use them to build pig sties.”

That didn’t seem to matter. A short time after the forestry officials handed out the little green books, Anjia started seeing more visitors: Next, a trio of slickly dressed men from the nearby city of Ninglang showed up, spinning tales about how those little green books could be sold for cold, hard cash. The village secretary, An Zhashi, was intrigued, particularly by a promised side agreement that would see him paid 50,000 yuan (about $7,500 Canadian, using the average exchange for the past 12 months) to get the whole village on board.

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