China’s Anti-Corruption Crusade Crashes into the Panama Papers

Search the Internet for “China” and “corruption” this week, and you’ll be swamped with links to the Panama Papers story, in which Chinese officials and their families were among the many world leaders revealed to have millions of dollars socked away in overseas accounts. (That’s assuming you perform your web search outside the grasp of Chinese censors, of course.)

The Panama Papers scandal is extremely frustrating for Chinese President Xi Jinping and the Politburo because they have been conducting a high-profile crusade against corruption for the past several years, resulting in thousands of arrests, plus quite a few mysterious disappearances, and considerable damage to China’s economy, which might have worked better when it was a bit less honest.

“President Xi Jinping, whose signature anticorruption campaign has shaken up his ruling party and won him public support, is among the top Chinese officials whose relatives were named in leaked documents as directors or shareholders of companies registered in offshore tax havens. People linked to some other members of China’s Politburo Standing Committee, the party’s top decision-making body, were also identified,” the Wall Street Journal reported on Tuesday.

Although nothing yet reported in the Panama Papers story appears blatantly illegal under Chinese law, the Journal notes these revelations add “fuel to perceptions of double standards in Beijing’s efforts to fight graft,” including the perception that Xi’s anti-corruption crusade was, in part, “a political purge to consolidate power” all along. There is reportedly much skepticism among the Chinese people about the seeming immunity of high-ranking Politburo members to corruption investigations.

The Wall Street Journal’s scorecard for the Chinese anti-corruption effort includes over 750,000 Communist Party members punished since Xi came to power in 2012, plus up to 18,000 “economic fugitives” believed to be hiding overseas after amassing “illicit wealth.”

According to the Nikkei Asian Review, 2015 was a record-breaking year for corruption probes in China, with over 20,000 officials investigated for either offering or accepting bribes. 34,000 corruption cases were prosecuted by the courts, with 2,500 sentences handed down. Among those investigated was former Communist Party security chief Zhou Yongkang, the highest-ranking official to be sacked for corruption since 1949. The number of ministry-level officials investigated for corruption is said to have doubled from the previous year.

Nikkei Asian Review also notes that a great deal of the alleged bribe money seized from corrupt officials has gone missing.

One of the major justifications that will be deployed to protect Standing Committee power players from the Panama Papers scandal is that Chinese law expressly forbids officials from creating or investing in offshore companies, but not their family members. Spouses, children, and other relatives were employed as cutouts by many top political figures implicated by the leaked data from Panama, in China and elsewhere.

Just two weeks ago, Beijing announced it would continue its anti-corruption drive, with intensified efforts against overseas “economic fugitives,” and more aggressive investigation of misappropriated government funds. Xi declared his determination to make China a place where “nobody dares to be corrupt.”

Chinese investigators have pledged they will prosecute both “tigers and flies” for corruption, by which they mean both high- and low-ranking officials. The latest tiger to face the music is Guo Boxiong, who was vice chairman of the Central Military Commission until he stepped down in 2012.

The Defense Ministry announced on Tuesday that Guo confessed to charges of using his position to “provide help for others in promotions or reassignments, and took a massive amount of bribes either directly or via his family,” according to China’s state-run Xinhua news service. The statement added that Guo’s “family members, and others involved in his case, will also be dealt with according to the law.”

A report from the Press Trust of India says that over 40 top Chinese generals are facing anti-corruption probes in the unprecedented anti-graft campaign launched by President Xi Jinping.

Even before the Panama Papers scandal came along to shake up Beijing, International Business Times warned that China’s massive anti-corruption crackdown was “hitting China’s growth and could undermine current attempts to stimulate the slowing economy with new infrastructure projects.”

“In particular, Chinese media and analysts have warned that the repeated arrests of local officials accused of corrupt links with entrepreneurs mean that some officials have taken fright and cut contacts with businesses and businesspeople, leading to the suspension of investment projects,” IBT continued.

Government projects in some cities have come to a standstill because officials were terrified of getting swept up in the crackdown, while foreign investors are nervously backing away from the paranoid Chinese government and its bitter factional struggles.

“In the old days, as long as the boss of a district-planning bureau or local investment company liked a project, they’d have just gone ahead,” one urban planner explained:

But now people say, “You’d better be careful.” Now the bosses don’t want to make decisions anymore because they’re scared of being accused of having too-close links to a company like ours. Government departments are just not willing to make decisions quickly anymore. They all want to make group decisions. Nobody wants to take the blame anymore.

This paralysis has grown severe enough for President Xi to address it directly, meeting with entrepreneurs to reassure them, and calling upon government officials to maintain their connections with business leaders. Other officials took a more heavy-handed approach, railing at bureaucrats for being “indolent” and handing out “snail awards” to the most apathetic.

Foreign investors, meanwhile, are worried about officials they are working with on key projects getting knocked out by investigations, or powerful Chinese businessmen simply disappearing, without explanation.

One concern voiced to International Business Times was that “some officials can now use anti-corruption procedures to derail projects or bidders, either to settle scores or for their own advantage,” such as shutting down deals with foreign companies to shift business to their Chinese friends.

In other words, the anti-corruption campaign is being employed as an instrument of corruption.

According to some estimates, China’s anti-corruption crusade is costing its economy over $100 million dollars in lost productivity and investment, and the damage could be more like 1.5 percent of its $9 trillion gross domestic product, in the worst-case estimates.

IBT cites a report from China’s national auditor that $45 billion in projects are now behind schedule, leading to some officials being punished for failing to spend the funds they sat on because they were terrified of being investigated for corruption.

China’s once-booming luxury goods market is also suffering because businessmen are no longer buying luxury items — such as expensive watches, works of art, gourmet tea — to give public officials as “gifts.” Both domestic and foreign corporations have revised their marketing strategies to account for the contraction of the “expensive gifts for Chinese officials” market.

All of this adds up to a deep well of resentment for the discovery that some of China’s pious anti-corruption crusaders were slipping wads of cash into offshore shell companies, managed by a Panamanian bank famed for its discretion, until someone pilfered its confidential files and handed them to an international consortium of journalists.