ad info




TIME Asia
TIME Asia Home
Current Issue
Magazine Archive
Asia Buzz
Travel Watch
Web Features
  Entertainment
  Photo Essays

Subscribe to TIME
Customer Services
About Us
Write to TIME Asia

TIME.com
TIME Canada
TIME Europe
TIME Pacific
TIME Digital
Asiaweek
Latest CNN News

Young China
Olympics 2000
On The Road

 ASIAWEEK.COM
 CNN.COM
  east asia
  southeast asia
  south asia
  central asia
  australasia
 BUSINESS
 SPORTS
 SHOWBIZ
 ASIA WEATHER
 ASIA TRAVEL


Other News
From TIME Asia

Culture on Demand: Black is Beautiful
The American Express black card is the ultimate status symbol

Asia Buzz: Should the Net Be Free?
Web heads want it all -- for nothing

JAPAN: Failed Revolution
Prime Minister Yoshiro Mori clings to power as dissidents in his party finally decide not to back a no-confidence motion

Cover: Endgame?
After Florida's controversial ballot recount, Bush holds a 537-vote lead in the state, which could give him the election

TIME Digest
FORTUNE.com
FORTUNE China
MONEY.com

TIME Asia Services
Subscribe
Subscribe to TIME! Get up to 3 MONTHS FREE!

Bookmark TIME
TIME Media Kit
Recent awards

TIME Asia Asiaweek Asia Now TIME Asia story

FEBRUARY 7, 2000 VOL. 155 NO. 5

Fall of an Empire
A high-level smuggling scandal lays bare the corruption that is plaguing the People's Republic
By NISID HAJARI


Fritz Hoffmann/Network Photographers for TIME
The stalled construction site for the 88-story Yuanhua International Centre.

When they sold their cars in 1994, China's ruling élite had a point to make. Current and former premiers Zhu Rongji and Li Peng, among others, traded in their Mercedes stretch limousines not because they preferred more demure Audis, but to set an ascetic example for a Communist Party grown fat on perks and a half-century of untrammeled power. Ordinary Chinese appreciated the gesture. Businessman Lai Changxing appreciated the opportunity: he snapped up Li's former ride at a state auction and used the sleek limo to chauffeur favored--and impressed--contacts around the bustling port city of Xiamen in Fujian province.

    ALSO IN TIME
Cover: The New New Asia
The continent watched glumly as a New Economy rose--faster than Yahoo!'s share price--from Silicon Valley. Now, with a raft of homegrown start-ups ready to make waves, it's Asia's turn

Burma: God's Little Generals
Along the Thai-Burmese border, teenaged twin brothers lead an unlikely resistance against Rangoon
In Cold Blood: A commando raid raises ugly questions

Pakistan: Rule of Man
The sacking of top judges could irreparably taint the judiciary

China: Sour Smell of Success
An unfolding smuggling scandal in Fujian exposes a vast network of corruption that could reach all the way to Beijing
Ms. Clean: The nation's top graft-buster leads the charge

Japan: Black Knight
An ex-bureaucrat rocks the system with a hostile takeover bid

Cinema: Pavilion of Women in China
Cultures clash on a movie set in Beijing

  RELATED STORIES
TIME
China: Opiate Wars
As citizens look outside the Communist Party for solace, officials struggle to harness the unwieldy tentacles of religion

CNN
Breaking news from East Asia

ASIAWEEK
Rising Stars
Private enterprise could save China from crippling joblessness

Only now is Lai learning the intended lesson, for his ostentatious ways have landed him squarely in the middle of the biggest corruption scandal in the history of the People's Republic. For the past five months, hundreds of investigators from Beijing have flooded Xiamen, taking apart a shadowy operation that they say smuggled nearly $10 billion of oil, cars, mobile phones, cigarettes, rubber and guns into China. The chief of police, head of customs and dozens of other local, party and military officials have been hauled into custody. Others--including alleged mastermind Lai and a vice mayor--have fled overseas. In Beijing, a member of the Politburo and protégé of President Jiang Zemin was initially reported to have divorced his wife before she was arrested for involvement in the smuggling ring. The rot in Xiamen runs so deep that the crackdown itself could even pose a threat to Beijing.

The scandal is emerging as a lesson in capitalism's excesses as practiced in the Middle Kingdom--a Horatio Alger tale with Chinese characteristics. "Lai was an illiterate peasant," says a Xiamen lawyer who has met Lai several times. But the Fujian native quickly learned how to exploit China's stop-start flirtation with free enterprise. Running his first business in the early 1980s, at a time when most Chinese could only dream of foreign-made goods, he tempted clients by giving away imported leather briefcases. As the scale of his operations grew, so did the gifts: lavish banquets, prostitutes, jobs for relatives, mountains of cold, hard cash. After he established a base for his Yuanhua group of companies in Hong Kong in 1994, according to a source in Xiamen's business community, Lai routinely handed out thousands of dollars to visiting mainland officials to ensure their loyalty. "Each of them, whether a mayor or a division head, would get the same amount," says the source. "That way if one official retired or was sacked, Lai would still have ties to the subordinate who replaced him."

Investigators suspect that Lai, who spent a total of $21 million on a luxury apartment and offices occupying two floors of a Hong Kong skyscraper, used the former colony as a transfer point for goods that were then smuggled by ship into Xiamen, the deepwater port directly opposite Taiwan. The operation would have required even larger kickbacks: Lai allegedly paid huge bribes to officials for import licenses, possibly including to Lin Youfang, wife of Beijing party chief and Politburo member Jia Qinglin. (Lin, who has denied the charge, ran the largest state-owned import-export firm in Xiamen while her husband served as local party chief; in 1995 he was transferred to Beijing to replace the disgraced Chen Xitong, who was brought down in a corruption scandal of his own.) Navy ships reportedly escorted Lai's cargoes; when the net began to close in last fall, Xiamen sources say that the city's police chief alerted him in time to flee. The smuggler oiled these relationships with money and the girls at his Red House--a private club set in Yuanhua's corporate compound.

That Lai commanded respect in Xiamen--where he bought the city's soccer team, built a 30-story hotel and planned to build its tallest building, an 88-story office complex--is clear from the awed tone in which his exploits are recounted. According to the Xiamen lawyer, local trade officials once seized a shipment of Lai's black-market cigarettes; he simply phoned an army friend, who dispatched a squad of soldiers to recover the consignment and beat up the officials. On another occasion, when a customs officer rebuffed Lai, he arranged to have the man entertained by a prostitute at a Xiamen karaoke bar. Then he had police raid the place. "Lai came to the man's rescue and offered to get him off the hook if he came to work for him," recalls a Xiamen source familiar with the case.

But if Lai was audacious, he wasn't unique. Smuggling is rampant up and down the Chinese coast. As a result, many in Xiamen don't understand why Lai was singled out for investigation. "What's wrong with selling smuggled petrol?" says a local taxi driver, noting that the price of gasoline has risen by nearly 50 cents since the crackdown began. "It's not like smuggling drugs." Xiamen has a long history as a smugglers' paradise: four hundred years ago, when the city was known as Amoy, merchants bribed Ming eunuchs to allow foreign goods through the port. Only when traders balked at paying kickbacks were they branded pirates, and imperial troops sent to punish them.

Lai, too, may have thought himself too powerful to be touched. At one point his oil accounted for a sizable chunk of the Fujian market and cost half the official rate. He was eluding millions of dollars in tariffs on his shipments, at a time when the famously incorruptible Zhu was under pressure to ease the burden on the millions of state employees his reforms were putting out of work. According to one version of events, Zhu began investigating Lai after visiting Xiamen in early 1998, just before taking up his post as Prime Minister. Lai sent him a lavish package of gifts, which prompted Zhu to ask: "What kind of person can afford to send such expensive things?" Some say that angry state petroleum companies raised the alarm; others that one of Lai's deputies--upset that Lai wouldn't pay his gambling debts--ratted on him. One Hong Kong report says that Lai tried to bribe Zhu directly, which prompted the infuriated Premier to order his arrest.

Nabbing Lai has proven impossible. Xiamen law enforcers, says a local professor, "were the lawbreakers themselves." Everyone from the army and navy brass who work in the city because of its proximity to Taiwan, to civilian bureaucrats, to top party officials had a hand in Lai's cookie jar and an incentive to thwart investigators. The team dispatched last August from Beijing's secretive Central Commission for Discipline Inspection met a wall of uncooperative witnesses and outright harassment. Xiamen security officials tapped the agents' phones, allegedly warning Lai and other suspects before they were arrested. That reportedly prompted team leader Liu Liying, the woman who helped bring down former Beijing party chief Chen, to call in the big guns. Zhu turned to Jiang for help, and the investigation quickly gathered steam.

The Chinese President has good reason to come down hard on Xiamen. Since 1998, Jiang and others have warned that official corruption--one of the primary complaints of the student protesters who filled Tiananmen Square in 1989--may pose the greatest threat to the Communist Party's grip on power. "Corruption is the root cause of the lack of trust and respect for the Chinese leadership," says Joseph Cheng, a political scientist at the City University of Hong Kong. (In 1999, corruption replaced unemployment and social disorder as the issue that concerned Chinese most, according to a poll conducted by Beijing firm Horizon Market Research.) By some estimates smugglers are costing the government as much as $12 billion a year in unpaid tariffs; an additional $15 billion may be lost to embezzlement.

Periodic crackdowns, however, cannot hope to solve the problem. Authorities say they punished 132,447 corrupt officials last year, including 17 at the ministerial level. In one high-profile case in Guangdong province, six officials were executed for evading a combined $400 million in taxes. However, discipline commission chief Wei Jianxing said recently: "Rampant corruption has not been effectively curbed, and the situation remains severe." Indeed, it's hard to see how things can change unless China overhauls its political and economic system. Under the current regime, artificially high prices tempt black marketeers to sell illicit goods for less. The need for licenses will tempt those who dole them out to demand bribes.

Jiang and his lieutenants, however, are tackling graft precisely to avoid implementing more substantial political reforms. In the past year, with official encouragement, dozens of websites have been set up across the country for citizens to report instances of local corruption. Last week, as Beijing published stringent guidelines on the dissemination of "state secrets" over the Net, it warned sites against posting leaks from the Xiamen investigation. The new wariness may be a sign that the scandal is veering too close to Jiang himself, given the persistent rumors about Jia and his wife Lin. Last week the President posed for the cameras in Haidian, Beijing's "Silicon Valley" district, with Jia by his side, and Lin later appeared on Hong Kong television to deny that she had been arrested, or even divorced. The support may mean that the investigation has gone as far as top officials want it to go. If so, Beijing may have made one point only to miss another.

Reported by Jaime A. FlorCruz/Xiamen and Wendy Kan/Hong Kong

Write to TIME at mail@web.timeasia.com

This edition's table of contents
TIME Asia home


AsiaNow


Quick Scroll: More stories from TIME, Asiaweek and CNN

   LATEST HEADLINES:

WASHINGTON
U.S. secretary of state says China should be 'tolerant'

MANILA
Philippine government denies Estrada's claim to presidency

ALLAHABAD
Faith, madness, magic mix at sacred Hindu festival

COLOMBO
Land mine explosion kills 11 Sri Lankan soldiers

TOKYO
Japan claims StarLink found in U.S. corn sample

BANGKOK
Thai party announces first coalition partner



TIME:

COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state



ASIAWEEK:

COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness


Launch CNN's Desktop Ticker and get the latest news, delivered right on your desktop!

Today on CNN
 Search

Back to the top   © 2000 Time Inc. All Rights Reserved.
Terms under which this service is provided to you.
Read our privacy guidelines.