CAMBRIDGE, England -- The Chinese government has announced that death sentences have been imposed on seven people for tax fraud, in this case fraudulent claims for value-added-tax refunds on export sales. More death sentences, followed quickly by executions, are expected during what Premier Zhu Rongji has described as an "urgent economic struggle" against export-rebate fraud, which he said is an "outstanding social and economic problem." In some ways, the deaths of these cheaters can be seen as a consequence of the way Zhu and other members of the Chinese government chose to respond to the Asian financial crisis.
For reasons best known to itself, the Chinese government chose not to devalue the yuan when other East Asian and Southeast Asian countries were devaluing their currencies. This made Chinese exporters and domestic producers competing with imports less competitive. However, Zhu is too much of an economist not to realize that the Chinese economy could not be isolated from the effects of the crisis in this way. One of the ways he convinced his colleagues in the government to cope with the impact of the crisis, given the determination not to devalue, was to protect exporters and importers from the effects of the other devaluations as best he could. He did this partly by directly subsidizing some sectors that had lost their competitiveness. There is also a suspicion that old-style import controls and export quotas were dusted off and foisted onto state-owned enterprises.
But the most important policy introduced to mitigate the combined impact of the Asian devaluations against the Chinese currency was to increase the rate at which Chinese traders could claim back refunds of VAT paid on the production of exports. China's ever-inventive criminal classes responded quickly.