China’s elite using offshore tax havens, reports say

Reports reveal a greater scope of offshoring by China’s political elite than had previously been reported.

Chinese activist Xu Zhiyong has led the call for greater transparency about Chinese officials’ wealth.

By: Stuart Leavenworth McClatchy Foreign Staff

BEIJING—This was supposed to be the week the ruling Chinese Communist Party crushed a nascent popular movement that’s pressed for fuller disclosure of the hidden wealth of party leaders.

The crackdown wasn’t very well-timed. As Chinese authorities were launching the closed trial of a prominent leader of the New Citizens Movement, a group of international journalists released investigative reports detailing how many Chinese leaders and their families have hidden some of their vast wealth in the British Virgin Islands and other places offshore.

The reports, compiled by the International Consortium of Investigative Journalists, reveal a greater scope of offshoring by China’s political elite than had previously been reported.

Having spent six months poring over a cache of 2.5 million leaked files, the consortium found that 22,000 Chinese had taken advantage of offshore tax havens. Among those were Deng Jiagui, brother-in-law of Xi Jinping, China’s president and Communist Party chairman; Wen Yunsong, the son of former premier Wen Jiabao; and Li Xiaolin, the daughter of former premier Li Peng.

“Chinese officials aren’t required to disclose their assets publicly and until now citizens have remained largely in the dark about the parallel economy that can allow the powerful and well-connected to avoid taxes and keep their dealings secret,” said the report, a project of the Center for Public Integrity. “By some estimates, between $1 trillion and $4 trillion in untraced assets have left the country since 2000.”

Previous reports by The New York Times and Bloomberg have opened a window into the riches and lifestyles of Chinese leaders and their families, often referred to as “princelings” in Beijing. China’s use of tax havens for various financial transactions has long been tracked or reported on by the International Monetary Fund and other groups.

But the investigative journalists’ reports add to the revelations by offering insight into the illicit use of tax havens by the Chinese elite, said Brian LeBlanc, an economist at Global Financial Integrity, a Washington organization that tracks transfers of wealth from developed and developing countries.

“The use of shell corporations and hidden bank accounts suggests that the amount of wealth truly held by Chinese residents in tax havens could be substantially understated,” LeBlanc said in an email.

He said numerous questions remained about how such vast amounts of money were able to be transferred to tax havens without catching the attention of Chinese bank regulators.

For China’s ruling party, revelations about elite offshoring of wealth are damaging in several ways. They conflict with official policy that homegrown wealth should be reinvested in China’s infrastructure and development. They also threaten to fan a popular backlash against a party that’s making a big show of cracking down on cronyism.

Meanwhile, as of Thursday, the government hadn’t announced a verdict in its trial of Xu Zhiyong, a founder of the New Citizens Movement who has led the call for greater transparency about Chinese officials’ wealth. Xu faces a jail term of up to five years for “creating a public disturbance” by organizing protests on behalf of migrant workers in Beijing and other cities.

As expected, Xu and his lawyer refused to mount a defence in a trial that Xu views as an illegal attempt to muzzle him. He attempted to read a statement at the end of the proceeding, his lawyer said, but the court prevented him from doing so.

That statement, since translated and published on the China Change website and other sites, mocks what Xu calls an “absurd post-totalitarian China.”

“More than 137 countries and territories around the world currently have systems in place for officials to declare assets, so why can’t China? What exactly is it these ‘public servants’ fear so much?” Xu’s statement said.