China's most wanted

PUBLISHED : Tuesday, 20 February, 2007, 12:00am
UPDATED : Tuesday, 20 February, 2007, 12:00am

Amid the diplomatic wrangle over Beijing's calls for Canada to extradite alleged smuggler Lai Changxing , the motive for the pursuit lies in the claim that Lai succeeded in subverting the government of an entire city.

A semi-literate peasant who did not finish primary school, Lai is said to have used money, women and gifts of villas and luxury cars to control Xiamen , one of the richest and most modern cities on the mainland, and smuggled in goods that lost the government 30 billion yuan in revenue and put thousands of people out of work.

The extradition push by Beijing stems back more than seven years, when Lai fled to Canada to escape prosecution on the mainland. Authorities last week assured Canada that Lai would not be executed if he was returned. But ties between the two nations have been further strained over human rights issues since Stephen Harper became Canadian prime minister last year.

Mr Harper has been critical of China's human rights record, most recently in the case of Husein Celil, 37, a Canadian citizen who was arrested in Uzbekhistan in February 2006 while visiting his wife's relatives, and deported to China. He is being held in the Xinjiang capital of Urumqi and faces trial. Mr Harper is angry that his diplomats have been denied access to Celil, because Beijing does not acknowledge his Canadian citizenship.

But it is Lai who ranks at the top of a list of 4,000 people, including officials, who the government accuses of taking bribes and escaping abroad. 'To extradite him would be a symbol of the government's determination to bring back corrupt officials from abroad and terrorise others thinking of doing the same,' was how the China News Weekly summarised the importance of the case.

Although the government has prosecuted more than 300 of those involved with Lai and executed seven of them, the alleged kingpin is missing. The government wants Lai back, to try him and close the case.

Lai was born in 1958 to a poor family in Jinjiang county, Fujian province , 80km north of Xiamen. As a child, he was thin and weak and, like most Chinese at that time, lived on the edge of starvation.

Neither he nor his parents were interested in education and he left primary school before graduating, to help his parents on the farm. He could not read a newspaper and in later life his staff had to read aloud articles, contracts and other documents and show him where to sign.

Soon after the government lifted a ban on private business in 1978, he set up a small factory with his brothers. He used to cycle the 80km to Xiamen to sell its products and buy the raw materials. In the early 1980s, to be closer to Xiamen, he moved to Shishi , the centre of the mainland's production of jeans and umbrellas, where he set up more businesses, including a printing plant and umbrella factory.

There he earned a profit of 2 million yuan, by selling land he had bought to build a villa that was re-zoned as an industrial area. In 1985, he relocated to Xiamen, where he moved his printing and umbrella businesses.

He observed that profits earned by ordinary manufacturers like him were nothing compared with those of people with power and connections. 'In China, the best investment is not in hi-tech or services, but connections,' he used to say.

It is claimed he began to cultivate officials he thought had a promising future, including Zhuang Rushun , a traffic policeman when Lai first met him. Zhuang rose to become police chief of Zhangzhou , in southern Fujian.

Zhuang wanted a satellite-phone system to enable police to respond faster to crimes in the city. Lai imported it for him, according to mainland sources, at no cost and in return was allowed to import 100 cars without duty, which he sold for 50 million yuan.

The new phone system was copied nationwide, earning Zhuang promotion to chief of police of Fuzhou , the provincial capital, where he became one of Lai's principal backers. He received from Lai a total of 545,500 yuan in bribes, including a BMW car. In November 2000, he was sentenced to death for corruption.

In 1991, Lai allegedly bought one-way visas to Hong Kong for himself, his wife and three children, at a price of about one million yuan each, and there registered the Yuan Hua company which became his main business. He returned to Xiamen with the new status of 'foreign investor'. In early 1993, he met two children of national leaders and learned that a military factory they were involved with urgently needed computer micro-processors. Through his Hong Kong company, he imported the required items, cementing a friendship with his two new connections. It was after this that his smuggling operations began, say mainland authorities.

Between 1994 and 1999, he brought crude oil, petro-chemicals, electronics, plastics, steel and construction materials, cigarettes, vegetable oil and munitions worth 53 billion yuan to China, evading taxes of 30 billion yuan.

Everyone in the Xiamen customs knew about this, because their chief, Yang Qianxian , was on Lai's payroll, receiving a total of 1.4 billion yuan. Yang was also sentenced to death.

One morning, the story goes, customs staff met on the top floor of their building overlooking the harbour and one remarked that an oil tanker was arriving. Yang drew the curtain and said it was time to discuss other business.

Lai's biggest profits allegedly came from cars and oil. Official car imports in 1998 and 1999 were only 11,531 and 7,999, respectively, meeting a fraction of demand, and the tariff on imports was more than 100 per cent. In mid-1998, the world oil price fell to 900 yuan a tonne, its lowest for several years, while the domestic price was 1,500 yuan. According to industry estimates, oil smuggled in 1998 by Lai closed 3,000 domestic wells and put 300,000 people at state refineries out of work.

To run operations of this scale, Lai needed protection from many levels of the government, local and national. To this end, he constructed a building in Xiamen called the Red House, the same name as in the novel Dream of the Red Chamber, which portrays the corruption and decadence of a rich family in the Qing dynasty.

The top floor housed Lai's office, the second a five-star restaurant serving abalone, shark's fin and other delicacies prepared by a Hong Kong chef he hired at HK$60,000 a month. The other floors contained karaoke rooms, saunas, entertainment suites and guest rooms, fitted out like a five-star hotel. To select the female hostesses, Lai sent talent scouts to Shenyang , Beijing and Shanghai, including university campuses, and offered a base salary of 10,000 yuan a month. In the walls of the bedroom, he was said to have installed cameras that filmed the activities of the guests, which he used to blackmail them.

Lai's connections also allegedly extended into the central government. According to people in Xiamen, they included Liu Huaqing , who was in the mid-1990s vice-chairman of the Communist Party's military commission, and Lin Youfeng, wife of Jia Qinglin , a member of the Standing Committee of the Politburo. Jia was deputy governor and governor of Fujian province from 1985 to 1996 and his wife deputy president of an import-export company.

In 1998, then premier Zhu Rongji spent Lunar New Year in Xiamen, one of his favourite cities, and met Lai at a reception. 'You owe one billion yuan in taxes,' Mr Zhu said angrily. 'Pay what you owe, stop smuggling and that will be the end of the matter.' Astonishingly, Lai was so confident of his patrons in Beijing that he turned down this offer from the premier. On April 20, 1999, Mr Zhu set up a taskforce to close down Lai's operations. It took over a hotel in Xiamen as its headquarters, with 400 investigators, none of them from Xiamen, and ordered members of the city government above the level of department head not to leave the country.

On August 11, Lai was on a plane from Hong Kong to Xiamen and his mobile rang. It was the chief of the Fuzhou police who warned him that investigators would arrest him on his return. At the airport, he booked a seat on the next foreign flight, to Manila, and from there to Canada. The phone call earned the police chief 12 years in prison 'for divulging a state secret'. On August 21, several hundred armed officers surrounded the Red House, where investigators found detailed lists of hundreds of officials from Xiamen and Fujian to whom Lai had allegedly paid bribes, along with records of who had slept with whom. But the company bank accounts were empty, because Lai had moved the money to Hong Kong before he left.

It turned out to be the biggest smuggling case in the communist era, with more than 300 officials charged with criminal offences and 14 sentenced to death, of whom seven have been executed. The most high-ranking was Li Jizhou , vice-minister of police from 1995 until his arrest in 1998. He was given a two-year suspended death sentence in 2001. The way Lai involved him was typical of his operations.

They first met at a party in Xiamen in December 1993. A year later, Li's wife called him to say that she needed money to run a hotel she wanted to take over. She received one million yuan the same day and Lai insisted that no repayment was necessary. Later, Li's daughter incurred heavy debts when a company she set up in California went bankrupt. Lai immediately wired US$500,000 to her US bank account.

In early 1997, Lai met Li at a five-star hotel in Beijing and gave him US$30,000 as he was getting into his car. A short time later, Lai called him to say that border police in Hainan had stopped a freighter suspected of smuggling diesel fuel. Li called the officer in charge and the ship was allowed to enter.