BEIJING — When anticorruption investigators started probingChina’s high-speed rail program, they discovered that one of the Railway Ministry’s chief engineers owned a five-bedroom, five-bath Mediterranean-style house in Los Angeles County.
Zhang Shuguang had bought the $840,000 house in the city of Walnut nine years earlier when he was reportedly earning just $365 a month. His wife and daughter had moved there, which led investigators to suspect that he intended to skip out of China to join them.
That made Zhang, 56, what the Chinese call a luo guan, or “naked official.” The term refers to an official who has sent his family and money abroad and is poised to make a getaway himself. The communist government has been trying to put officials on a shorter leash since 2007, amid a flurry of scandals in which public funds were squandered on mistresses, luxury villas, cars and gambling.
The issue of official corruption has risen to the top of the government agenda this year with the ouster in March of Politburo member and Chongqing party secretary Bo Xilai. Among the myriad accusations swirling around Bo is that his wife moved the couple’s money out of the country through trading companies set up abroad with an Englishman, Neil Heywood, whom she is accused of killing. In addition, the couple’s son, Bo Guagua, was sent overseas to school, first to Harrow, then Oxford and more recently Harvard’s Kennedy School, where he graduated last month.
The practice has become so endemic inChina’sofficialdom that theCommunist Party’stop disciplinary body is enacting an “anti-flight” program to keep people in place. The Central Commission for Discipline Inspection last month reviewed ways to keep people from moving abroad, including confiscating passports and registering family members living overseas as a way to monitor who might be kept out of high positions.
“We should set up a more tight-knit and effective system to prevent lawless state functionaries from fleeing overseas,” said Gan Yisheng, the commission’s deputy secretary, according to the agency’s website.
Chinese prosecutors say 18,487 officials, including executives from state-owned companies, have been caught during the last 12 years while allegedly trying to flee overseas with ill-gotten gains, according to this week’s issue of China Economic Weekly. The magazine described the typical “naked official” as a man in his 50s who was approaching retirement and had accumulated at least $13 million.
ThePeople’s Bankof China last year inadvertently made public a confidential study stating that 800 billion Chinese yuan ($126 billion at today’s exchange rate) had been siphoned overseas by thousands of officials in the government and state-owned companies from the mid-1990s until 2008.
Another report by the Washington-based watchdog Global Financial Integrity, which tracked illicit outflow of money by all people, not just officials, found China led the world with $2.7 trillion (five times as much as runner-up Mexico) illegally taken out of the country from 2000 to 2009.
The top destinations for stashing cash were the United States, Europe, Australia, Canada, Singapore, Malaysia and Thailand. Within the United States, Los Angeles topped the list.
“L.A. is a haven for these kinds of people. They send their wives and kids overseas and they continue to work in China so they can funnel the money here.... These guys want to get their money out of China and keep their identities secret,” said Joaquin Lim, a longtime Walnut councilman who met Zhang a few years ago at a friend’s home.
Zhang was one of the senior officials developingChina’sbullet trains, a program riddled with cost overruns and allegations of kickbacks. He was fired in March 2011 for what the state press said were “severe violations of discipline,” which is often shorthand for corruption, shortly after the sacking of his boss, Railways Minister Liu Zhijun.
The state press announced last week that Liu had been expelled from the Communist Party for taking “huge bribes,” but they have not reported yet what has happened to Zhang.
The fact that people send their spouses and children abroad does not necessarily mean they are corrupt — many Chinese prefer a foreign education, for example — but when an entire family leaves, authorities presume that an official does not envision a future in China.
“The big problem is that these officials are losing faith in the Chinese central government. They are just taking care of their family and don’t care about China,” said He Jiahong, a corruption expert at People’s University in Beijing.
Until the 1980s, it was difficult for any Chinese citizen to go abroad because the government feared many wanted to defect. Now, middle- and upper-income Chinese are fixtures on the tourist circuit, filling the Hermes and Chanel stores in most European cities. Chinese officials, including executives of state-owned companies, often have two passports, one for business and the other for personal travel.
“It’s very hard for the government to control this. They might hold your official passport, but most people will have a private passport as well and they can slip out of the country with that,” said He.
For every new restriction implemented, people come up with loopholes. The fake divorce, for example.
“The Chinese Communist Party is very strict about officials and their families having green cards or foreign passports. If they find out, that’s the end of your political career, but people will do a divorce on paper and then remarry,” said Ding Xueliang, a Hong Kong-based political scientist.
In one case in 2010, a telecom official in Sichuan province, Li Xiangdong, divorced his wife and sent her to Canada. The day before he was to be arrested on charges of embezzling $60 million, he left the country, reportedly to join her.
Chinese law prohibits citizens from taking more than $50,000 out of the country in a year, but it is easy to get around the limit. Money is frequently laundered through casinos in Macao for high rollers from the mainland. The popular method is to set up an import company and exaggerate the amount of the invoices so more money is sent out than required.
“China is the largest trading company in the world. Trillions of dollars in trade invoices cross China’s borders every year. Marginal fudging of invoices allows people to move large sums of money under the radar of the foreign exchange regulators,” said Victor Shih, an expert in political economy at Northwestern University.
The techniques vary in audacity and creativity. Yang Xianghong, a Communist Party secretary in a district in Wenzhou, arranged a wedding for his daughter in Paris in 2008, then during a visit allegedly absconded with $12 million in bribes from real estate developers.
Less fortunate was Hu Xing, the transportation director in Yunnan province, who bought a second passport for himself in his brother’s name from the tiny South Pacific island of Nauru and tried in 2010 to emigrate to Canada after coming under investigation in a bribery scandal.
He almost got away but ran into trouble when he went back to Hong Kong to pick up his mistress. The pair were stopped by police in Singapore and forced to return to China, where they were arrested.