Will the Panama Papers Hurt Xi Jinping?
The implication of eight past and present Chinese leader’s relatives—including Xi Jinping’s brother-in-law Deng Jiagui—in legal but politically embarrassing offshore financial dealings has prompted vigorous efforts to conceal and discredit reports based on the recently leaked Panama Papers. But while this reaction suggests that authorities view the disclosures as a potential threat, analysts have offered mixed forecasts for their likely political impact.
In the definitive account of the Papers’ China-related content at the International Consortium of Investigative Journalists, Alexa Olesen writes that “the extent to which some of the country’s most politically connected have tapped offshore networks to keep their assets hidden from the public eye is not well known. And the mechanics of how they do it is little understood.” Her report describes “a few of the techniques greasing the wheels of modern Chinese capitalism with communist characteristics.” Beyond the leaked documents, the AFP has scrutinized Mossack Fonseca’s public statements and archived web content to explore the extent of its operations in China and Hong Kong, where it conducted almost a third of its global business. Its findings include close links and collaboration with government departments, and active promotion of the use of shell companies to evade legal and political barriers to Chinese investment in the U.S., Europe, and Africa.
Chotiner: How have the revelations from the Panama Papers surprised you or confirmed your prior suspicions?
McGregor: It’s extremely interesting but not surprising. I think that—and this may be a rather tortured way of describing it—the previous revelations in the New York Times and Bloomberg about the wealth of top leaders was like an atom bomb. [See CDT coverage.] The stuff we have in the Panama Papers is like the radiation that inevitably follows. It is confirmation, in fascinating detail, of what we would expect.
[…] This leads to the larger question about the crackdown on corruption, led by the president. What do you think that crackdown is trying to accomplish?
There is no doubt that a lot of corrupt people are being caught and locked up, and there is no doubt that the campaign has gone much, much further than anyone anticipated. There are some people who would tell you that it is just political and that it is just based on factional politics. I think that is not true. It has attacked fiefdoms of power that spread, especially in the energy center, under Xi’s predecessor, Hu Jintao, who was a relatively weak leader. But it isn’t targeting people on a factional basis. These are people who amassed wealth and power in their own pursuit of power. I think it is also similar to investigations in the United States: Once you get one person, you get the next person down the line. But it’s also true that the core group of elite families—the so-called Red Princelings—don’t appear to have been touched. You can point to a political element there.
[…] Will the revelations in the Panama Papers reach a wide audience in China? I know news reports have been censored.
I don’t think so. A certain elite will know about it. The Chinese firewall is pretty good when they want it to be. And much like Putin does in Russia, this can always be spun as a conspiracy against China by the evil West. It isn’t a good thing for the party, but it won’t bring the whole show down. [Source]
Analysts quoted by the Associated Press’ Christopher Bodeen largely agreed with McGregor’s conclusion:
Xi will likely emerge unscathed as a result of his personal hold on political power, controls over free speech and the media, and a sense both among the public and potential rivals that all leading families are tainted to some degree, analysts say.
With the latest reports still just days old, however, lingering impacts can’t be ruled out entirely. Damage to Xi’s reputation might show up in unexpected difficulties in putting in place a new team for when he assumes a second five-year term as leader of the ruling Communist Party next year and for setting in place a succession plan for 2022. Challenges to his leadership of a bevy of offices and committees, or to his sweeping anti-corruption campaign, might also be signs of weakness.
[…] Analysts say the revelations shed little new light on the Xi family’s financial doings, further limiting their impact. Xi’s case is also helped by the fact that he has shown no fear in taking on high-profile targets in his anti-corruption campaign and has been seen in past as reining in his family’s illicit activities by having them sell off their interests and by telling provincial leaders personally that they did not act in his name, they say.
“I would have suspected that many of those who follow elite politics already believe that Xi’s extended family is like many — if not most — elite families in that some of them have managed to cash in on China’s economic boom. I think, however, he still gets credit for cracking down on high-level corruption,” said Georgia State University political scientist Andrew Wedeman, who has extensively researched corruption in China. [Source]
Others who spoke to The Guardian’s Tom Phillips, though, saw higher chances of damage to Xi’s position:
Sarah Cook, a China specialist from the Freedom House advocacy group, said the intense censorship operation under way reflected Beijing’s fears that disclosures about the wealth of its political elite could spark public anger or even fuel opposition to Xi from within the party itself.
[…] The Chinese president has also ordered party officials to avoid public demonstrations of wealth in an attempt to improve the party’s image. “This kind of blows a big hole in that effort because it exposes how the top political leaders and their families are, at the very least, super, super rich – even if this money had been obtained legally, which of course is a big question mark as well,” said Cook.
[…] “It might almost be that this is more dangerous for Xi and for the higher leaders in terms of internal party credibility as much as the broader public.”
Willy Lam, an expert in elite Chinese politics from the Chinese University of Hong Kong, said he also believed revelations involving Xi’s brother-in-law could cause real political damage to the Chinese president although Beijing would paint the Panama Papers as “a western conspiracy to damage the reputation of the party”.
“Xi Jinping is under a lot of pressure, including calls for his resignation. It is possible that his enemies within the party – some of them in quite senior positions – could use this material to damage his reputation. We won’t be able to see from the outside but within the party the backstabbing and infighting could be exacerbated,” Lam said.
“It doesn’t seem that Xi is vulnerable so far but they are waiting for a chance to pounce on Xi. They are all waiting for him to make a mistake.” [Source]
In a China File conversation Duke University’s Taisu Zhang suggested that the Panama Papers could even divert attention from Chinese elites’ own dealings. Columbia University’s Andrew J. Nathan, Sinocism’s Bill Bishop, and Foreign Policy’s David Wertime also participated.
That the Chinese political and business elite hold large amounts of offshore assets in tax havens is, of course, unsurprising to anyone who seriously follows these things. Moreover, the leak will probably have very little social or political impact on the Mainland: By and large, the only people who will be able to follow these developments despite the censorship—highly educated, intellectually attuned urban residents—are those for whom this is already old news. In other words, the leak may lead quite a few people to say “aha, this is further evidence of crony capitalism,” but those people probably already hold such views. Few minds, if any, will be changed.
Somewhat ironically, the non-Chinese portions of the leak might end up having a more substantial impact on Chinese intellectual opinion than the Chinese portions: One fairly common reaction in some left-leaning circles has been that “Western” elites were no less implicated by the leaks than Chinese ones—and therefore that the problem is not a distinctively “Chinese” one, but rather a global one. The problem, one could easily imagine them arguing, is that the “global elite” engages in corruption and rent-seeking across the board, and that the existence of these tax havens allows for elite collusion and exploitation on a truly international level.
What would the normative implications of such an argument be? Not that “China needs to reform its political and legal institutions to establish rule of law,” but rather that “any preexisting elite-governed political structure—Chinese or Western—is untrustworthy.” At present, no one knows whether these claims will gain any real influence, but we probably haven’t seen the end of populist socialism in China quite yet. [Source]
Meanwhile, some of the leaks’ political fallout has also reached Taiwan, Reuters’ Faith Hung reports:
Taiwan President-Elect Tsai Ing-wen’s brother, Tsai Ying-yang, set up the offshore firm, Koppie Limited, in 2008 at the recommendation of a foreign private banking adviser on personal investments, his lawyer, Lien Yuan-lung, told Reuters, declining to elaborate.
“He lost 30 percent of the investment in the first year, so he closed the contract with the bank immediately…,” Lien said by phone. “He was not involved in money laundering, hiding the Tsai family’s wealth overseas, evading tax or anything illegal.”
The president-elect’s Democratic Progressive Party (DPP) declined to comment. But the opposition Nationalist Party called for an explanation.
“According to practice and research from the past, there are three purposes to set up companies in Panama: to evade tax, to invest overseas, especially in China, and to avoid supervision (by the Taiwan government),” lawmaker William Tseng told a news briefing. “Which of these was it? Tsai Ing-wen and her relatives should fully explain.” [Source]
In The Diplomat’s Asia Geopolitics podcast, Ankit Panda and Prashanth Parameswaran examine the Panama Papers’ implications elsewhere in the region.