News / Asia

Exposé Puts Spotlight on China’s Wealthy

FILE - 100 Yuan notes are seen in this illustration picture in Beijing.
FILE - 100 Yuan notes are seen in this illustration picture in Beijing.
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Jeffrey Young
Secret offshore bank accounts.  Disguised corporations set up in the world’s tax havens.  And, the sums involved in this concealment are staggering. This, according to a new investigative report, is China’s “lifestyle of the rich and famous.” And, it appears to reach right to the top of Beijing’s leadership.
 
The size of China’s illicit capital outflows has been measured by financial watchdog group Global Financial Integrity at US $1.08 Trillion over the decade between 2002 and 2011. And, GFI says that pace has been sustained to the present. 
 
The Washington, D.C. – based International Consortium of Investigative Journalists last week issued a report stating that nearly 22,000 people in mainland China and Hong Kong have set up offshore financial structures.  The ICIJ says that among those are at least 15 members of China’s National People’s Congress, and top executives from state owned companies. Heading that is the brother in law of President Xi Jinping, Deng Ziagui, along with Wen Yunsong, the son of former Premier Wen Jiabao, and Wen’s son-in-law, Liu Chunhang.
 
The hidden wealth club also includes China’s social elite. The country’s richest woman, Yang Huiyan, is revealed to be an offshore holder. Two co-founders of the major Internet company Tencent, Ma Huateng and Zhang Zhidong, are included.  Even the imprisoned founder of the GOME appliance chain, Huang Guangyu, is on the list.
 
GFI President Raymond Baker points out how financial secrecy among the elite is harming the rest of China’s people.  “Rising inequality is perhaps the most notable impact of offshore tax haven secrecy on China,” he says. “As the rich get richer via tax evasion, and via utilizing the world’s shadow financial system to shelter and multiply their illicit wealth, the middle class, the working class, and the nation’s poor suffer.”

The ICIJ, which is part of the Center for Public Integrity, says it learned of these accounts and corporations by sifting primarily through records that came from two entities. One is the Commonwealth Trust Limited, based in a notorious tax haven, the British Virgin Islands.  Other files came from Porticullis TrustNet, based in Singapore, another place where money is hidden.
 
The investigative group’s report says those Chinese using offshore financial structures were assisted by a wide range of western banks and accounting firms. The ICIJ noted PricewaterhouseCoopers, Deutsche Bank, Credit Suisse, and UBS. These and other firms aggressively solicit, through their advertisements and other means, so-called “wealth management” services clearly meant for tax avoidance and bypassing currency movement restrictions imposed by China.
 
Baker sharply notes that enticement offered to China’s elite as joint culpability. “It takes two to tango”, he says. "Every time illicit financial flows leave a country, there is another country – typically a tax haven like the British Virgin Islands and Singapore, or a developed like the United States and Japan – willing to accept the money and launder it.”
 
China’s massive economic growth in the past decade has produced immense wealth for those among the elite.  And, that money has to be put somewhere.  Financial experts say that one method of laundering illicit outflows is to place it in anonymous offshore corporations which then put the money back into the same country under guise of “foreign direct investments.”
 
These offshore accounts and corporations may be used to purchase and hold land, stocks and bonds, factories, jewelry, paintings – anything of value. Businesses can be bought and sold, their revenues kept from accountability. Multiple shell corporations can be used, for instance, to create dummy entities for billing and invoicing trade under inflated – or deflated – amounts to avoid taxation.
 
And, while having such structures may be legal under Chinese law, the ICIJ notes that Chinese public officials are not required to account for their wealth and their worldwide holdings. That, according to the group, creates a situation where the public is kept in the dark on a broader stage. The ICIJ report cites political scientist Minxin Pei at Claremont KcKenna College in California as stating that while these offshore structures “may not be strictly illegal,” he says they can get entangled in “conflicts of interests and covert use of government power.”
 
The ICIJ’s report has drawn the curtains closed in China.  Multiple sources report that Chinese Internet censors have blocked the www.ICIJ.org website, and have also halted access to western newspapers and other sources reporting this story.  The New York Times reported that on Tuesday, January 21, the date the ICIJ report was released, the Internet inside China went into near-gridlock. The suggestion is there that authorities deliberately caused that to happen. The ICIJ reports that last November, a Chinese news organization that had cooperated with the group backed out of its collaboration with it because it had been warned off by Chinese authorities.
 
These offshore account and corporation revelations come at a time when President Xi has been conducting a showy public anti-corruption campaign, featuring his promises to go after both low level graft and that done by so-called high level “tigers.”  Yet, at the same time, Xi has also worked to suppress a public demand for full disclosure and accountability among China’s political leadership. This has created a public perception of hypocrisy whereas these leaders say they are putting people first while also creating and maintaining channels of special favor for the economic and political elite.
 
China’s people are using social media to point these situations out. One noted example came in the video exposé of a senior party official in Shaanxi Province, Yang Dacai, who was shown wearing one very expensive watch after another.  Yang wound up getting convicted on corruption charges and sentenced to 14 years in prison.
 
The Chinese government has said that it plans to introduce measures requiring public officials to declare their assets, including financial holdings. Berlin-based Transparency International states that “This should be done immediately. If government officials declared their assets, and people had access to this information, it would be easier to see if the salaries they earned were commensurate with their declared wealth. If they were living beyond their means, it would alert the authorities to possible corruption.”
 
Presuming that is, that the authorities want to act upon what they see.

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Comment Sorting
Comments
     
by: Wangchuk from: NYC
January 30, 2014 11:03 AM
The CCP is rotten at its core. Corruption is pervasive from the top to the bottom of the Party. The CCP are supposed to believe in socialism, communism, and equality but instead they've become the robber barons of China. The per capita GDP in China is US$10K but the CCP leaders & their families are millionaires, even billionaires. Meanwhile, the CCP imprisons ordinary Chinese who investigate & reveal official corruption & censor media stories about the wealth of the top leaders & their families. The KMT was corrupt & oppressive & that lead to a revolution in China.

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