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China’s Stimulus Package and its Effect on China’s SOES: Bad for the Economy and Bad for the Prospect of Democracy

China Elections and Governance has posted the last article in a series about the economic stimulus plan:

Pundits have criticized that China’s stimulus package disproportionately benefits state-owned enterprises (SOEs). Given the tremendous emphasis on boosting public works projects and boosting loans to finance investments, state-owned enterprises are a prime benefactor. China’s stimulus package is posited as an essential plan for the Chinese leadership to maintain stability and achieve the magic eight percent growth rate. However, the effect of the stimulus plan on the financial sector and upstream industries, like energy, petrochemical, steel and construction, will not adequately address the structural problems that mar China’s governance and private sector development. Insulation of the state sector therefore exacerbates the problem of local economic nationalism, collusion and corruption, inefficient allocation of resources and ultimately the preservation of single-party rule.

The dominant role of the state in China’s development path renders it different from the West. State-sponsored growth as in Taiwan, Korea, and Malaysia is a crucial element in the East Asian Model, which essentially eschews democracy for economic growth. Beijing’s stimulus model therefore is not very useful for the West, for the Party also seeks to maintain a particular political order along with buffering against the consequences of the financial crisis.

This article analyzes the economic and political implications of China’s stimulus plan on the state of SOEs and why Beijing is pursuing a plan that perpetuates market distortions and potential corruption and collusion.
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- June 29, 2009 6:36 AM
Video: Netizens Fight Corruption in China

From Al Jazeera:

China has long had a reputation for relatively high levels of graft. Almost everyone, including police, local officials, doctors and businessmen, expects and receives bribes.

But netizens are now challenging the way business is done as Al Jazeera’s Melissa Chan reports from Beijing.

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- June 28, 2009 10:37 AM
GDB Executives Held in Police Custody

The Financial Times has the latest development in China’s anti-corruption struggle:

Police have detained two senior executives from Guangdong Development Bank, a mid-sized Chinese lender in which Citigroup owns 20 per cent, on suspicion of economic crimes.

Wang Xin, GDB’s vice-president, and another unnamed department head, were detained last week in connection with unspecified economic crimes, a source with direct knowledge of the matter told the Financial Times.

Li Ruohong, GDB’s chairman, stepped down for health reasons last week after a long dispute over the terms of his departure but his resignation had nothing to do with the detention of the two executives, according to people familiar with the matter. The detentions, which were also reported in Chinese media, are just the latest in a string of scandals to hit the Chinese financial sector, where bribery and corruption are endemic and rules are constantly changing and often unclear.
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- June 25, 2009 7:57 PM
China Warning On ‘Little Coffers’

From BBC News:

China is making a new attempt to stamp out illicit accounts known as “little coffers” - money which officials have skimmed from public funds.

Communist Party and government officials have been warned that they will be severely punished if they do not give up the cash.

A party document described the small coffers as a “cancer” which must be eliminated.

The ruling communist party regularly announces anti-corruption campaigns.
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- June 12, 2009 12:16 AM
Shenzhen Mayor Faces Graft Probe

From BBC News:

The mayor of China’s southern boom town of Shenzhen, Xu Zongheng, is being questioned as part of a corruption investigation, state media has said.

He is the latest official to be caught up in an investigation into Wong Kwong-yu, founder of China’s biggest electrical retailer, Gome Appliances.

Mr Xu was being questioned for “severe violations”, the Xinhua news agency said in a short statement.
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- June 8, 2009 2:16 AM
Should Journalists be Tried for Official Bribery in China?

China Media Project looks at the trial of Fu Hua, a journalist in China, to question the role of employees of the official media and whether they should be held to the same legal standards as government employees:

The scope and reach of the criminal offense of bribery (受贿罪) has never been clear in China. But the lines become even murkier when the charge is applied to one of the country’s most nebulous professions: journalism. Are Chinese journalists “government officials” or “state personnel” to whom stiffer penalties should apply? Or are they performing ordinary service jobs outside the purview of the Criminal Law on bribery involving state officials?

These questions, which we saw in the Meng Huaihu (孟怀虎) case two years ago, have been replayed this month in the trial of Fu Hua (傅桦), a former reporter for Shanghai’s China Business News. They concern us here because they touch on more fundamental questions about press freedom, the role of journalism and journalists in China, and related issues such as the need (as some say) for a press law that might clear up ambiguities about journalists’ rights and obligations.
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- May 25, 2009 8:58 PM
China Cracks Down On Military Graft, Extravagance

From AFP:

Chinese President Hu Jintao has called for a crackdown on graft and extravagance in the military, kicking off a campaign to bring discipline to the world’s largest army, state press said.

In a recent circular he ordered the end to “prominent problems” in the military and reiterated the need to maintain a clean and honest defence force, the People’s Liberation Army Daily reported.

“Faced with a severe and complex ideological struggle, senior and mid-level officers must maintain staunch ideological conviction and resolutely uphold political steadfastness,” the paper quoted the order as saying.

Military officers must do more to follow orders, obey the law, end lax work habits and maintain Communist Party discipline, it said.
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- May 18, 2009 4:54 AM
Ex-Chinese Bankers Are Sentenced To Prison in $482 Million Scam

The Washington Post has more details on the Bank of China managers sentenced to prison in the U.S. for embezzling $482 million:

For more than a decade, the bank managers lived in high style, jetting to Las Vegas and Macau to bet millions at the baccarat tables, staying for free in casino hotels and lavishing gem-studded watches on their wives.

But then accountants for the Bank of China noticed missing funds — which eventually totaled $482 million — and the men were soon fleeing across the globe, doctoring immigration papers and entering into phony marriages, prosecutors say.

The former bankers’ gamble ended last week, when a federal judge in Nevada sentenced Xu Chaofan to 25 years and Xu Guojun to 22 years on charges of racketeering, money laundering and visa fraud. Their wives, who were charged with passport fraud and with helping their husbands launder money, received eight-year prison terms.

For now, the men will remain in the North Las Vegas detention facility, where they have spent nearly five years since their capture, while their wives face deportation proceedings.

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- May 9, 2009 6:59 PM
US Jails China Bankers for Fraud

Two former Bank of China managers, and their wives, have been sentenced to up to 25 years in prison in the U.S. for stealing $485 million. BBC reports:

Xu Choafan, Xu Guojun, Kuang Wan Fang and Yu Ying Yi had also been convicted of passport fraud and of laundering the money through banks and casinos.

The Las Vegas court also ordered to four to pay back $482m.

Prosecutors said the convictions showed foreign nationals could not “live off their ill-gotten gains in the US”.

Xu Chaofan and Xu Guojun were sentenced to 25 and 22 years respectively while their wives Kuang Wan Fang and Yu Ying Yi to eight years each.
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- May 6, 2009 9:51 PM
Corruption Taints China’s Police Heroes

Wu Zhong of the Asia Times reports on the wide reach of corruption in last year’s Gome case:

It was inevitable in today’s China that some corrupt officials would be exposed as the result of an investigation into a rags-to-riches tycoon suspected of economic crimes, but few suspected that previously revered police officials would be implicated.

[...] No sooner had Huang Guangyu, the former chairman of China’s largest consumer electronics chain retailer Gome Group, been detained by Beijing police in mid-November 2008 for alleged “stock market manipulation”, than speculation grew over how many officials would be implicated in his case and how senior they would be.

On January 19, the state-run Xinhua News Agency reported that Zheng Shaodong, director of the Ministry of Public Security’s Economic Criminal Investigation Bureau, and his deputy Xiagn Huaizhu, were two of the police officials under investigation. Zheng was then also an assistant to the Minister of Public Security and thus a vice minister level police officer.

According to the Hong Kong newspaper, Apple Daily, former Gome chairman Huang Guangyu attempted suicide while in detention. Jane Macartney of the Times Online reports:

One of the richest men in China has attempted suicide after nearly six months in detention while under investigation for alleged manipulation of share prices.

Huang Guangyu, a billionaire who made his fortune in electronics, made the suicide attempt a few days ago but was found in time and was recovering, the Apple Daily in Hong Kong said.

The attempted suicide could not be confirmed with Chinese officials, the report said.
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- April 29, 2009 7:45 PM
Cartoon: “Take it Off. Now It’s Your Turn!” (Updated)

The above cartoon, from Southern Metropolis News, has become an online phenomenon in China: More than 4560 websites have posted it. On Kaidi.net, one of China’s most popular online communities, this cartoon was visited more than 780,000 times in the last nine days and has received over one thousand pages of reader comments.

The related news event took place during the Chinese People’s Political Consultative Conference, when one unnamed representative, a provincial-level official (”The Representative”), answered Caijing Online’s reporter’s question: “How do you see the proposal of publicizing government officials’ financial status?” The representative’s answer was, “Why don’t we publicize financial records of ordinary people?”

After Caijing.com.cn publicized this news on March 10, without mentioning the official’s name, netizens started to heatedly “publicize my financial status.” And the above cartoon became extremely popular in this context.

Here is the original dialogue between the Caijing reporter Wang Heyan (王和岩) and the representative translated by CDT:

Reporter: “Chairman So-and-So, How do you see the proposal of publicizing government officials’ financial status?”

The Representative answered with a smile: “I am sorry. I did not look into this question.”

Reporter: “Aletai in Xinjiang, and Cixi in Zhejiang are all experimenting with this… Would your province be willing to experiment as well?”

The Representative: “I don’t know.”

Reporter: “Have representatives discussed this question?”

The Representative, walking while answering: “No. In our Chinese Communist Party discussion group, no one discussed this.”

Reporter, not wanting to give up: “Would you raise such a proposal or suggestion?”

The Representative turned around and looked at the reporter: “No. If this needs to be publicized, why don’t we publicize financial records of ordinary people? Why are the profits of corporate bosses not publicized to their workers?”

“Why don’t we publicize financial records of ordinary people?” The reporter almost could not believe his own ears and asked immediately, “Corporate bosses? Do you mean managers from state-owned enterprises?”

The Representative answered: “No. I mean bosses of private enterprises.”
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- April 14, 2009 2:17 PM
Graft in China Covers Up Toll of Coal Mines

News of many major coal mine accidents never see the light of day due to cover-ups and local corruption. From the New York Times’ Sharon LaFraniere:

For nearly three months, not a word leaked from the heart of China’s coal belt about the July 14 explosion that racked the illegal mine, a 1,000-foot wormhole in Hebei Province, about 100 miles west of Beijing.

The mine owner paid off grieving families and cremated the miners’ bodies, even when relatives wanted to bury them. Local officials pretended to investigate, then issued a false report. Journalists were bribed to stay silent. The mine shaft was sealed with truckloads of dirt.

“It was so dark and evil in that place,” said the wife of one miner who missed his shift that day and so was spared. “No one dared report the accident because the owner was so powerful.”
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- April 11, 2009 11:14 AM
Guangdong Village Official Slashes Fields to Build Mega-Tomb

A Guangdong official is receiving heated comments for his decision to raze 24 mou of land to supposedly clear way for a luxurious cemetary plot. From Shanghaiist:

As if using valuable and arable farm land as an ostentatiously large way to honor the dead wasn’t bad enough, it turns out the parents of the official are still alive!

The official blubbered his way through an explanation with the Guangzhou Daily, first denying that the grave were connected to his (once again, still alive) parents, and then connecting the plot to his blood relatives, before finally admitting that he wasn’t entirely sure what he was doing here.

The reaction, both from netizens (who’s comments on Netease numbered into the thousands) and from the Guangdong provincial government, has been swift and harsh. Today, the government reported that the offending official has been ousted from his post.
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- April 8, 2009 5:37 PM
Chinese Grease the Wheels of Power With Luxury Gifts

The New York Times reports on high-end bribery of Chinese officials:

The gifts are essentially bribes or kickbacks, and they are prohibited under Chinese law. But in China, legal experts say, bribery laws are selectively enforced, and party members in good standing are rarely investigated.

As a result, the practice of bribing government officials — by other government officials and, more commonly, by private businessmen — is so widespread that luxury goods producers have come to count on it as an increasingly important revenue source.

China is now the world’s fastest-growing luxury market, with an estimated $7.6 billion in sales last year, according to Bain & Company, a global consulting firm. And industry experts say gifts to government officials make up close to 50 percent of the country’s luxury sales.
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- March 13, 2009 10:30 PM
Helping Commercial Companies Destroy Their Competitors: Beijing’s Top Internet Cop Arrested (Updated)

Mingpao is reporting news of the arrest of the head of the Internet monitoring department of the Beijing Public Security Bureau on suspicion of accepting bribes. The original Chinese report is here; Excerpts translated by CDT:

Helping Commercial Companies Destroy Their Competitors: The Director of Beijing’s Internet Monitoring Department Took 40 Million RMB in Bribes

Yu Bing (于兵), the director of the Internet monitoring department of the Beijing public security bureau, has been arrested by the Beijing procuratorate and is under investigation for taking more then 40 million RMB in bribes from the Rising (瑞星) anti-virus software company and partnering with other Internet police to frame a competitor of Rising (瑞星), Micropoint Company, resulting in the failure of the latter’s new products to reach the market. Three criminal suspects, including Yu Bing, have been arrested.

Mingpao’s article is based on China’s Science and Technology Daily 《科技日报》report earlier this month.

助商人除对手：北京公安网监处长受贿4千万

明报专讯/中国揭发“电脑杀毒软件业界最大丑闻”。北京公安局网监处处长于兵涉嫌收受杀毒软件公司瑞星公司4000多万元贿赂，伙同网监警官联手陷害瑞星竞争对手东方微点公司，导致微点的新产品不能上市。3人因徇私枉法、收受贿赂，已被北京检察院逮捕.

Read also: Rising VP Arrested for Bribes, Framing Competitor.

Update 1: Rising Denies Allegations It Framed Competitor.

Update 2: Chinese internet surveillance tsar arrested for graft on the Irish Times:

China’s top surveillance tsar has been has been arrested for taking bribes and framing a business rival, a move that has inspired and gratified both local bloggers and foreign journalists used to stultifying censorship regulations, and prompted questions at senior levels of the Communist Party about how the “Great Firewall of China” is enforced.

Yu Bing, director of the internet monitoring department of Beijing’s Public Security Bureau (PSB), has been arrested on suspicion of taking more than 40 million yuan (€4.5 million) in bribes.

Everyone in Beijing is accustomed to living with surveillance of their online activities: internet cafe habitues, student bloggers, teenage gamers and foreign journalists are all used to that familiar message saying your internet search has fallen foul of security.

Update 4: China’s surveillance cop arrested:

Beijing’s top surveillance czar has been arrested on suspicion of taking bribes and framing a businessman, a move that comes as a serious blow to the net nannies who police the “Great Firewall of China.”

Yu Bing, director of the internet monitoring department of Beijing’s Public Security Bureau (PSB), has been arrested on suspicion of taking more than 40 million yuan ($5.8 million) in bribes.

China has tens of thousands of “net nannies,” who read every email, web posting or search for terms such as “Dalai Lama” or “Falun Gong.”

… Everyone in Beijing is accustomed to living with surveillance of their online activities: internet cafe habitues, student bloggers, teenage gamers and foreign journalists are all used to that familiar message saying your internet search has fallen foul of security.

Update 5: Beijing’s Top Internet Spy Arrested on the Wired blog.
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- February 20, 2009 9:18 AM