Many state officials operate like Mafia dons. Ian Buruma wrote in the New York Times magazine, They "can buy natural resources at fixed government prices and sell them for huge profits. Or they 'privatize' state industries by dismissing workers without pay and picking the enterprises clean of their assets." Corruption is so pronounced among those reaching the retirement age of 60, people talked about the “59-year-old syndrome?”

Evan Osnos wrote in The New Yorker, “In December, 2006, police in the Chinese territory of Macau arrested Ao Man Long, the region’s secretary for transport and public works, who had been collecting kickbacks over a period of seven years. Investigators found that he and his family had received more than a hundred million U.S. dollars, which he had detailed in a collection of “friendship notebooks.” The indictment itemized so many individual bribes that reading it aloud at his trial took seven hours. Ao was sentenced to the maximum penalty — twenty-eight-and-a-half years — and the judge said that, were a sentencing limit not in place, the scale of the offenses merited a prison term of three hundred and sixty years. For taxpayers, it was not a victimless crime: a major bridge in Macau, for which Ao is said to have received $1.7 million in kickbacks, was reportedly built of such poor quality that it may be need to be overhauled only seven years after it was built. [Source: Evan Osnos, The New Yorker, April 16, 2012]

“The astonishing thing about the Ao Man Long case is that it is not astonishing. The scale, the audacity, the damage to the public good — all of it is in keeping with a pattern of epic corruption that has become the most dangerous side effect of, and threat to, China’s boom. It is not just a Macau problem. On the contrary, the Ao case is a good example not because it is extraordinary, but because it was adjudicated in a Western-style courtroom (Macau uses the Portuguese system), so the details are public. But Macau is just the end of a public-cash pipeline that begins in China.

In the town of Pensghui in Chongqing corruption was so bad money allocated for a bridge, middle school and hotels produced only half a bridge before the money ran out. Construction had not even begun on the school. The hotel hadn’t even made into the planning stages. Corruption has been linked to disasters that have killed scores of people. In January, 1999, two bridges collapsed in different areas, killing 47 people and injuring more than 30 others. In Chongqing in Sichuan, a footbridge collapsed, killing 40 people. An investigation uncovered faulty welding, $12,000 in bribes given to officials to overlook problems and allow project to exceed its budget. Some of the siphoned-off money was used to build a karaoke parlor with scantily clad girls. Less than a week later, another bridge collapsed in Fujian Province, killing seven people In both cases government officials were arrested on charges of corruption and using shoddy materials.

Land has been illegally seized from peasant by government officials. See Land Seizures, Agriculture, Economics

Examples of Corrupt Officials in China

The cases of official corruption are endless. A land and natural resources ministers was forced to resign in October 2003 after only seven months on job for taking $619,000 in bribes. In January 2005, 44 officials in Gansu Province were accused of misusing $930 million in funds intended for improving roads and water works. In 2005, a Chinese official was caught after three months on the run for gambling away $420,000 of public money. In November2005, Yuan Jingao, an official in charge of fighting corruption was himself found guilty of accepting $715,000 worth of bribes.

The PLA has a reputation for corruption and has been the focus of anti-corruption efforts. Officers suspected of being corrupt have reportedly been allowed to escape arrest. The one that have been disciplined have ben done so behind closed doors.

In December 2006, a vice admiral was given a life sentence for embezzling $20 million from a military fund and accepting bribes from contractors in exchange for building projects. In January 2007, the head of China National Children Center was sentence to 20 years in prison for taking $30,000 in bribes and embezzling about $100,000. Corruption often goes right to the top. One U.S. expert told Time. "There is probably not a clean family in the entire Politburo."

In November 2007, a Chinese post office director in the southern city of Foshan was accused of siphoning off $240 million from depositors at her branch to help pay off her gambling debts. Hundreds of depositors, who were promised interest rates as high as 40 percent, were affected.

See Party Members Imprisoned for Corruption and Death Sentence for Corruption Under Fighting Corruption

Chinese Officials Gamble Away State Revenues

Mark McDonald wrote in New York Times, “An increasing number of Communist Party bosses and government officials who, government prosecutors say, pillaged state funds, company accounts and municipal treasuries to try their luck in Macao, which sits just across the border from Guandong Province. Many of the biggest losers have been sent to prison and at least 15 have been executed. Some have committed suicide.” [Source: Mark McDonald, New York Times, January 14, 2009]

“As mayor of a small city in the Chinese hinterland, Li Weimin started out innocently enough, playing the slots in nearby Macao, games with names like Five Dragons, Chinese Kitchen and Super Happy Fortune Cat. But he soon began to try his hand at other games, and for higher stakes, financing his increasingly frequent trips to glitzy casinos by dipping into the municipal budget and several real estate firms under his control. It was easy for me to borrow or divert money from those places, the 43- year-old Li said at his trial, according to a state-run newspaper, China Daily. Eventually he lost $12 million and was sentenced to 20 years in prison.”

“A Chongqing official, the head of the local Communist Party’s propaganda department, was accused of embezzling a total of $24 million. Along with a co-worker, he blew at least half the money at the Casino Lisboa here, according to Xinhua, the official Chinese news agency.”

“The Chinese officials who gamble here lose mostly at baccarat, the game of choice in Macao, but they also lose at blackjack, poker and a dice game called Fish-Prawn-Crab. And even though many of them are neophyte gamblers, they often bet thousands of dollars on a single hand.”

High Rolling Chinese Officials and the Cost of the Their Losses

“A 2008 study of 99 high rollers from mainland China showed that 59 had some sort of state affiliation: 33 were government officials, 19 were senior managers at state-owned enterprises and 7 were cashiers at state businesses. They were typically men, between 30 and 49 years old, and lived in mainland areas close to Macao.” [Source: Mark McDonald, New York Times, January 14, 2009]

“The government officials reported losing an average of $2.7 million each, according to the study, which was conducted by Zeng Zhonglu, a professor at Macao Polytechnic Institute. State managers lost $1.9 million each, on average, and cashiers dropped an average of $500,000. Most said their gambling careers lasted less than four years before they were found out.”

“Their losses at the tables bankrupted at least 10 companies. An editorial in the Beijing Youth Daily said gambling by public officials threatens the safety of the national treasury, though it is unclear just how much public money has been gambled away.”

“I doubt even the Chinese government knows, said Desmond Lam, an expert on Macao and Chinese gambling who is currently a senior research fellow at the University of South Australia. Still, the figure is likely to be very substantial, at least in the hundreds of millions so far. And if you include the undetected money, it must be higher.”

There have been reports of junior officials blowing a $1 million in a single night gambling in Macao. Evan Osnos wrote in The New Yorker, “The executive deputy mayor of Shenyang, Ma Xiangdong...lost four million dollars of public funds in 2002 at casinos in Macau and Las Vegas. His boss, the mayor, was found to have six million dollars worth of gold bars hidden in the walls his houses and a hundred and fifty Rolexes. Or, consider the pair of Party propaganda chiefs — named Zhang and Zhang — who lost more than $12 million in Chongqing public funds at the Lisboa Casino in 2004. Or Zhang Jian, a former Party chief in Jiangsu, who lost $18 million. Or Li Weimin, a Party chief in Guangdong, who lost $11.5 million. Or Liu Xinyong, a local bureaucrat from Chonqqing, who stands out not for scale but for speed: he managed to lose a quarter of a million dollars in bribes in just forty-eight hours in Macau. [Source: Evan Osnos, The New Yorker, April 16, 2012]

Naked Officials

“Naked officials” (“luo guan”) is a term used to describe cadres who stash money and relatives overseas, and when the law begins to catch up with them they flee China ,”naked” with just the shirts on their back. One such official, Yang Xianghong from Wenzhou, complained of back pain and went to France, where his daughter was staying, to get treatment, or so he said. He never returned. It was not revealed how much money he took but he was kicked out of the party and charged with “seriously damaging the party’s image and the country’s reputation.”

In June 2011, AP reported: “Thousands of corrupt Chinese government officials have stolen more than $120 billion and fled overseas, mainly to the US, according to a report released by China's central bank. Between 16,000 and 18,000 officials and employees of state-owned companies left China with the funds from the mid-1990s up until 2008. The officials used offshore bank accounts to smuggle the funds, according to the study posted on the People's Bank of China website this week but which has since been removed.It said the officials smuggled about 800 billion yuan into the US, Australia, Canada and the Netherlands through offshore bank accounts or investments, like property or collectables. The stolen funds were covered up by disguising them as business transactions by establishing private companies to receive the money transfers.

In January 2010 the state media reported that thousands of officials have fled China with about $50 billion public funds over 30 years. In 2009, officials investigated 103 cases involving the foreign travel of 300 officials suspected of corruption. An investigation of Yang Xianghong led to the arrest of his wife who was charged with trying to launder $2.9 million. One newspaper counted 8,000 “naked officials” in the first half of 2003 alone. Another 6,500 were reported missing and another 1,200 reportedly committed suicide. In December 2010, a top security official in China was quoted as saying there nearly 600 fugitives involved in economic crimes such as bank loan fraud, illegal fundraising, contract fraud, illegally transferring funds and embezzlement have fled China and are hiding abroad. Most fled to North America or Southeast Asia.

“Another report by the Washington-based watchdog Global Financial Integrity, which tracked illicit outflow of money by all people, not just officials, found China led the world with $2.7 trillion (five times as much as runner-up Mexico) illegally taken out of the country from 2000 to 2009. The top destinations for stashing cash were the United States, Europe, Australia, Canada, Singapore, Malaysia and Thailand. Within the United States, Los Angeles topped the list. [Source: Barbara Demick and David Pierson, Los Angeles Times, June 6, 2012]

Barbara Demick and David Pierson wrote in the Los Angeles Times: “Chinese prosecutors say 18,487 officials, including executives from state-owned companies, have been caught during the last 12 years while allegedly trying to flee overseas with ill-gotten gains, according to this week’s issue of China Economic Weekly. The magazine described the typical “naked official” as a man in his 50s who was approaching retirement and had accumulated at least $13 million.[Source: Barbara Demick and David Pierson, Los Angeles Times, June 6, 2012]

The fact that people send their spouses and children abroad does not necessarily mean they are corrupt — many Chinese prefer a foreign education, for example — but when an entire family leaves, authorities presume that an official does not envision a future in China. “The big problem is that these officials are losing faith in the Chinese central government. They are just taking care of their family and don’t care about China,” said He Jiahong, a corruption expert at People’s University in Beijing. Until the 1980s, it was difficult for any Chinese citizen to go abroad because the government feared many wanted to defect. Now, middleand upper-income Chinese are fixtures on the tourist circuit, filling the Hermes and Chanel stores in most European cities. Chinese officials, including executives of state-owned companies, often have two passports, one for business and the other for personal travel.

Barbara Demick and David Pierson wrote in the Los Angeles Times: “Chinese law prohibits citizens from taking more than $50,000 out of the country in a year, but it is easy to get around the limit. Money is frequently laundered through casinos in Macao for high rollers from the mainland. The popular method is to set up an import company and exaggerate the amount of the invoices so more money is sent out than required.China is the largest trading company in the world. Trillions of dollars in trade invoices cross China’s borders every year. Marginal fudging of invoices allows people to move large sums of money under the radar of the foreign exchange regulators,” Victor Shih, an expert in political economy at Northwestern University, told the Los Angeles Times.

Examples of Naked Officials

Barbara Demick and David Pierson wrote in the Los Angeles Times: “When anticorruption investigators started probing China’s high-speed rail program, they discovered that one of the Railway Ministry’s chief engineers owned a five-bedroom, five-bath Mediterranean-style house in Los Angeles County. Zhang Shuguang had bought the $840,000 house in the city of Walnut nine years earlier when he was reportedly earning just $365 a month. His wife and daughter had moved there, which led investigators to suspect that he intended to skip out of China to join them.That made Zhang, 56 a “naked official.” [Source: Barbara Demick and David Pierson, Los Angeles Times, June 6, 2012]

“L.A. is a haven for these kinds of people. They send their wives and kids overseas and they continue to work in China so they can funnel the money here.... These guys want to get their money out of China and keep their identities secret,” said Joaquin Lim, a Walnut councilman who met Zhang a few years ago at a friend’s home. Zhang was one of the senior officials developing China’s bullet trains, a program riddled with cost overruns and allegations of kickbacks. He was fired in March 2011 for what the state press said were “severe violations of discipline,” which is often shorthand for corruption, shortly after the sacking of his boss, Railways Minister Liu Zhijun. The state press announced in May 2012 that Liu had been expelled from the Communist Party for taking “huge bribes,” but they have not reported yet what has happened to Zhang.

“The techniques vary in audacity and creativity. Yang Xianghong, a Communist Party secretary in a district in Wenzhou, arranged a wedding for his daughter in Paris in 2008, then during a visit allegedly absconded with $12 million in bribes from real estate developers. Less fortunate was Hu Xing, the transportation director in Yunnan province, who bought a second passport for himself in his brother’s name from the tiny South Pacific island of Nauru and tried in 2010 to emigrate to Canada after coming under investigation in a bribery scandal. He almost got away but ran into trouble when he went back to Hong Kong to pick up his mistress. The pair were stopped by police in Singapore and forced to return to China, where they were arrested.

Yu Fei, a former vice chairman of the Guangdong People's Congress, used $3.3 million of state funds to buy some valuable land near the Hong Kong border. At the last minute he changed the name of the title from a state company to a private company owned by his son and daughter, and then skipped town to meet up with his family. In 2010, a telecom official in Sichuan province, Li Xiangdong, divorced his wife and sent her to Canada. The day before he was to be arrested on charges of embezzling $60 million, he left the country, reportedly to join her.

High-Level Government Corruption in China

The issue of high-level official corruption made banner headlines and rose to the top of the government agenda in 2012 year with the ouster of Politburo member and Chongqing party secretary Bo Xilai. But, Michael Wines wrote in the New York Times, “High-level corruption within China is not a rarity. In the last 17 years, the party bosses of Beijing and Shanghai have been removed and later imprisoned for graft. Internal cables from the United States Embassy in Beijing, released by the WikiLeaks project, detailed allegations of favoritism at the government’s highest levels. In the Politburo’s all-powerful Standing Committee, for example, they suggest that Mr. Bo’s foremost patron Zhou Yongkang is tied to China’s oil industry, that Jia Qinglin, the nation’s fourth-ranked leader, is linked to Beijing real estate and the wife of the prime minister, Mr. Wen, is a major figure in gem trading. [Source: Michael Wines, New York Times, April 12, 2012]

Isaac Stone Fish wrote in Foreign Policy: Chinese leaders enjoy a level of privacy unheard of in the West; the often vast business and political dealings of their families are shrouded in mystery by design. Only when Chongqing party boss Bo Xilai fell from grace in March did he expose himself to scrutiny from the outside world, illuminating the web of connections that bound him and his family to global business and political interests. Since Bo's downfall, Chinese officials and intellectuals have taken the rare step of speaking specifically about his case, allowing Western journalists to uncover details about the Bo family and providing what is likely the clearest picture of cronyism among princelings, the sons and daughters of those who have held high-ranking posts in the Chinese leadership.

“In recent years, only the Bo clan has had its affairs ingloriously paraded in front of the international media — the business ties of top leaders like President Hu Jintao and his successor Xi Jinping remain mostly unknown.” But some corruption has been linked to the family of Wen Jiabao. “His son Winston formerly ran a private equity firm called First Horizon Capital; he now runs a state-owned satellite company. Wen's wife is thought to be deeply involved in the gem business. Rumors swirled a few years ago in Beijing that the supposed corruption of Wen's family would bring him down; the question now seems to be whether there is any consensus in the Standing Committee for instituting Wen's political reforms.

“The daughter of former Premier Li Pen — Li Xiaolin — is the CEO of China Power International Development, which had revenues of $2.2 billion in 2010, and his son, currently vice-governor of Shanxi, one of China's major coal producing provinces, was formerly CEO of China Huaneng Group, one of the largest Chinese power generators.

Shanghai Corruption Scandal in 2006

20080310-chen liangyu occutpion b_loomberg.jpg
Chen Liangyu

In September 2006, Shanghai’s top leader, Communist Party Secretary and Politburo member, Chen Liangyu, was fired on allegations that he allowed $475 million in government-held pension money to be illicitly invested in potentially risky real estate and toll road projects. Liangyu reportedly took some of the ,money himself to maintain 11 “mistresses” and was the first Politburo member to be sacked since 1995 when Beijing part chief Chen Xitong was purged and jailed for corruption.

The scandal was very widespread and involved the use of a $1.25 billion social security fund for illegal loans and investments in many sectors. Linked to this scandal was another scandal involving Shanghai’s Formula One Grand Prix Circuit, which was financed with Shanghai government funds. The head of the circuit Yu Zhifle was accused of launching the project without getting necessary permission from Beijing and using the scheme to jack up property values in the area the track was built. Money from the pension fund may have been used to finance the track. Managers at the track are being investigated for land speculation. Some Beijing official opposed the track as a waste of money.

The Shanghai corruption scandal was used by Beijing to reign in unruly local governments and strengthen control over the economy. Beijing sent 100 investigators to Shanghai to look into the scandal. This was widely seen as move by Hu Jintao to strengthen his hold on power. Chen Liangyu, who was appointed by Jiang Zemin, was once viewed as a rival to Hu. Hu had spent the previous four years carefully working out how to oust Chen. When the deed was done Chen was replaced with a Hu loyalist.

In 2007, nine Shanghai officials were ousted from the Communist Party for their involvement in $475 million pension fund scandal and were found guilty in the pension scheme were given jail sentences of three years to life. . Chen Liangyu was kicked out of the Communist Party, stripped of his immunity, and prosecuted for corruption. In 2008, he was sentenced to 18 years in prison.

Things began to turn against Chen Liangyu when he suggested that the Chinese government should let Shanghai continues growing at its explosive rate and let money from the city trickle down to other regions. The Beijing elite interpreted this as a put down of Beijing and an inflated view of Shanghai’s importance.

Li Qihong Scandal

“The scandal of Li Qihong, the female mayor of the Guangdong Province boom town of Zhongshan, highlights a backsliding of corruption in Chinese politics. Li, 56, who is from a peasant family, spent her entire political career in Zhongshan, which is just a couple of hours — drive north of Hong Kong. In late May, she was detained by the CCP’s Central Commission on Disciplinary Inspection (CCDI), the nation’s highest graft-buster. Local media reported that Li, her husband Lin Yongan, and the couple’s siblings owned assets of at least 2 billion yuan ($293 million). Particularly after she became director of the Zhongshan party committee’s Organization Department in 1997, Li allegedly used her connections to help the real estate and other businesses set up by her husband and other relatives. After Li was named mayor in 2007, her clan reportedly made repeated killings in the Shenzhen Stock Market based on insider trading and other illegal practices.” [Source: Russell Hsiao, China Brief, June 24, 2010]

“In spite of the CCP’s well-publicized anti-graft campaigns, Li’s superiors in Guangdong Province kept on promoting the cadre-businesswoman, even though she did little to hide her clan’s lucrative enterprises. According to the Chinese media, Li had on public occasions tried to exculpate herself by claiming she adopted a Four Nos policy regarding her kins’ businesses: No participation; no help provided; no instructions; and no provision of [inside] information. Yet even as the central government started cracking down on real estate speculation early this year, Li defended the property market by saying a housing boom would benefit myriad related sectors and provide huge revenue to the government. [Source: Russell Hsiao, China Brief, June 24, 2010]

China’s High-Speed Trains, Corruption and Safety

The high cost of some segments of the high-speed railway system in Shanxi Province have been linked to corruption. Keith B. Richburg wrote in the Washington Post, “After the railway official, Liu Zhijun, was detained by the Communist Party’s disciplinary committee, stories began trickling out about how a businesswoman in Shanxi province set up an investment company that took kickbacks from firms awarded contracts on the project.” [Source: Keith B. Richburg, Washington Post April 23, 2011]

“In March, government auditors found several problems with the construction of the Beijing-to-Shanghai line, including fake invoices that more than a dozen companies used for construction materials and supervisors at some construction companies who lacked professional engineering licenses. The revelations have led to questions about safety and whether corrupt subcontractors cut corners to line their pockets.”

Chinese Railway Minister and His Deputy Steal Millions

In February 2011, railway minister Liu Zhijun resigned amid claims that he accepted $122 million in kickbacks. Zhang Shuguang, deputy general engineer of the Ministry of Railway and director of its Transportation Department, was suspended on corruption charges . China's state auditor revealed that corruption derived from the Beijing-Shanghai line amounted to $17 million. Many believe that this figure wildly understates the problem.

Wu Zhong wrote in the Asia Times, “Zhang, 56, an associate of Liu, was regarded as the “father of China's high-speed railways.” Details of the case are shocking the public. Zhang reportedly has US$2.8 billion stashed away in Swiss and US bank accounts, wealth rivaling that of a small country. This despite his status as a prefecture-level official, with a monthly salary of just 8,000 yuan (US$1,220). In terms of the money involved, Liu's case pales into insignificance in comparison with his protege - Chinese media estimate that Liu took up to 2.1 billion yuan in bribes. "The protege has outdone his master," as another Chinese proverb has it. [Source: Wu Zhong, Asia Times, March 8, 2011]

“In a typical case of a "naked official", Zhang had already moved his wife, child and presumably a large portion of his ill-gotten gains to the United States some time ago. The term "naked official", coined by Chinese netizens, describes an official who gradually shifts his family and wealth overseas so he can flee the country at any time...So how did Zhang - such a blatant "naked official" - remain in such a key post? How could he transfer such money out of the country without being discovered? How corrupt is the high-speed railway project, if Zhang took such a big bite off the cake? And rampant corruption is involved, has it affected the quality of high-speed railway projects?

“It is obvious that Zhang acted so recklessly because he had a "protective umbrella" - Liu Zhijun. Liu could have protected Zhang because he had virtually absolute, unchecked power in China's railway sector.When asked to comment on Liu's case, Premier Wen Jiabao said in an online chat with netizens on February 27 that it showed Beijing's determination to crack down on official corruption. However, he admitted that the abuse of power by the highest-ranking leader of a region or institution was possible because "our government and major officials have too much power. Power is too centralized without restriction."

There are worries about the quality of the high-speed railways in connection with the scandal. Chinese media have reported Liu and Zhang gave some purchase orders or construction contracts to companies based on the bribes they would receive, rather than on the firms' reputations. Substandard construction is risky on tracks supporting a train that travels at 250 kilometers per hour.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, National Geographic Smithsonian magazine, The Guardian Times of London, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated July 2012

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