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    China Business
     Jul 12, 2012

'Naked officials' lay bare China's graft
By Brendan O'Reilly

Corruption is a fact of life in China. As China's economy has grown rapidly over the past three decades, the opportunities for unscrupulous officials to amass private fortunes have proliferated. At the same time, the standard of living for the majority of Chinese citizens has greatly improved along with China's economy. Some level of corruption has been tolerated, so long as the rising tide continued to lift all boats. However, there remains one type of corrupt officials whose excesses are so great as to expose the political shortcomings of China, and threaten the very stability of the nation itself.

The so-called "naked officials" represent corruption on a truly egregious scale. As the new generation of leadership waits to


take power in Beijing, these "naked officials" are laying bare the deficiencies of China's political system.

"Naked officials" are government administrators who embezzle funds to overseas accounts while living relatively simple lives within the People's Republic of China (PRC). They send their spouses and children overseas in order to administer and enjoy the fruits of their corruption. In order to flee China at a moment's notice, they often keep a visa ready for their desired foreign destination. Such officials are said to be "naked" due to the fact that their wealth is closeted away in foreign bank accounts and investments and their families live outside China or hold foreign passports.

The fact that a widespread term exists for officials who engage in this behavior is in and of itself indicative of a major problem. Last year, a report from China's central bank estimated that roughly 18,000 officials and high-ranking personnel in state-owned enterprises had fled the country within the last decade. The total sum of their embezzled wealth was said to be around 800 billion yuan (US$130 billon). [1]

The United States, with its multiethnic communities and lack of an extradition treaty with China, is the favored destination for higher-ranking naked officials. "Immigrant investor" programs, which typically require applicants to invest $1 million in the US in order to obtain a green card, are a viable option for the ambitious and unscrupulous. In 2011, about 75% of applicants for this type of visa to the US were from China. [2]

Naked officials are particularly harmful to the stability of China's political system for three inter-related reasons.

First, the scale of their corrupt practices is immense. The amount of 800 billion yuan represents a huge chunk of economic resources. To put this number into perspective, in the past decade China invested about 35 billion yuan in a manned space program. In other words, the money invested in China's (ambitious and extensive) space program is roughly 4% of the funds embezzled by naked officials.

Secondly, naked officials are usually beyond the legal reach of China, although truly exceptional cases can be punished with the death penalty. For example, in 2007, the former head of the State Food and Drug Administration, Zheng Xiaoyu, was given the death penalty for accepting huge amount of bribes.

Finally, beyond being corrupt, the "naked officials" are unpatriotic. They funnel money meant for domestic infrastructure, education and other public works into the real estate markets of Vancouver and San Francisco. The practice of expropriating funds from (relatively) poor China to (relatively) rich foreign countries for personal gain touches a raw nerve with a Chinese public with strong collective memories of imperialistic exploitation. This is truly a red line for the Chinese people.

Understandable rage is building towards the naked officials. Corruption will increasingly be a source of popular frustration as the rate of China's economic growth slows. Unless the Chinese government can find effective ways to combat egregious and unpatriotic corruption, the existence of naked officials may threaten the very political legitimacy of the Chinese government.

Bo Xilai as the emperor with no clothes
The recent fall from grace of Bo Xilai, former party secretary of Chongqing municipality and tipped by some as destined to join the top level of government, may be related to a new will on the part of the Chinese Communist Party to crack down on the excessive obscenity of the naked officials. Bo's infamous story has been related many times, but his association with naked officials remains largely unexplored.

Bo's family allegedly was squirreling away assets overseas while he very publicly cracked down on corruption in Chongqing. The murder of British businessman Neil Heywood may have been motivated by Bo's nefarious overseas investments. Bo's wife, Gu Kailai, recently confessed to murdering Heywood because he "knew too much" about the embezzlement of over $6 billion to the foreign accounts of trusted friends and relatives. [3]

According to the official account, Bo was the naked official extraordinaire, nearly ascending to the pinnacle of Chinese leadership while looting his motherland, accumulating overseas bank accounts, and sending his son to Harvard. His wife also reportedly holds Hong Kong permanent residency and perhaps some foreign passports. His abrupt plummet into national shame may be indicative of political will to clamp down on the public excesses of the political elite, especially the particularly loathsome naked officials.

Bo's accumulation of foreign assets is starkly contrasted to the business practices of the extended family of the Xi Jinping, expected to take over leadership of the country from Hu Jintao after this autumn's party congress. A recent investigation by Bloomberg found Xi's sister, Qi Qiaoqiao, to have amassed a sizable business empire. However, Qi Qiaoqiao's fortunes are almost entirely invested in businesses within the Chinese mainland itself, (excluding significant real estate in Hong Kong). [4] Furthermore, no significant wealth or wrongdoing could be traced back to Xi himself.

The contrast between Bo Xilai and Xi Jinping in this matter is telling. Bo's family allegedly hold their ill-gotten assets overseas, and used murder to try to protect the money trail. The wealth of Xi Jinping's relatives, on the other hand, is still well within the grasp of the Chinese state (although, it must be noted, Xi Jinping's daughter also studies at Harvard).

Ending the indecency
While new leaders jockey for position at the top, the Chinese government is taking measures to crack down on the depravity of naked officials. The National Bureau of Corruption Prevention and the Ministry of Supervision has implemented a monitoring regimen for officials who have spouses or children living abroad. Changes to the criminal law code, due to take effect next year, will allow seizure of the foreign assets of corrupt officials. [5] China has also asked for the cooperation of the United States in monitoring large monetary transfers.

These measures display a certain level of political will, but more demanding political reforms will be necessary to stamp out this danger to the government's legitimacy. First and foremost, greater transparency is needed throughout the Chinese government in order to combat all-pervasive corruption.

In order for a political system to be flexible, there must be forms of public accountability besides prison and the death penalty. Small-scale experiments with competitive elections in local village councils could be expanded to higher offices. Officials who are directly accountable to the Chinese citizens for their livelihood should be less likely to embezzle public funds.

In Shenzhen, officials with immediate family members living abroad are barred from serving in high-ranking positions within the government and Party. This program could be adopted on a national scale. The benefits would be twofold - first, potentially corrupt officials would have a more difficult time embezzling funds and fleeing the country. Secondly, officials would have a greater motivation to enact policies that could ensure better economic, social, and environmental standards within the People's Republic.

Finally, the Internet could be used as a bottom-to-top method for monitoring and reporting official misconduct. Luo guan, or "naked official", is not a censored phrase within the confines of the Great Firewall of China. Discussions abound of the best methods to deal with the problem. One Chinese netizen suggests the establishment of an official website to out naked officials. The adoption of this tactic would allow common citizens to combat the excesses of the political elite, while at the same time strengthening and legitimizing the CCP's political monopoly.

Such legal and governmental reforms would be a step in the right direction, but they cannot entirely end the scourge of the naked official. Cultural changes would need to take place along with legal reforms. An open and consistent legal framework would diminish the privileges of well-connected officials, but it would also go a long way in perpetuating the overall legitimacy of the state. Most importantly, it may be necessary to temper the ubiquitous worship of money by a sense of national responsibility. Public patience will not last forever. If the CCP leadership does not take concrete steps to clothe its naked officials, it may find itself out in the cold.

1. Report: Corrupt Chinese Officials Take $123 Billion Overseas, The Wall Street Journal, June 16, 2011.
2. Some Thoughts On Overseas Investing in US Real Estate, Business Insider, June 27, 2012.
3. Gu Kailai admits to Haywood murder: $6B bribe-hual over-up the cause [sic], NY Daily News, June 22, 2012.
4. Xi Jinping Millionaire Relations Reveal Fortunes of Elite, Bloomberg News, June 29, 2012.
5. China targets corrupt official's overseas assets, China Daily, Jun 26, 2012.

Brendan P O'Reilly is a China-based writer and educator from Seattle. He is author of The Transcendent Harmony.

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