Shantou four pay with their lives for record scam

PUBLISHED : Tuesday, 15 May, 2001, 12:00am
UPDATED : Tuesday, 15 May, 2001, 12:00am
 

The execution of four businessmen in Shantou has finally shed light on China's largest tax and corruption scandal to date, which had been brewing in the eastern Guangdong port city in the past year.


The executions on Friday were followed by a blitz of state media reports that, for the first time, detailed the nature and extent of the rot in Shantou.


They put the scale of the Shantou scandal in perspective, allowing it to be compared with two other 'largest-ever' scandals uncovered in recent years - the Zhanjiang smuggling ring broken up late in 1998 and Xiamen's Yuan Hua smuggling case, which came to light late in 1999.


That something was amiss in Shantou became apparent last summer.


According to Beijing's version of events, an accidental fire at a Shantou government guesthouse on July 15 killed five people, including two corruption investigators from the Guangdong Disciplinary Inspection Commission.


Just one month later, 300 central government investigators descended on Shantou and appropriated as their base camp the guesthouse where the fire had occurred.


The investigation team was known as Group 807, a reference to the date - August 7 - on which Premier Zhu Rongji's office ordered its formation.


Group 807 had to investigate fraudulent value-added tax (VAT) rebates. Opportunists aided and abetted by corrupt government officials in the neighbouring cities of Chaoyang and Puning were suspected of using fake VAT receipts to claim rebates on taxes that, in fact, they had never paid.


In this respect, the Shantou scandal differs basically from those in Zhanjiang and Xiamen.


In Zhanjiang, smugglers and senior city officials colluded to smuggle cars, fuel, steel and sugar. Estimates of the evaded import duties ranged between 400 million yuan (about HK$374.8 million) and one billion yuan. The ringleaders were convicted in May 1999.


But Zhanjiang's claim to infamy as the home of China's largest smuggling case was eclipsed just six months later by the emergence of the Yuan Hua scandal in Xiamen.


Yuan Hua Group head Lai Changxing also paid local officials to look the other way and smuggled goods worth anywhere between 80 billion yuan and 150 billion yuan. Losses to the government amounted to tens of billions of yuan.


In terms of value, the Shantou scandal falls somewhere between those in Zhanjiang and Xiamen. Thus far, investigators have turned up fake VAT receipts with a total face 'value' of 32.3 billion yuan.


The real cost to the government, in terms of tax rebates actually paid out to companies that did not qualify for them, is a far smaller 4.2 billion yuan. The total will no doubt be much higher, as only 18 cases, involving 40 suspects, have been prosecuted. A further 59 cases, involving 167 suspects, are underway.


The Zhanjiang and Xiamen cases can be seen as sins of omission.


The money 'lost' by the government was money it should have collected in theory but did not, and consumers and companies were able to buy cheaper imports that they otherwise might not have been able to afford. Indeed, some free marketeers and consumer groups might even see the Zhanjiang and Xiamen smugglers as heroes who did what any rational animal should do when confronted by a trade barrier - figure out a way around it.


The Shantou counterfeiters, on the other hand, are guilty of sins of commission. They tricked the government into giving them money from the national treasury that they were not entitled to, much as welfare and dole-cheats do elsewhere.


The ways they did this were extremely cunning and will be the subject of next week's Guangdong Briefing.


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