Smuggling Case Points to China’s Political Elite

The biggest smuggling scandal ever to hit the People’s Republic of China is unfolding in this ancient port city famed for its Old World atmosphere and swashbuckling past.

Inside the Jinyan Hotel, a flashy 300-room building that has been taken over by police, inspectors are holed up questioning suspects and piecing together the details of a smuggling case that may involve as much as $10 billion worth of bootleg oil, cars and guns brought into China under the noses--or with the assistance--of the navy. The scandal may even reach into the highest echelons of China’s political elite.

Already caught in the dragnet are local Communist Party bosses and potentially dozens of customs officials believed to have had a hand in the smuggling. At least two other suspects, including a high-profile tycoon, are on the lam.

And still under investigation are the ex-wife of a Politburo member--he hastily divorced her last month to distance himself from the scandal--and the son of one of China’s most senior generals, sources say.

The imbroglio points up the dilemma the Beijing regime faces in its much-vaunted crackdown on endemic corruption.

On one hand, netting “big tigers” helps convince a skeptical public that the government is serious about rooting out official malfeasance, often cited as the No. 1 grievance of ordinary people. Yet top leaders get extremely sensitive when scandals edge into their inner circle and get mixed up in turf battles among them.

The investigation is being directed by the Politburo member in charge of party discipline and inspection, Wei Jianxing. Wei reports to Premier Zhu Rongji, who came to Xiamen at least once in the past few months “to bust people,” residents say.

Xiamen has been abuzz with news and rumors of the probe for weeks, despite a virtual media blackout that has kept the public mostly in the dark about the drama taking place here in southeastern Fujian province, directly across from Taiwan.

“Everybody knows about it,” one man surnamed Liu said, “but nobody has all the details.”

Officials and residents say the allegations center on businessman Lai Changsheng, a politically influential trading magnate who built an empire in Xiamen called the Yuanhua Group. The firm dealt in real estate, imports and exports, electronics and storage, and even owned a local soccer team.

But no one answers the phones at Yuanhua’s offices anymore, and its faux-colonial-style headquarters, on a prime piece of property in downtown Xiamen, lies abandoned, its front door broken off. Behind the building yawns an enormous hole where an 88-floor skyscraper was to be erected, and down the block, a gleaming building belonging to Yuanhua sits half-constructed.

Lai fled the country after authorities, reportedly acting on a tip from a disgruntled employee, started digging into Yuanhua’s activities.

What they discovered, several sources say, was a smuggling operation that brought in vast quantities of crude oil, luxury vehicles, cigarettes and firearms.

It is a modern twist on Xiamen’s old rap as a haven for foreign fortune-seekers and local pirates, including a colorful Chinese pirate who was lionized as a resistance fighter against the Manchu invasion of the 17th century. Xiamen today remains a pleasant, tourist-friendly but heavily fortified city, a military bulwark against rival Taiwan, which Beijing views as a renegade province.

“It’s a smuggler’s paradise,” said James Mulvenon, a China-watcher with the Rand Corp. think tank. “The only way to get tankers through is to get them into naval ports. That way you can bypass customs.”

Government coffers have swollen as a result of the national anti-smuggling campaign, state media have reported. The People’s Daily said customs revenues in 1999 equaled $19.2 billion, an 81% increase from the previous year.

If the $10 billion suspected of being linked to the Xiamen smuggling ring proves accurate, the scandal will be the biggest since the founding of Communist China in 1949, dwarfing a smuggling operation broken up in Guangdong province that cost the government at least $50 million in lost taxes. Six people were sentenced to death in that case last May.

“The scale of smuggling--much of it conducted, or at least facilitated, by the military--has truly been astounding, costing the central government billions in lost revenues, which may help explain why the cleanup campaign has been intensified,” said Richard Baum, a political scientist at UCLA.

Scores of graft-busters have converged on Xiamen from Beijing, occupying the Jinyan and at least one other hotel for several months.

By some accounts, more than 100 people have been hauled in for questioning, including customs agents, security officials and bankers. Phone lines were tapped, and some suspects remain under house arrest.

Officials confirmed that two deputy party bosses in Xiamen, Liu Feng and Zhang Zongxu, have been detained in the crackdown. A vice mayor, Lan Pu, is believed to have escaped overseas.

Others said to be in custody are the local customs chief and a high-ranking provincial police official.

But the names raising eyebrows among observers belong to suspects with connections to Beijing’s political elite.

One is the son of retired Gen. Liu Huaqing, one of the most powerful men in the People’s Liberation Army before his retirement from China’s ruling Politburo 2 1/2 years ago. Liu helped oversee the PLA’s lucrative commercial holdings until President Jiang Zemin ordered the military out of business in 1998--citing PLA involvement in smuggling as one of the main reasons.

The other highly placed suspect is the former wife of Politburo member Jia Qinglin, a onetime Fujian provincial party secretary who once shared an office with Jiang when the two worked at the First Ministry of Machine-Building in the early 1960s.

In 1996, Jiang elevated Jia to Beijing party boss. Ironically, Jia replaced Chen Xitong, the only Politburo member ever to lose his post because of corruption.

After Jia moved to Beijing, his then-wife, Lin Youfang, continued to head a provincial-level trading company. Lin came under suspicion several months ago, and Jia divorced her last month, sources said.

The impact the scandal will have on Jia is unclear, although signs are that “Jiang is protecting Jia from further trouble,” an Asian diplomat said.

“Liu Huaqing shouldn’t present a major problem for Jiang, since Liu was always [late ‘paramount leader’ Deng Xiaoping’s] man,” said UCLA’s Baum. “But Jia Qinglin is another story--much closer to home.”

Along Xiamen’s tranquil waterfront, retirees, laid-off workers and young lovers gather to stroll, play cards or chat about the scandal within a stone’s throw of the concrete-and-glass customs house. They complain of the extravagant lifestyles led by local officials, including the now-detained customs chief, who apparently resided in a nearby villa built with bulletproof glass.

Few have any sympathy for Lai, the fugitive tycoon.

“What’s there to sympathize with? We haven’t profited in any way,” said one laid-off worker. “He evades taxes, and the government has less money to subsidize state-owned enterprises.”

One tangible effect of the crackdown in Xiamen, however, has been a rise in gasoline prices from about 25 cents to 30 cents a liter, to the dismay of cabby Chen Duanheng.

“It was easier to do business when Lai was here,” with the economy humming, Chen said. “At least he wasn’t like the Mafia, smuggling drugs.”

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Anthony Kuhn in The Times’ Beijing Bureau contributed to this report.