• Sun
  • Aug 31, 2014
  • Updated: 4:11am
PUBLISHED : Monday, 24 March, 2014, 5:02am
UPDATED : Monday, 24 March, 2014, 5:02am

Corrupt officials' overseas riches pose sanctions risk for China

Western efforts to freeze assets of top Putin allies should jolt Chinese leaders into finally cracking down on assets officials hold abroad


Wang Xiangwei took up the role of Editor-in-Chief in February 2012, responsible for the editorial direction and newsroom operations. He started his 20-year career at the China Daily, before moving to the UK, where he gained valuable experience at a number of news organisations, including the BBC Chinese Service. In 1993, he moved to Hong Kong and worked at the Eastern Express before joining the South China Morning Post in 1996 as our China Business Reporter. He was subsequently promoted to China Editor in 2000 and Deputy Editor in 2007, a position he held for four years prior to being promoted to his current position. Mr. Wang has a Masters degree in Journalism, and a Bachelors degree in English.

Last week, the United States and the European Union raised the heat over Russia’s annexation of Crimea by slapping sanctions, including asset freezes and travel bans, on dozens of leading Russian officials and businessmen.

While the sanctions have started to rattle the Russian market amid concerns over the possible long-term effects on an already troubled economy, the Russian president, Vladimir Putin, has stood firm. And Russian officials, including some of those sanctioned by the US and EU, have brushed off the measures as ineffective.

As the crisis unfolds, Chinese authorities are treading carefully in their responses publicly, calling for dialogue. Privately, however, officials and ordinary mainlanders alike have been intrigued and are watching closely to see how the sanctions play out.

Internet users have been particularly amused by the nonchalant response from deputy Russian prime minister, Dmitriy Rogozin,  who is among those on the sanctions blacklist.

On Twitter, he laughed off US President Barack Obama’s decision to name him while trying to squeeze Putin’s inner circle, asking if “some prankster” came up with the list.

In one tweet addressed to “Comrade@BarackObama”, Rogozin asked: “What should do those who have neither accounts nor property abroad? Or U didn’t think about it?” 

Rogozin’s cheeky response was widely shared on the mainland’s social media scene. Some of the country’s more cynical internet users have wondered aloud whether Communist Party officials could be so dismissive if they found themselves in a similar situation, facing Western sanctions of overseas assets.

The conclusion is a resounding no. It is an open secret that corrupt officials move billions of US dollars in ill-gotten gains overseas every year, parking them in offshore accounts or investing them in property. A recent report by the International Consortium of Investigative Journalists estimated that wealthy Chinese sent US$1 trillion overseas from 2002-11, potentially making China the world’s biggest exporter of illicit capital, ahead of Russia and Mexico.

Mainland officials have long joked that a list detailing the offshore assets of corrupt officials and their families would give the US the ultimate leverage over China. Any move to publish that list, let alone imposes any sanctions on the money, could easily throw the party into chaos.

The scale of the situation is best illustrated by the emergence of a new class of cadre called a “naked official”. Such officials send their immediate families to live luxurious lives in foreign countries while quietly laying the ground for their own eventual departure.

The central government has no idea exactly how many naked officials are out there, although some analysts have put the figure at more than one million.
Such officials – along with overseas media reports about the massive family wealth of top party figures, such as former premier Wen Jiabao and retired security tsar Zhou Yongkang – have fuelled widespread anger among mainlanders and greatly tarnished the legitimacy of the ruling party.

Since President Xi Jinping came to power in late 2012, the government has stepped up its efforts against graft. It seems not a day goes by without the announcement that some senior official has been arrested on corruption charges. In January, the central government released revised regulations which for the first time banned naked officials from promotions.

But the leadership has long dragged its feet on forcing officials to publicly declare their family assets, a measure that many analysts believed could effectively curb official corruption.

With any luck, the sanctions against Russian officials will give Chinese leaders the jolt they need to advance more effective anti-graft measures, particularly at a time when Beijing is warning against outside influence on China’s politics.

In fact, the Chinese can learn from the Russians. In April, the Russian government ordered officials to declare their assets and shed any bank overseas accounts and securities they hold abroad and bring them home or face termination.

It remains unclear how effectively those rules have been enforced, but they do afford Rogozin the right to be cheeky.



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This article is now closed to comments

Interesting article, yet there is one major flaw we some of the writing here. Corruption is a necessity for the CCP. If you don't buy off members of the CCP with the proceeds from corrup tion you can't assume the continued compliance to the fundamental aims of the party. Ideology has long sense ceased to be the glue that holds members in tact. That glue now is corruption. Take away the financial incentives to toe the party line and all sorts of internal conflict will emerge which could cause the strong, but brittle party control to crumble.
The article though does present a real dilemma for China though. Should China take aggressive action for instance against Japan's Senkaku-Diaoyutai Island sanctions from the U.S. could cut very deep.
In ‘Liquidity crunch forces mainlanders to cash out of Hong Kong luxury homes’ I made the following posts:
‘Cash-strapped mainland Chinese are scrambling to sell their luxury homes in Hong Kong, and some are knocking up to a fifth off the price for a quick sale, as a liquidity crunch looms on the mainland.’
Those mainlanders who bought luxury property in Hong Kong hardly would be cash-strapped anytime. It may be just thinking about cashing out for something even more expansive flats and houses in upturn market elsewhere.
But I wouldn’t exclude the probability that mainland investors are wiping their slate clean not to leave tracks of their ill-gotten gains. The cleanup in corruption in mainland looks quite real and serious.
Local buyers may even want a bigger discount. Accept not just 5% or 10% but 50% discount. If you are lucky you may get one free if the owner is really in a bind. I normally don’t think it is right to capitalize on one’s misfortune. But this time it is an exception. Hong Kong’s proper property market has really suffered enough.
The investment for permanent residency scheme is casted in doubt if central government maintains its momentum on its war on corruption. It is a blow for those mainlanders who may have paid their luxury home in Hong Kong with money from questionable source.
But why should you Dislikeds care unless you want to sell few more or infinitely number of luxury homes to these mainlanders? Assisting in money laundry really.


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