Chinese Money and Privilege Flow Overseas

In the Sydney Morning Herald, John Garnaut looks at the web of business interests and personal wealth that surrounds the children of China’s most powerful leaders, known as “princelings.” He tells the story of Zeng Wei, the son of powerful former Vice President and Standing Committee member Zeng Qinghong, who bought a $32 million house in Sydney across the street from Rupert Murdoch, after his father had been wined and dined there by the Murdochs:

Four years after Zeng Wei’s purchase – which remains the most egregious confirmed example of Communist Party princelings flaunting their wealth – China’s leaders are again grappling with the predicament of being unable or unwilling to control the privileges that flow towards their relatives. The reformist advocacy of the Premier, Wen Jiabao, has long been discounted because of his wife and son’s aggressive use of family status to pursue private business opportunities. And now the purged Politburo member Bo Xilai also stands exposed to allegations of great hypocrisy, as foreign journalists pore over his family’s financial dealings.

While Bo Xilai was reviving Maoist nostalgia on his official’s salary of about $US1600 per month, in a country where per capita income is ranked 121st in the world, his son was renting a presidential-style suite at Oxford and driving a Porsche in the United States. Bo Xilai’s elder brother adopted an alias to control $US10 million worth of shares at the Hong Kong-listed subsidiary of a state-owned bank. Two sisters of Bo’s wife control business interests worth $US126 million, according to what a Bloomberg investigation could identify. And his wife, Gu Kailai, is accused of murdering an English friend, Neil Heywood, after they fell out over money.

Zeng Qinghong, Bo Xilai and Wen Jiabao are all immensely capable individuals, engaging and at ease in any company. Zeng and Bo, who were born into the heart of the communist aristocracy, are far more interested in accumulating personal power and defending the regime than acquiring the trappings of personal wealth. In today’s China, however, where ”politics is in command” and capital comes at the cost of a future favour for those who have the right connections, even simple-living and apparently idealistic leaders have found it difficult to deny their families access to the power and largesse that naturally flows their way.

Many officials, especially those who obtained their wealth through illicit means, protect their assets by sending their money abroad with spouses or children. The term “luo guan,” or naked official, refers to the individual left in China without his wealth. The Economist reports:

For senior officials the usual first step to getting naked is to send children overseas to study. Perhaps the most famous example is the recently purged party chief of Chongqing, Bo Xilai. Mr Bo’s son, Bo Guagua, is a graduate student at Harvard University, after attending Harrow School and Oxford University in Britain. Mr Bo’s wife, Gu Kailai (now detained on suspicion of murdering a British businessman in Chongqing), has lived abroad, and their broader family is worth more than $100m, according to the New York Times.

The government has done little to stop the emigration. It began formally to monitor the whereabouts of officials’ families and assets only last year, and then only by asking officials to fill in forms. In 2011 the central bank published an estimate on its website, attributed to the Chinese Academy of Social Sciences, that up to 18,000 officials had fled the country between 1995 and 2008 with stolen assets totalling 800 billion yuan ($130 billion at today’s exchange rate). The bank then claimed the figures were inaccurate, and scrubbed them from its website (though not from the memories of those who had read them). The chief prosecutor, Cao Jianming, says that in 2011 foreign governments helped arrest 1,631 Chinese fugitives for “work-related crimes” (including officials and employees of state-owned firms) and to recover 7.8 billion yuan in stolen assets.

Some senior officials have pushed for reform. In January Guangdong province in southern China announced that officials whose families have emigrated will be barred from high-level posts. But this is an exception. Officials who can afford to send their families abroad are usually the most powerful, and the most aware of China’s problems.

In response to this phenomenon and to Bo Xilai’s case, Party officials have announced steps to rein in transfers of wealth overseas by officials, Bloomberg reports:

The Central Disciplinary Inspection Commission will set up a “flight-prevention coordinating mechanism” for every province and enhance “passport management” measures, according to a statement on the party website posted May 24, citing Gan Yisheng, vice secretary of the commission.

[…] The government has “prevented a batch of officials from fleeing the country” through an existing overseas travel- registration system and supervision of cross-border fund transfers, according to the statement, without giving details.

Yet as Economist correspondent Gady Epstein points out, these measures may not be much of a change from existing regulations:

 

Resentment toward the wealth and privilege of the “princeling” class has been a long-standing problem in Chinese society that will not be easily resolved. On his Twitter account, Bill Bishop pointed to a Bloomberg article about princelings from 1992:

One obstacle to the brat pack’s rise is the widespread resentment they evoke among ordinary citizens. Some complain that the taizi are reminiscent of the privileged offspring of the emperors. The creeping power of the taizi was a prime target of the ill-fated student protests in Tiananmen Square in June, 1989. Fear of rekindling such feelings may be one reason only a few of them were elevated to the Central Committee during the October congress.

SILVER SPOONS. But the scripted announcements from the congress don’t tell the whole story. For instance, the leaders’ children are increasingly found in key positions in China’s provinces, where market reforms are roaring ahead. The party secretaries of such key cities as Fuzhou, Chongqing, and Datong are all related to powerful party bosses.

Given their privileged upbringing, with access to drivers, maids, Western goods, and excellent educations, it’s no wonder the taizi have little use for the old, Spartan communist way.

Read more about “princelings” via CDT.