Global Policy Forum

By John Pomfret

When investigators searched two country houses belonging to Shenyang's mayor, they found $6 million worth of gold bars hidden in the walls, 150 Rolex watches, computer files documenting years of illegal activities and what they thought was a treasure-trove of antiques. The gold and Rolexes were real, but Chinese sources said the antiques turned out to be bogus, proving that in China even crooks get ripped off.

The corruption that ran – and some say still runs – through this rust-belt city of 8 million people, China's fourth largest, in the wintry northeast, is emblematic of the rot that has infected the Chinese state, Chinese and foreign observers say. And the half-hearted measures taken to deal with Shenyang's malfeasance, they add, show that the political system here, based on favoritism and relationships instead of law, is not equipped to deal with the scourge.

Premier Zhu Rongji underlined the extent of the problem yesterday in a report opening the annual session of the National People's Congress in Beijing. "Festivals and ceremonies of every conceivable description are celebrated," Zhu said, "during which the hosts vie with one another for lavishness. Officials use public funds for wining and dining, extravagant entertainment and private travel abroad."

But Zhu offered few new ideas to clean up the mess. He proposed a code of conduct and expressed a wish for "moral standards based on honesty and moral integrity." The Communist Party leadership already vowed to the legislature several years ago to deal with corruption by 2001. Reports that pop up from around the country, however, make it clear the problem is far from solved.

"But what will they tell the legislature now?" said Hu Angang, a Chinese economist who estimates that in dollar value, China is the most corrupt country in the world. "They have not made good on this promise."

Corruption is routinely the top complaint of people queried in internal government polls, surpassing worries about unemployment, government officials said. Sources close to the Chinese security apparatus note that unrest, riots, killings and demonstrations linked to corruption cases are on the rise.

The Communist Party argues that corruption is caused by a few "bad eggs." But Shenyang's story, which broke in 1999 and continues today, provides evidence, Chinese and Western sources say, that corruption is systemic and that the political system and constraints put on Chinese investigators make it difficult to fix.

Although they booted out 15 top government officials and 500 others in Shenyang, for example, Chinese authorities generally left the party structure intact. Only the top party position was changed; deputy party secretaries responsible for legal affairs, discipline and personnel remained at their posts.

Two whistle-blowers were jailed. One, Zhou Wei, a 71-year-old retired official, spent two years in a labor camp after he exposed one part of the scandal involving corrupt police officers. Another, Jiang Weiping, a journalist, was sentenced to nine years in January for a series he wrote for a Hong Kong magazine on corruption in Shenyang and other parts of Liaoning province.

One important suspect, a senior executive with the Bank of China, escaped interrogation because his father is a member of the Politburo, the inner circle of the Communist Party, said Zhou and other sources in Shenyang. Others won immunity by using their ties to senior officials from Liaoning who are now based in Beijing.

Bo Xilai, the man Beijing picked to breathe confidence back into Shenyang city and Liaoning province, is himself dogged by allegations of corruption from his previous job as mayor of Dalian, another city in the province. Several of journalist Jiang's stories in Hong Kong's Frontline magazine alleged Bo was involved in protecting corrupt officials there.

But Bo, who was named provincial chief last year, is not being investigated. Considered a rising star in a party apparatus desperate for new blood, Bo is the son of Bo Yibo, himself a former Politburo member. Bo Xilai declined an interview request.

Corruption in Shenyang involved almost every government department and ran the gamut from smuggling, to buying and selling official positions, to stealing farmland for big development projects, to rigging construction contracts, to basic theft from government coffers.

The mayor, his wife, daughter and lover, his executive vice mayor, the police, prosecutors, judges, customs officers, construction bureaus, private companies, bankers and local legislators were all on the take, according to a government report. In his 17 trips to gambling dens in Macao and Las Vegas, the executive deputy mayor, Ma Xiangdong,, who was executed late last year, blew $4 million in public funds, a source close to the investigation said.

Liu Yong's day job was as a legislator in the local People's Congress. But he actually headed a local crime organization responsible for between 30 and 40 murders, mostly of people living in property his real estate firm wanted to develop, Chinese sources said. Liu also smuggled cars and goods from North Korea for his chain of convenience stores. He, too, liked to gamble.

A month before he was arrested, he had also been in Vegas, sources said. Liu is now in jail, awaiting trial.

Mayor Mu Suixin was a dynamic leader, so Shenyang succeeded in roping in a lot of government cash. When the city hired a Hong Kong construction company owned by mogul Li Ka-shing to build a highway around the city, Mu's wife stepped in and sold bad construction material to the project, Chinese and industry sources said. Six months after the project was finished, the road was split open with potholes.

When Mu decided to beautify Shenyang with better lighting and billboards, his daughter, Mu Yang, nabbed the contracts. Investigators discovered she had a bank account in Hong Kong worth $3 million. She currently is a fugitive in the United States, which along with Canada is the haven of choice for Chinese accused of wrongdoing at home.

The city was so dirty that in the middle of the investigation in June 2000, Mu's wife, Zhang Yafei, bought her husband's freedom for several months, and she almost succeeded in quashing the probe. Other major figures in the case were tipped off about their imminent arrests, allowing them to flee to Canada and the United States with millions of dollars.

One private businessman, suspected of paying bribes for government contracts, is currently in Los Angeles with $2 million in the bank. Complaining of depression, he said he has hit Las Vegas three times in the last month, blowing $100,000 on each visit. Speaking on condition of anonymity, he said he was recently questioned by U.S. law enforcement officials who were interested in the source of his funds.

As with most cases in China, the most promising men and women in official life seem to be the most corrupt, a troubling problem for the Communist Party, which says it wants new blood to clean up its name.

Mu was a graduate of Qinghua University, China's version of MIT, and one of the country's golden boys. In 1999, the United Nations cited him for improving housing in Shenyang. He had been feted around the world and in the Western media as a man with a plan to save China's lumbering state-owned industries, of which Shenyang has more than its share.

Mu was given a suspended death sentence. He has lung cancer and is in jail.

So-called model workers and other leading lights were also among those who took the fall. "This wasn't the party versus the mob," said a Western resident of Shenyang. "The party was the mob."

Chinese experts on corruption and, apparently, a growing number of officials are beginning to cast a critical eye on the government's efforts to eliminate sleaze. Measures such as those carried out in Shenyang have prompted calls for serious reform.

"Corruption is the greatest legacy and the greatest challenge for China's next generation of leaders," said Hu, the economist. "They have no choice but to carry out systemic reform."

In a paper published last year, He Zengke, a senior researcher at a party research institute, argued that fundamental change in the political system is needed to defeat corruption. Because China is transiting from a planned economy to a market economy, he said, the old style of governance does not work.

Arguing that communist societies have always had difficulty policing themselves, He called for direct elections, for example, for local People's Congresses and for increasing their powers to oversee city hall. He also wants the reins loosened on the tightly controlled press.

"Governing policies that were established on the foundation of a planned economy are closed to the masses, mysterious, allow powerful individuals to use their power as they wish, abound with red tape and cultivate 'yes' men," he wrote. "From 1978 until the present, despite a large number of reforms, the nature of this governance has not changed."

He might be pipe-dreaming. But one sign of hope is this: The institute He works for, the Central Translation and Compilation Bureau, is responsible to Hu Jintao, China's vice president and the top choice to replace President Jiang Zemin after the 16th party congress in September.

"He doesn't say yes but he doesn't say no," said He about Hu's reaction to such controversial research. "That means we can keep thinking."

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