China's Trapped Transition_ The Limits of Developmental Autocracy - Minxin Pei [92]
China’s growing commercial tics with the outside world have opened new channels through which insiders can find easy exits. Liberalized investment laws and increased financial autonomy have allowed SOEs and local governments to make sizable investments in foreign countries, thus giving them ostensibly legitimate foreign entities to conduct private business deals and hide illicit funds. Relaxed travel and immigration restrictions have allowed spouses and children of officials to study and emigrate abroad. In many cases, government officials’ relatives and children who go overseas form offshore companies or manage nominally state-owned foreign subsidiaries that become the depositories of their ill-gotten wealth. Typically, insiders employ a three-step process, according to an official publication for government leaders.65 Officials use their power to obtain foreign residency permits or passports for their immediate family members, who later set up businesses in foreign countries. The same officials then transfer money or direct contracts to their foreign-based family businesses or offshore bank accounts. After such exits are safely in place, the officials themselves flee China, often on the eve of a pending arrest, to these foreign safe havens. This was the case of Lu Wanli, the former head of the provincial transportation department in Guizhou. Lu amassed 60 million yuan through bribes and shady deals during his tenure. Before he was exposed, he had moved his wife and children abroad and then fled to Fiji using a false passport in 2002.66 Yang Xiuzhu, a vice director of the construction bureau of Zhejiang province and a former deputy mayor of Wenzhou city, amassed even more. Before the police could arrest her, she fled China—along with her 253 million yuan and her family members.67
The number of officials who have sought this route of exit is significant, as is the amount of ill-gotten wealth they have absconded with. The MPS announced publicly in May 2004 that more than five hundred corrupt officials had fled China, with more than 70 billion yuan in stolen assets (averaging 140 million yuan per person).68 Another report by an official news agency in December 2004 claimed that four thousand “corrupt elements” had escaped abroad with more than $50 billion in stolen funds.69 The most senior official who had become a fugitive abroad was Gao Yan, who had served as the CCP secretary of Yunnan province, the governor of Jilin province, and the president of the State Electric Power Corporation. He allegedly escaped to Australia in September 2002, when he was still president of State Electric Power. A subsequent government audit of the corporation showed that the financial losses the company suffered during Gao’s tenure amounted to 7.8 billion yuan. Nearly half the losses had resulted from illegal and arbitrary decisions Gao had made. An official investigation concluded that Gao “had betrayed the party and the country, engaged in a corrupt and decadent lifestyle, looted a huge amount of the wealth of the state, and must be held directly responsible for the massive loss of the state’s assets.”70
The problem of corrupt officials and criminals fleeing China with their loot became such a serious issue that the MPS singled out the interception and repatriation of such individuals as a top priority for the Chinese police. From 1998 to 2003, the MPS reported that it had successfully extradited 230 officials and individuals who escaped abroad with looted wealth.71 In aggregate terms, it is likely that the real magnitude of the transfer of stolen money to offshore safe havens by insiders of the Chinese government is much larger than the published figure. Studies by Chinese economists estimate that capital flight—a proxy for the transfer of illicit funds from China to offshore accounts—averaged $17.7 billion between 1997 and 1999, according to China’s Foreign Exchange Administration.72