July 6, 1999

China’s Flood Defense Ministry Diverted Funds into Real Estate and Stock Market, Auditor Reports

As millions of Chinese brace themselves for this year’s flood season, state auditors have discovered that the Ministry of Water Resources, the agency responsible for the country’s flood defense system, has diverted millions of dollars into real estate and the stock market.

In his annual report to the National People’s Congress last month, chief auditor, Li Jinhua, highlighted three cases of misappropriated funds by the ministry, according to a June 26 story in China News Services, an official Chinese Internet news agency.

Between 1994 and 1998, the ministry and its subsidiary organizations diverted more than US$14 million from specific water projects, including flood defense infrastructure and dredging equipment, into the stock market and investments in office and residential buildings.

In 1995, the ministry spent US$18 million on a “water project monitoring building,” which, the auditors discovered, is really a luxury hotel, office, and restaurant complex west of Beijing.

In 1996, the ministry diverted US$8 million from a water diversion project into a secret bank account to collect interest on the capital.

Li also told the National People’s Congress that the State Council had decided to confiscate the “water project monitoring building,” retrieve misappropriated funds, and punish those responsible.

Li added that the ministry’s audit had revealed other cases of false reporting, inappropriate fund-raising, and embezzlement by regional governments.

The auditor’s report of financial mismanagement within China’s flood defense ministry comes just seven months after Premier Zhu Rongji fired the last minister of water resources, Niu Maosheng, for failing to prepare for flooding that killed almost 4,000 people in 1998.

China’s Ministry of Water Resources is responsible for construction of the Three Gorges dam, which is also plagued by corruption.