AS BAD AS it may look for China's image in the eyes of foreign investors, a major crackdown on white-collar crime appears to be part of the jostling for position in the upper reaches of the Chinese Communist Party. Reaching to the top of business and government, the cases are also a reminder that China's economic boom created almost ideal conditions for an explosion of financial crime.

Crime experts focus on a hothouse economy where loosely controlled privatizations, poorly regulated equity markets, burgeoning foreign trade and huge flows of investment nourish rampant graft. And in the absence of independent courts, effective investigating authorities and a free media, it is much easier to escape detection and punishment inside or outside the government and the ruling party.

"There has been a huge expansion in opportunity for the commercial criminal without a similar expansion in regulation and oversight," says commercial-crime expert Steve Vickers in Hong Kong.

Political experts see politics, as well as crime, as the real story behind virtually every high-profile case, with prominent protégés of leaders being toppled as part of the scrambling for advantage ahead of an all-important party congress, which starts meeting from November 8.

The most sensational case in the run-up to the 16th Party Congress is the disappearance in October of State Power Corp. chief Gao Yan over what a leading financial newspaper has implied are irregularities involving shares of a subsidiary and financing arrangements with the China Construction Bank.

Gao, 60, is the only corporate executive to sit on the party's powerful Central Committee and is a protégé of China's second-ranked party leader, National People's Congress Chairman Li Peng, who is expected to retire at the coming party meeting. Li's son, Li Xiaopeng, is one of Gao's deputies at the state-run power firm, the largest company in China and one of the biggest in the world.

Some foreign and Chinese reports said Gao had fled to Australia. But Australian diplomats and immigration officials deny any knowledge and doubt he could have entered the country without them being aware of it. "It is highly unlikely that someone of his seniority could slip past us," says one official.

Another high-profile case ended with a 15-year prison term handed down on October 10 to the former chairman of the state-owned Everbright Group, Zhu Xiaohua, for taking $500,000 in bribes, according to the official media. A Beijing court found Zhu had taken the bribes between 1997 and 1999 when he was chairman of Hong Kong-based Everbright, a conglomerate controlled by the State Council, China's cabinet. In return, Zhu, 53, ensured Everbright bought shares in a company and invested in a real-estate project that led to heavy losses.

The comparative leniency extended toward Zhu in a system where relatively minor crimes can bring the death penalty was justified in state-run media by his willingness to confess to more crimes than he was charged with. Nevertheless, it is a dramatic fall from grace for the former protégé of Premier Zhu Rongji.

He is the second Zhu protégé hit by a corruption scandal this year. Wang Xuebing, a former head of the China Construction Bank and before that the Bank of China, remains in custody while an investigation continues into irregular bank loans made by Bank of China during his tenure. Chinese business figures familiar with his case say he has refused to make any confession. Wang is an alternate member of the party Central Committee, but he is expected to be stripped of that position at the party congress.

Another high roller now under intense scrutiny is Dutch-Chinese businessman Yang Bin, who was ranked as one of China's richest men last year. Just 11 days after North Korean leader Kim Jong Il on September 23 appointed him to head a new special economic zone near the border with China, Yang, 39, was placed under house arrest on suspicion of economic crimes and tax evasion in the northeastern Chinese city of Shenyang. Yang was close to Vice-Premier Li Lanqing, an ally of President Jiang Zemin, as well as to Liaoning Governor Bo Xilai, one of the stars of the so-called Fifth Generation of Chinese leaders now in their 50s.

The crackdown also reaches into the state-run media with a top official at Chinese Central Television, Zhao An, under investigation. Newspaper reports suggest the probe relates to Zhao's role as head of the annual Chinese New Year Evening Gala, a programme that draws a huge audience and can make an instant star of almost any performer. Zhao had close links to a brother of President Jiang's adviser, Zeng Qinghong.

Official statistics indicate the size of the challenge facing the authorities and how deep corruption has burrowed into the bureaucracy. In the five years from 1997 to 2002, courts handled 118,692 cases of white-collar crime by public officials including embezzlement, bribery and misappropriation of public funds. In that time, the courts handed down 188,482 sentences for offences. Those sentenced included 19 provincial or ministerial-level officials, 318 department or bureau-level officials and 2,031 county or office-level officials. Most cases of corruption, however, never reach the courts because they are handled by the party.

Probes of party officials who break the law begin with investigations by party discipline teams. The teams can choose to hand their targets on to judicial authorities for prosecution, or simply recommend a reprimand within the party. Corrupt party officials therefore can reason that if they keep political relationships sweet, they can head off an investigation or at worst end up with a slap on the wrist.

Businesspeople, for their part, pay bribes to buy political protection for misdeeds, such as tax evasion or misappropriation of public assets. Bribes secure lucrative land deals, government contracts, rights to buy state enterprises at cut-rate prices, and even choice government and People's Congress positions. For businessmen, an official on the take is what Chinese call "a mountain to lean against." Businesspeople know that if they have bought political backing, they can get investigations into their affairs called off and stories in the state media killed.

The cases that are made public are the minority, in which an official or a businessman's political backing collapses. Sometimes that happens because the lawbreaking has gone so far that it threatens the political survival of a protector.

Vickers, president of regional investigation company International Risk, believes white-collar crime and corruption will remain widespread until a better legal and regulatory framework is in place. He notes that corporate scandals in the United States, Europe and Australia show how hard it is to stop commercial crime. "There is no silver bullet," he says.

For some analysts, however, China's corruption is much deeper. The overlap between business and party in an authoritarian system even makes it rather inaccurate to describe official graft as white-collar crime. "It's red-collar crime," says a commentator in Beijing. "These guys are given enormous power with lack of proper administrative, judicial or legal supervision."

WHITE-COLLAR CRIME

IT'S ALL THE FAULT OF 'BOURGEOIS LIBERAL THINKING'

THE PARTY'S OWN CORRUPTION-BUSTERS BLAME WESTERN INFLUENCES

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By Susan V. Lawrence

Issue cover-dated October 31, 2002

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Observers tend to agree on the core reasons for widespread corruption in China's political and business worlds--the Communist Party's lack of accountability, and the absence of an independent judiciary and a free media. China's own graft-busters, however, lay the blame elsewhere, most prominently on the corrosive influence of "Western hostile forces" on public officials. That bodes ill for efforts to rein in white-collar crime.

Take a report by Liaoning province investigators on the case of Mu Suixin, the former Shenyang city mayor and deputy party secretary, and a raft of other Shenyang officials. Completed in July 2001, it was published recently in a book of party-discipline case studies. Late last year, Mu received a suspended death sentence. He is said by sources close to his family to have died in March from lung cancer.

The report clearly details the rot across the city government. The case involved 23 senior officials, 16 of them heads of their fiefdoms. On a single hospital stay in Beijing, Mayor Mu accepted cash and gifts totalling millions of renminbi. Deputy Mayor Ma Xiangdong lost millions of dollars in public funds at casinos in Hong Kong, Macau, Korea and Malaysia. A search of the home of the head of the municipal tax bureau turned up more than 1 million renminbi ($120,000) in cash. The corrupt general manager of the loss-making state-owned Shenyang Passenger Transport Corp. built himself a $2.4 million luxury villa.

In exchange for bribes, Shenyang officials approved land deals, waived taxes, sold private businessmen state enterprises at cut-rate prices, handed out construction projects, and even pulled strings to get businessmen plum government and People's Congress posts. A cover story in the October 21 issue of the weekly Sanlian Shenghuo Zhoukan alleges that Yang Bin, the Dutch-Chinese orchid grower detained by Chinese police since early October, received one of Mayor Mu's generous land deals. It says the city government waived the usual land-transfer fee on real estate for Yang's Holland Village theme park and housing project.

But in considering the lessons of the Shenyang case, the Liaoning investigation team's report laments that "we have not been vigilant enough against the Western hostile forces' 'peaceful evolution' plot." That refers to perceived Western efforts to encourage China to evolve away from communism and toward Western-style democracy. Mu and deputy Ma, the report says repeatedly, had their heads turned by attempts to "Westernize" and "split" China, and by "bourgeois liberal thinking." The report also blames the negative impact of the rise of the private economy.

It recommends the party pay more attention to the morality of candidates for public office and says it should also consider the opinions of the public about them. But it does not suggest the public should be allowed to choose its leaders. The report promises more effort to enforce collective decision-making, and curb individuals' power. But in Mayor Mu's Shenyang, where most of the government and the judiciary were on the take, collective decision-making wouldn't have helped.