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Arrest turns spotlight on China's tax
cheats
By Antoaneta Bezlova
BEIJING - Beijing's crackdown on tax cheats has
gained momentum with the arrest of a prominent
businessman Yang Bin - hand-picked by North Korean
leader Kim Jong-il to lead Pyongyang's bold experiment
with free enterprise - as Chinese President Jiang Zemin
is struggling to persuade the Communist Party to change
its constitution and welcome capitalists into its ranks.
Last month, the Chinese orchid tycoon made the
headlines when Pyongyang announced that he was to become
the chief executive of Sinuiju Special Administrative
Region (SAR), a walled capitalist enclave in
hardline-communist North Korea.
Yang, a
horticulture and property tycoon named by Forbes
magazine as China's second-richest man, was detained by
Chinese authorities last week and placed under house
arrest. He was reportedly being investigated for tax
irregularities.
Yang's arrest comes amid a
highly publicized campaign of the government to force
China's nouveaux riches to pay taxes in
accordance with the law. China needs to plug the holes
in its notoriously inefficient tax-collection system in
order to sustain its economic policies.
However,
the arrest could also signal a rift between China and
North Korea. Reports said Beijing was angry that
Pyongyang had not consulted it over its decision to name
Yang as chief executive of its new SAR. Meanwhile North
Korea's official Central News Agency said a group of
officials is set to go to Beijing next week, and that
although "the goal of the visit is to increase friendly
relations between the two countries", Yang would be on
the agenda. And both the North Korean Embassy in Beijing
and the consulate in Shenyang have protested Yang's
arrest to the Chinese authorities, South Korean media
said.
This year, while the Chinese government is
spending record amounts on infrastructure and fiscal
stimulus, tax-revenue growth has slowed. The fiscal
deficit is projected to skyrocket to an all-time high of
390 billion yuan (US$47 billion).
Jiang is
pushing for a radical change in the Communist Party's
constitution next month when the party convenes its
Congress, which meets every five years. Jiang wants to
broaden the party's base by allowing private
entrepreneurs to join, but his efforts have been
criticized by hardliners as a betrayal of the party,
which defines itself as the "vanguard of the
proletariat".
Beijing's harsh crackdown on tax
dodgers just weeks before it is supposed to welcome
capitalists formally into the Communist Party is seen
here as an attempt to placate hardliners that the
government is not giving privileges away to rich people.
As many as 20 percent of party members are already
reckoned to be wealthy enough to be considered
"capitalists", as they run private companies or
semi-privatized state factories.
An official
survey found that only four of China's 50 richest
individuals paid any income tax last year. In June,
Premier Zhu Rongji lashed against the country's wealthy,
asking: "Why is it that the richer the people are, the
less tax they pay?"
Now Beijing seems to be
determined to launch a war on tax dodgers. Collectors
have stepped up audits of multinational companies and
started investigating the 50 richest people in China.
Until last week, the most prominent victim was a popular
film star, Liu Xiaoqing, who was detained in June for
evading taxes of up to 10 million yuan.
Now
Yang, 39, known as China's Orchid King, has become the
latest high-flyer to fall prey to Chinese tax auditors.
Yang admitted on Thursday that he owed 10 million yuan
($1.2 million) in taxes and had discussed the issue with
the authorities.
An ex-officer in the Chinese
navy, Yang went to study politics at Leiden University
in the Netherlands after casting himself as a student
activist in the 1989 Tiananmen democracy movement. In
the Netherlands, he took Dutch citizenship and later
returned to China to grow vegetables and flowers,
especially orchids, in greenhouses. Within less than a
decade, he had built up a flower and property empire
worth about $900 million.
Yang's assets include
the Hong Kong-listed Euro-Asia Agricultural Holdings Co
and a property project called Holland Village. The
development, which is located near the city of Shenyang
- right in the middle of China's depressed industrial
rustbelt - is a bizarre combination of Dutch-style
residential buildings, a theme park and a huge indoor
tropical garden. It is complete with replicas of the
International Court of Justice and the Amsterdam train
station and guarded by windmills and drawbridges.
As chairman of Euro-Asia Agricultural Holdings,
Yang has been dogged by controversy. Over the past few
months, Euro-Asia's share price has plunged amid
speculation that the company was experiencing financial
difficulties and Yang was being investigated by the
authorities for economic crimes.
The details of
the Sinuiju proposal, announced by Yang at a news
conference in Pyongyang on September 23, outlined a Hong
Kong-style SAR with its own legislature, court and
currency. He promised a "completely private and free
capitalist society" where skilled foreign workers would
replace the existing impoverished population and where
the police would be foreign too. Yang said the SAR would
be built on 132 square kilometers of land at Sinuiju on
the Yalu River, opposite the city of Dandong in China's
northeast.
Yang also boasted of his close
friendship with Kim Jong-il, and said that he had taken
North Korean citizenship.
Trumpeted by Pyongyang
as a proof of its eagerness to reform North Korea's
crumbling command economy along China's model of
economic reform, the new Korean SAR's inauguration drew
mixed reactions in Beijing. While the Foreign Ministry
publicly welcomed the plan, trade officials questioned
Yang's business reputation and his capacity to run a
project of such magnitude and sensitivity. Two weeks
later Yang was arrested.
Yang had been scheduled
to go to South Korea and Japan this week to drum up
investor support for the new SAR.
Hong Kong
suspended trading in shares of Euro-Asia Agricultural
Holdings Co on September 19 after it emerged that the
company had failed to disclose the resignation of chief
executive Chen Jun. Trading in the shares was suspended
again on Friday.
(Asia Times Online/Inter Press
Service)
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