Testing Beijing's Limits

News Corp.'s efforts to climb through loopholes in China were brazen, according to Jiang Hua, a former News Corp. distribution manager in China. Despite regulations forbidding direct sales, Jiang, who left the company 18 months ago after a disagreement with his boss, says he distributed News Corp. channels ranging from National Geographic (in which it has a stake in Asia) to an MTV-like music channel called Channel V. Two former News Corp. executives confirm Jiang's story. Buyers were cable-TV networks from the Tibetan Plateau to the South China Sea. "News Corp. called what I did gray-market distribution," he says, "but it wasn't gray. It was black."

Jiang says payments were channeled through a shell company, Beijing Hotkey Internet, which received nearly $1.5 million a year in illicit payments from cable operators starting in 2002. Jiang and another former News Corp. employee told TIME that cable operators occasionally paid with briefcases of cash. News Corp.'s relationship with provincial broadcaster Qinghai Satellite Co. was similarly opaque. It involved a company, Runde Investments Corp., that had as an investor Ding Yucheng, the son of former hard-line Communist Party Propaganda Minister Ding Guangen. Runde Investments helped deliver News Corp.'s programming to Qinghai Satellite, which had not received the government's approval to broadcast the shows, according to two former News Corp. employees with knowledge of the deal. Registration documents obtained by TIME show that Ding holds a 15% stake in Runde Investments.

Many foreign executives in China have hoped a political princeling might serve as a sort of insurance policy against regulators. "If you don't push the rules," says a former News Corp. employee, "the government won't respect you, and you won't get anything done." But it may turn out that even in China's freewheeling marketplace, bending the rules can put you in danger of a backlash.