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Will Xi’s Anti-Corruption Drive Extend to Officials Named in the Panama Papers?

Not very long ago, the name of the Panamanian law firm “Mossack Fonseca” was more or less unknown to all but its customers. What a difference just a few days make in global politics, however, as the name is now synonymous with a leaked list of high profile political figures around the world, many of whom have allegedly set up shell companies with the firm for tax avoidance purposes. These include Putin’s political inner circle in Russia, and family members of David Cameron, but it is also becoming swiftly apparent how many members of Beijing’s inner circle are implicated in the scandal. With Xi Jinping, the General Secretary of the Communist Party of China, on a highly public drive to eliminate corruption from the party, this news is a major embarrassment for the nation’s leader.

If the severity of Xi’s current anti-corruption drive is anything to go by, then those named in the Panama Papers ought to be quaking in their boots. Indeed, nearly a third of a million Chinese people have been charged in the last year for corruption; a full 82,000 of these have been handed the heaviest possible penalties, and around 100 of the arrests have been of so-called “tigers,” senior provincial officials who had always been considered untouchable.

That the Chinese Communist Party has been seen to tackle the nation’s “robber barons” with such unprecedented fervor has been an extremely popular move with the nation’s citizenry, many of whom have been directly affected by the corruption inherent in China’s political infrastructure.

Xi’s efforts are something of a response to a zeitgeist in which there is growing dissatisfaction with the ever widening gulf between the rich and the poor.

The Panama Papers investigation is still very much in its early stages, and there is yet a great deal to emerge regarding the nature of the transactions surrounding the relevant shell companies. Nonetheless, there is no doubt that the credibility of the CCP’s corruption campaign has been dealt a serious blow by the Panamanian law firm’s revelations, especially because of the seniority of the figures involved. That such influential figures as former Premier Li Peng and former Politburo member Jia Qinglin have been implicated is damaging enough to the anti-corruption campaign. However, most damaging of all is the revelation that Xi’s own brother-in-law, Deng Jiagui, has also had a shell company pass through the hands of Mossack Fonseca. How the CCP will react now is of pivotal importance, and the choices open to it are quite clear: either to let these revelations slide off the political lens without comment, or to apply the current austere interpretation of “honesty” to individuals that are part of Xi’s inner circle. So far, the party has been quick to censor online discussions about the scandal, as it no doubt considers this the least damaging course of action.

The Papers are far from being the only proof that proximity to power breeds financial advantages. The emergence of the fuerdai class, the second-generation rich who put the Paris Hiltons of the world to shame in terms of glib extravagance, is hated by most strata of China’s conservative society. Fueled by their parents’ cushy jobs provided by state-owned enterprises, the fuerdai have prospered so much so that China, which had no billionaires in 2003, now boasts more than the U.S. When they were placed on the list of those facing charges, including China’s purportedly most hated woman, socialite Guo Meimei, for running an illegal casino, Xi’s popularity rose even further.

And it’s not just overt corruption that is behind this phenomenal improvement in the fortunes of many Chinese. As the Sierra Club showed, a handful of high-flying Chinese industrial magnates amassed fortunes of some $70 billion by speculating in the country’s shabby regulatory framework. While under their stewardship, several industrial SOEs involved in the production of cement and metals boomed, that has come at a heavy environmental price for the average Chinese. These conglomerates have been responsible for some 10% of China’s total CO2 emissions and have no doubt contributed to China’s air pollution problems: spending one day in Beijing is now the equivalent of smoking 40 cigarettes a day.

Just like the Panama Papers group, the Sierra Club individuals are the greedy few knew how to utilize their party membership and family ties to skirt the rules of the Communist Party. Even before the Panama Papers became front-page news, questions were raised about Liu Zhongtian, chairman of aluminum company, China Zhongwang Holdings, who had laundered tens of millions through odd transactions. According to a report, Liu and his family were committing “the largest and most complex China fraud ever uncovered.”

As for Xi’s anti-corruption drive, little explanation has been given as to why people have been charged, upon what grounds, and what evidence has led the Central Committee for Discipline to make those decisions – leading many to accuse Xi of manipulating the campaign to remove potential threats to his leadership. The suspicion is gaining ground among political pundits that the campaign is just another prong used by Xi to consolidate power, boost a fledgling cult of personality and strengthen the reach of the Party. The Panama Papers investigation (and, to some extent, the Sierra Club’s findings) gifts Xi with the perfect opportunity to show that he does indeed walk as he talks; especially in light of renewed pledges to continue the campaign.

While the mere presence in the leaks is not in itself evidence of wrongdoing, with further investigation needed to establish the purpose of the investment vehicle used, the Panama Papers issue is bound to raise some painful questions. Income inequality, the stark difference between the lifestyles of the rich and the poor at a time when the economic slowdown is threatening mass unemployment, is one of the deepest threats to the CCP’s legitimacy. It is difficult then to see how the party can recover from the damage done to its reputation by the patent hypocrisy of its General Secretary, Xi Jinping, if he not only fails to deal with the issue of cronyism, but actually, through inaction, ends up endorsing it.