Leadership: Panama Papers Shake Things Up In China


April 20, 2016: China has found an embarrassing problem in Panama. More specifically the recent release of some of the 11 million documents stolen (via hacking) from a Panama based international law firm (Mossack Fonseca). Data published so far shows that many Chinese did business with Mossack Fonseca, which assist wealthy people to set up overseas bank accounts and corporations whose owners are very difficult for most people (or even other governments) to identify. The small number of documents publicized so far has shown that a number of people closely related to senior Chinese officials (current and former members of the Politburo Standing Committee) were doing business with Mossack Fonseca.

This was particularly embarrassing because at the same time the “Panama Papers” hit the news China did the unprecedented and indicted Guo Boxiong, a relative (brother-in-law) of the current president (Xi Jinping), for corruption. Guo was retired but still engaged in corrupt activities which apparently were particularly intense when Guo was himself very senior official (a member of the Politburo). While the current Chinese government has made a big deal about its ever-expanding war on corruption it is very hostile to anyone doing so on their own. So the government ordered its huge media/Internet censorship bureaucracy to try and keep the Panama Papers from the Chinese people. This was only partially successful.

All this comes shortly after the Chinese government warning everyone, in early 2016, that the anti-corruption campaign would not only continue but intensify. In the past mainly lower ranking Chinese Communist Party members were prosecuted but by 2015 it became clear that if the corrupt senior party members were not shut down the widespread corruption would survive and thrive. So prosecutors are told no one was immune and throughout 2015 some of the most senior government and Chinese Communist Party officials were being prosecuted. This was unprecedented and if the investigators are allowed to prosecute all they find to be dirty there will be a lot of new faces in the partly leadership by the end of 2016. Then came the Panama Papers. Chinese leaders hate surprises like this.

One thing that was really no surprise was the need to do something dramatic about the crippling corruption in China. For example in early 2015 the former head of all security in China (Zhou Yongkang) was indicted for corruption Chinese and many foreigners were shocked. Later they were shocked even more as it was revealed that Zhou went too far in several areas. For one, he spied on his fellow senior officials. Zhou was also involved in encouraging and protecting (from exposure and being shut down) the lucrative practice of using executed criminals as sources for transplantable organs. Zhou Yongkang got away with all this because he was also a member of the Politburo, the committee of five to nine (currently seven) senior officials from which the president of China is chosen. Membership in the Politburo is the pinnacle of the career of a Chinese official. Not all Politburo members are corrupt, at least not personally. But most have kin who are and these family members take economic advantage of that the fact that their husband, brother, father, uncle, cousin (or whatever) is a senior official. The kin then profit from corrupt dealings. Zhou Yongkang was rare in that he got personally involved with corrupt deals and that is forbidden by law and custom (among senior officials). The government anti-corruption campaign is also going after the dirty kin, although many of these are given the opportunity to surrender all their ill-gotten gains, confess everything and stay clean.

President Xi Jinping has been behind this latest anti-corruption push and his approval ratings with most Chinese have risen sharply as a result. Xi knows that these prosecutions are not popular with the government bureaucracy so he orders his anti-corruption operatives to first go after those who are not known to be big supporters of Xi or, like Zhou, are doing things that even other corrupt officials do not approve of. This encourages more loyalty to Xi by senior officials and tolerance for his unpopular anti-corruption program. Many Chinese believed that the government (run by the Communist Party) would never actually go after Communist Party members. Yet many Communist Party officials have been quite open about the danger to Communist Party rule in China if the rampant corruption within the Communist Party was not addressed. Now it has been and Communist Party members see the possibility of serious damage to the survival of Communist Party rule in China.

Apparently senior officials were also quietly told that if they resigned, admitted their transgressions and made restitution they would be left alone. While all these corruption prosecutions seem to be directed at people who are guilty the government releases few details of exactly what they did wrong. The Panama Papers disclosures may shed some unwanted (by Xi and his allies) light on this. Some of the transgressions are known because the officials are living in mansions or country estates that they could never afford on their state salary. The government does not censor much of the reporting on this, which are often accompanied by real estate experts providing the market value of these properties. Then there are the expensive cars, jewelry and other visible valuables that there is a known market value for. Apparently the government does not want Chinese to know how extensive the stealing has been in precise terms. It is apparently a very large chunk of the GDP and the Panama Papers may provide a better idea of just how extensive.




Help Keep Us From Drying Up

We need your help! Our subscription base has slowly been dwindling.

Each month we count on your contributions. You can support us in the following ways:

  1. Make sure you spread the word about us. Two ways to do that are to like us on Facebook and follow us on Twitter.
  2. Subscribe to our daily newsletter. We’ll send the news to your email box, and you don’t have to come to the site unless you want to read columns or see photos.
  3. You can contribute to the health of StrategyPage.
Subscribe   Contribute   Close