Chinese officials embezzling billions in state assets, fleeing the country

Tim Johnson
Kansas City Star
September 9, 2004
Kaiping: In this city and many others in China, senior officials are embezzling tens of millions of dollars and fleeing overseas with their families.

They’re seldom caught. The stolen loot is recovered even less frequently.

According to the latest official count, some 4,000 senior Chinese officials and managers of state-owned businesses have fled abroad over the past two decades with as much as $50 billion dollars in embezzled money.

China’s government-controlled media call the corruption “staggering,” and the matter is an Achilles heel for China’s rulers, who repeatedly announce campaigns against graft. With some regularity, corrupt officials are given lengthy jail terms, or even executed. But much of the citizenry doubts that the ruling Communist Party is making any headway.

“People become kind of numb to these campaigns because they bring few results,” said Yang Fan, an economist at the China University of Politics and Law in Beijing.

In the latest pilot program, special teams are now interviewing some senior officials as they prepare to travel overseas, quizzing them about their motives for trips and the whereabouts of family members, according to the official Xinhua News Agency.

“Many of them are thought to have sent their family members to study or live overseas before skipping the country themselves,” the Xinhua report said.

If there’s any good news in the outflow of stolen money, experts say, it’s that some of the embezzled assets make a U-turn and return to China, the fastest-growing major economy in the world. That’s one reason for an explosion of Chinese-controlled offshore companies in the Bahamas, the Cayman Islands, the British Virgin Islands, Samoa and other offshore banking havens.

The tiny British Virgin Islands, a territory of 22,000 people under United Kingdom control, is now the second-largest source of foreign direct investment in China, after Hong Kong. Last year, the British Virgin Islands pumped $5.78 billion into China.

Reasons for using the offshore corporations, Chinese experts say, include tax avoidance, concealing ownership and hiding assets stripped from state companies.

Such financial trickery means little to the residents of Kaiping, a city on the banks of the Tan River about 100 miles west of Hong Kong, in one of the most industrialized regions in southern China.

But the gleaming 21-story Bank of China building along the river is a symbol of the local corruption. The bank’s former president, Yu Zhendong, and several other managers pillaged $483 million, the government charges.

Local residents boil at the massive rip-off

“There is no cure for corruption in China. There is no hope,” said Zhou Chung, the Hong Kong-raised owner of the Flowers and Grass florist shop.

Feng Qiling, a 20-year-old medical student, said she expected severe punishment for Yu when his capture was announced in the United States, where he’d fled.

“I hoped he would get the death sentence,” Feng said.

But Yu, who was returned from Nevada on April 16, will serve the same 12-year sentence for fraud and using an illegal visa that he was given by a Nevada state court.

The embezzlement was discovered in October 2001 when the Bank of China integrated 1,040 of its computers around the country and discovered that $483 million was missing.

False passports in hand, the Kaiping branch bank’s top officials left for the United States. A vice president committed suicide. An inquiry found that the managers had funneled money to overseas corporations and banks.

Fraud of varying, but often massive, scale occurs regularly around the country.

When the chief of highway administration in Henan province in central China fled the country Jan. 2 with a reported huge stash, he became the third consecutive chief to abscond with taxpayers’ money. Henan has seen 190 officials flee abroad amid corruption probes.

In late August, ex-soldiers in the southern city of Chongqing now employed at the bankrupt 3403 Factory, which makes military materiel, squared off with police over a proposed management buyout of the plant.

“The factory will be sold to the managers at an extremely cheap price,” said Yang, the university economist, who wrote to protest the sale to the National People’s Congress, the nation’s rubber-stamp legislature. Fire sales of state assets such as factories enable managers and favored business owners to get rich, often with high-ranking benefactors behind the scenes.

“This type of corruption is the most serious because it’s conducted in an open and legal way,” Yang said. “It’s like open looting of assets.”

Corruption probes routinely stop before they get to senior levels of the Communist Party. But infrequent media reports hint at taint at those levels, too.

In early July, the 21st Century Economic Report newspaper charged that Premier Wen Jiabao’s son, Wen Yunsong, the head of a mainland information technology company, had obtained some $900 million worth of shares in a company under false pretenses.

The story was picked up by Chinese Web sites and by Xinhua, but it was dropped within 24 hours. No official investigation has taken place.

Transparency International, the nonprofit group that rates countries every year on their perceived levels of corruption, put China this year at 66th out of 133 nations.

As China undergoes huge public works spending, including preparations for the 2008 Beijing Olympic Games, “the opportunities for corruption are high, and the task of curbing it Herculean,” the report said.

Categories: Asia, China, Odious Debts

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