Beijing’s embarrassment of riches is the worst kept secret in the most populous nation. Try as it may to scrub cyberspace of reports of the millions — or billions — of dollars amassed by modestly paid public servants, China’s masses know where the real fruits of 6.5 percent growth go: into the pockets of top Community Party apparatchiks.
The key, of course, is not to flaunt it and pledge to curb the practice. That’s why the leaked Panama Papers are super awkward for President Xi Jinping amid suspicions his anti-corruption putsch is more hype than reality.
In releasing 11.5 million documents from a Central American law firm, the International Consortium of Investigative Journalists sought to expose “a cast of characters who use offshore companies to facilitate bribery, arms deals, tax evasion and drug trafficking.” Awkwardly for Xi, his brother-in-law, Deng Jiagui, is among those mentioned. So is Li Xiaolin, daughter of Li Peng, one of China’s best-known former premiers. So far, the investigation names eight current and former politburo members. Hong Kong, China’s gateway city, is listed among “active intermediaries” in spiriting away riches of the wrath-of-God variety.
Now, there’s no proof yet crimes were committed. But the proximity of Xi’s inner circle to a scandal involving more than 200,000 shell companies is beyond explosive. China’s Edward Snowden moment also raises questions about Xi’s economic reform program.
The Panama Papers instantly transported critics back to 2012, when Bloomberg News got smacked around for asking how Xi’s extended family could’ve amassed assets of $376 million. Later that same year, The New York Times poked the dragon (and won a Pulitzer) questioning how the family of former Premier Wen Jiabao could have scratched $2.7 billion together.
At the time, Beijing scrambled to erase any mention of the “$376 million problem” or clever efforts to circumvent censors with short-hand like “2.7B.” Then came another assault by the Western intelligentsia: a Brookings Institution report raising, literally, burning conflict-of-interest questions about the family of current Premier Li Keqiang. At the time, Li’s brother was a bigwig at the State Tobacco Monopoly Administration, which towers over an industry some health experts predict will kill 3.5 million mainlanders each year by 2030.
The timing of these reports from Panama couldn’t be worse for Xi. Internet censors spent much of the last two weeks killing all traces of an anonymous open letter calling for Xi to resign. “The response has shown how jittery they are,” Kerry Brown, a China expert at King’s College, London, told The New York Times recently. “The fear seems to be that these views might be taken as representative of real elite figures.”
Nothing makes Xi’s government more jittery than talk of high-level graft. And the documents leaked from Panama law firm Mossack Fonseca are uncomfortably close to home. Question is, will the fallout — and any disclosures that might follow — prompt Xi to turn inward and scale back economic reform ambitions? A leader in full-blown damage-control mode might have less courage to rein in the state-owned enterprises from which party bigwigs profit. He might be less inclined to curb smokestack industries in favor of greener, more innovative growth.
If there’s anything we know for sure about Xi it’s that he doesn’t do transparency. China needs less opacity, not more. The first step toward leveling the playing field and building a more productive and entrepreneurial economy is attacking graft. That means empowering the media to police malfeasance at the public and corporate levels to strengthen governance and the rule of law.
But Xi has gone the other way. The chill from his assault on information is increasingly spilling over into Hong Kong, where local editors and book merchants are ducking for cover. In early 2013, for example, Beijing tried to block full identification numbers and residential addresses that analysts and journalists employ to uncover who owns and runs companies. Call it the Cayman-ization of a city many like to believe is the world’s freest. It’s no mystery that Hong Kong property is the first place Communist Party bigwigs look to mask ill-gotten spoils. That buying spree exported the mainland’s inequality problem to Hong Kong, where few 20-somethings can ever afford to own a flat. The latest obsession of Beijing censors: scrubbing any mention of “Ten Years,” a new film that takes a bleak look at Hong Kong under Chinese rule.
There are myriad other ways a party with 88 million members can spirit away cash piles, including in cities from Sydney to New York. But in Chinese-speaking jurisdictions, opacity abounds. Many, quite simply, share similar names, the order of which can be changed to fit the contact of the moment and muddied with variant English spellings. One answer might be an international system of identification cards tied directly to a passport. But then, how likely is it that Xi’s government would ever agree given the backlash in Beijing?
The pressure for assets to flee China is growing. China Inc. can’t seem to bid on foreign companies like Starwood and General Electric units fast enough amid expectations for a weaker yuan. A bigger incentive, perhaps, is uncertainty about the political winds in Beijing.
In 2014, the International Consortium of Investigative Journalists reported on about 22,000 offshore clients with mainland or Hong Kong addresses. It included at least 15 of China’s wealthiest citizens, National People’s Congress members, state-owned-enterprise executives (surprise, surprise!) tied to corruption scandals. The group alleged that UBS, PricewaterhouseCoopers and other Western names played key middleman roles to help Chinese move cash to the British Virgin Islands, Samoa and other kiss-and-don’t-tell jurisdictions. Credit Suisse, it alleged, helped Wen’s son set up shop in the British Virgin Islands while his dad led China.
Luckily for Xi, the documents were dumped on a long weekend in China, giving censors a head start. But this could just be the beginning of a barrage of disclosures of massive wealth piles close to Xi’s orbit. The party loathes any discussion of the wealth of top cadres and their families, never mind at a moment when income growth is slowing. This news belies a key Xi narrative that he’s attacking corruption. If so, why do so many top officials seem untouchable as lower-level ones face questions?
Xi is moving too glacially as it is to take on vested interests and recalibrate growth engines. As his attention shifts to damage control, and scrubbing allegations yet to come, a process vital to China’s future could be snuffed out, too.
William Pesek, executive editor of Barron’s Asia, is based in Tokyo and writes on Asian economics, markets and politics. www.barronsasia.com
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