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

State Council to Confiscate Water Ministry’s Luxury Hotel Complex

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.

(ii) Yangtze Floodwaters Force Closure of Three Gorges Ship Lock

The temporary lock that allows ships to pass through the unfinished Three Gorges dam was closed for a third time on the afternoon of July 8 when flood conditions caused the Yangtze river’s water flow to rise to 45,000 cubic metres per second, according to the Shanghai-based Jiefang Daily.

This closure follows another between June 30 and July 3. On July 1, the official China News Agency (CNA) reported that torrential rains in Sichuan and the Three Gorges had caused the Yangtze river — the major east-west trade route in southwestern China –to flow 43,100 cubic metres per second. The threatening water prompted the Three Gorges Development Corporation and the local government to close the ship lock, which was designed for water flow under 45,000 cubic metres per second. The lock reopened on the morning of July 3, according to a report by the Jiefang Daily.

Last year, a 52-day closure inconvenienced about 460,000 people, forcing them to travel by bus rather than ship, according to the CNA.

The Three Gorges dam, if completed, will include twin five-stage ship locks and the world’s highest vertical ship-lift, designed to give ocean-going ships access to the southwestern capital of Chongqing.

(iii) Three Gorges Bond Traded on Shanghai Market

The bond issued for the second construction phase of the Three Gorges dam became available for trading on the Shanghai Stock Market on June 17, according to a story in the Hong Kong-based newspaper, Ta Kung Pao, on June 18.

Worth a total of 2 billion RMB (US$243 million), the Three Gorges Bond 98 was issued by the China Yangtze Three Gorges Project Development Corporation (CTGPC) between January 18 and February 6 to raise money in the domestic market for the massive hydro-electric project. The bond is guaranteed by China’s Three Gorges Project Construction Fund.

The bond is divided into two types, each worth 1 billion RMB (US$121.5 million). The bond’s three-year certificates offer an annual interest rate of 5.6% while the eight-year certificates have a rate of 6.2%.

China’s massive Three Gorges dam faces a US$3-billion shortfall for the second phase of its construction, and officials admit they are having difficulty attracting international investors to the US$40-billion project.

In the next four years, CTGPC plans to issue another 8 billion yuan (US$972 million) worth of bonds to fund the mega-project.

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Three Gorges Probe welcomes submissions. However, it is not a forum for political debate. Rather, Three Gorges Probe is dedicated to covering the scientific, technical, economic, social, and environmental ramifications of completing the Three Gorges Project, as well as the alternatives to the dam.

Publisher: Patricia Adams Executive Editor: Mu Lan ISSN 1481-0913