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State Police Kidnap Human Rights Activists for Participating in the Hunger Strike Movement

"Come home, come home! No matter where you are, come to me!" Zeng Jinyan cried on the phone. These were her words on March 28, 2006, when she heard the voice of her husband, Hu Jia, for the first time in 41 days.

For 41 days, Hu Jia, a well-known AIDS activist in Beijing, seemed to have totally vanished from the face of the earth. No one knew what had happened to him or of his whereabouts, despite his wife’s tireless appeals to the police authorities and attention from international organizations, including the United Nations. The security police, who had been monitoring him closely, denied having taken him away. When he was finally released, his captors dumped him in a remote area and he had to walk for an hour to get home. A preliminary medical exam found signs of cirrhosis of his liver, due to the harsh conditions and lack of medication while he was in police custody. This is a serious complication of viral hepatitis that can lead to liver failure and cancer.

Radio Free Asia interviewed Hu Jia after his release. On February 16, Mr. Hu planned to attend a non-governmental HIV/AIDS conference. Because he was under house arrest, the police were charged with keeping him in their custody. They put him into a police car and promptly headed off, but not in the direction of the conference. The police wrapped Mr. Hu’s head in a black cloth and took him to a village on the outskirts of Beijing, where he was interrogated for the next 40 days.

Hu Jia was not the only one taken into custody. At least several dozen others were also arrested.

Qi Zhiyong, a human rights activist who became handicapped as a result of the June 4th Tiananmen Massacre in 1989, disappeared on February 15, one day before Mr. Hu’s arrest. At about the same time, Wen Haibo and Ma Wendou, Attorney Gao Zhisheng’s assistants, were arrested on separate occasions. Ouyang Xiaorong, a 32-year-old computer programmer who helped Gao Zhisheng organize a hunger-strike protest, was arrested on February 16. Yu Zhijina, one of the "Three Tiananmen Square Gentlemen," was arrested in Changsha City, Hunan Province, on February 18. Meanwhile Zhao Xin, a 38-year-old June 4th activist, was taken away from his parents’ home by police on February 21.

It has become routine that each year, before and during Beijing’s annual so-called "Two Conferences" (referring to the People’s Congress, this year held on March 5-14, and the Political Consultation Conference held on March 3-13 this year) all of the well-known dissidents and human rights activists in China are put under surveillance or house arrest.

In previous years, police usually held such activists for only a couple of days during these so-called "sensitive periods," but this time police abducted them without notifying their next of kin. It was as if they simply evaporated into thin air.{mospagebreak}

Hu Jia was interrogated every day during his detention. The issue of concern was the massive "Hunger Strike Relay" initiated by Attorney Gao Zhisheng on February 4, 2006, to protest the regime’s brutal treatment of human rights lawyer Guo Fexiong when Attorney Guo was investigating the massacre of farmers in Shanwei Village, Guangdong Province.

All the people mentioned above who were arrested were participants or organizers of the Hunger Strike Relay. Hu Jia was one of the leading organizers.

The arrests seemed to have added more fuel to the flames of protest. As news of the Hunger Strike Relay spread, a worldwide hunger strike in support of Attorney Gao and against persecution began in homes and in public places, with tens of thousands of people participating. In Shandong Province alone, at least 3,000 people participated. The date was March 6, right before the opening of the "Two Conferences."

The arrest of a group of students from Lanzhou University in Gangsu Province, in early March after they announced their participation in the Hunger Strike Relay prompted another campaign against ongoing persecution by the Chinese communist government. Dubbed the "Blue Ribbon Movement," this anti-persecution campaign supports the students.

According to reports, about 10,000 people in Suozhou City, Shanxi Province, all wearing blue ribbons, conducted hunger strikes on March 16. Blue ribbons have been seen all over at least 12 provinces. The movement is now underway.

This is the first time in China’s history that large numbers of people are on hunger strikes supporting one another across the country, in opposition to the communist regime’s violations of human rights. The Hunger Strike Relay is done at home, and anyone can start at any time. The authorities have yet to find a way to quash it. After all, how effective could the tanks used in Tiananmen Square be in this instance?

From the Editor

Organ transplantation, once an improbable dream, has now become a common clinical procedure for patients with terminal organ failures, thanks to surgical innovations and biomedical breakthroughs. Each year, tens of thousands of patients worldwide are given such a second chance at a new life via transplant operations.

However, for each organ recipient, there has to be a matched donor, either someone who has passed away unexpectedly or a living donor. The latter usually comes from the patient’s close relatives and constitutes a small percentage of the cases. As a result, organ donors are always in short supply, and patients awaiting transplants in Western countries often wait months or even years before finding a suitable donor.

In China, organ transplants started in the 1980s. Initially, the operation was mostly for research purposes and only performed in a handful of the largest clinical centers. Unlike the rest of the world, the vast majority of the donor organs in China come from executed prisoners, with only one percent coming from other sources. Although this poorly kept secret has drawn questions from international rights organizations, little has been done to change the situation.

In the last few years, organ transplants have been taking off in China, with the numbers of operations dramatically increasing each year, and many new hospitals are rushing into the lucrative business. Many patients from outside China go to China for organ transplants, so much so that some clinical centers’ websites advertise in multiple languages. Most significantly, some websites explicitly advertise that one can get a matched organ within one month or as short as one week. This is certainly a welcome sight for someone in need of a transplant, but it points to a chilling question of where such a large pool of organ donors is coming from.

Few thought much of this question until two witnesses who fled China gave shocking accounts to The Epoch Times newspaper: Thousands of Falun Gong members were kept in an underground concentration camp in the northeast city of Sujiatun and had their organs forcibly removed for transplants. Recorded follow-up telephone calls by reporters to doctors at several hospitals suggest that there is truth to these allegations. According to a veteran military doctor in China, a third witness who chose to remain anonymous, the Sujiatun camp is just one of the more than 30 such camps involved in a thriving organ trade fueled by Falun Gong practitioners.

Such an allegation is serious business and warrants immediate attention and further investigation. If indeed true, what we are seeing is one of the most chilling examples of human cruelty and barbarity since the Holocaust-and it must be stopped immediately.

On Sino-India Relations

[Editor’s note: "The Thirteenth Summit of the South Asian Association for Regional Cooperation (SAARC)" was held in Dhaka between November 11 and 13, 2005. The meeting, attended by the leaders of Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka, marked the 20th anniversary of SAARC’s creation, and was expected to result in agreements on free trade, disaster management, and combating terrorism. India has been emerging as a regional power in South Asia in recent years and is regarded as a potential regional competitor by Beijing authorities. The article below on the SAARC meeting is reported by China’s state media Xinhua News Agency, reflecting the view of Beijing on India’s role in the region. The article titled "South Asian Countries Adore China While India Wants to Dominate and is on Guard Against China" is translated here.]"The Thirteenth Summit of the South Asian Association for Regional Cooperation (SAARC) concluded on November 13, 2005. Begum Khaleda Zia, Chairwoman of the summit and Prime Minister of the People’s Republic of Bangladesh, announced that the SAARC officially admitted China as its observer.]

India Wants to Dominate

"China met repeated difficulties during its bid for the SAARC observer’s status.

"Earlier on November 9, 2005, at the SAARC preparatory meeting, Pakistani Foreign Minister and Chairman of SAARC’s Ministers Council Khurshid Mehmud Kasuri and Indian Foreign Secretary Shyam Saran indicated that they supported Afghanistan to be admitted as a full member of SAARC. Saran said that a technical working group would be established to discuss the issue of cooperation with China. However, the proposal of accepting China as a dialogue partner met with India’s objection at the preparatory meeting and eventually failed.

"While the issue of the China-SAARC cooperation remained unresolved, India’s officials revealed before the SAARC summit, ‘If China obtains the status of dialogue partner, Japan will also express similar interest in the status.’ The reason provided by India was that the United States and Japan could propose to join the SAARC in certain capacity. If China were admitted as SAARC’s observer or dialogue partner, the SAARC would have no reason to reject requests from other countries for admission.

"At the opening on November 12, Pakistani Prime Minister Shaukat Aziz, Chairman of the last SAARC summit, said that he hoped this summit could discuss the admission of Afghanistan as SAARC’s new member and the admission of China as an observer or dialogue partner. But in his speech at the opening ceremony, Indian Prime Minister Manmohan Singh made no response to these issues. He just made general vague statements, ‘India is prepared to offer to all SAARC members, on a reciprocal basis, daily flights to our major cities. I would suggest establishing a South Asian University to improve the educational and academic level of this region and establishing a Regional Food Reserve for emergencies in times of natural disaster.'{mospagebreak}

"As to this issue, South Asia media reported on January 13 that ‘India supports Afghanistan to be admitted as a member of the SAARC, but strongly opposes China to be involved with SAARC,’ and ‘India’s position indicates that it does not want China to be overly active in SAARC’s affairs, demonstrating the mindset that India wants to protect its dominance in SAARC.’

Every South Asia Country Adores China

"India’s disrespect of most other countries’ opinions triggered an argument.

"According to Bangladesh media, Pakistan and Sri Lanka support Afghanistan to join the SAARC and support China to participate in the SAARC. Nepal also said, it hopes that China could participate in the SAARC.

"Immediately, the Indian media turned ‘the cannon’ to Nepal. The Indian media charged that during the two-day conference Nepal insisted that the qualification of Afghanistan’s membership and China’s position as an observer or a dialogue partner should be bundled together for consideration. As a result, the summit did not make decisions on the two items. During the summit, India’s Foreign Ministry also made a statement that there was ‘not any connection’ between Afghanistan’s joining the SAARC and the China-SAARC relations. India requested that SAARC discuss the issue of cooperation with China after ‘the related standards and procedures’ have been established.

"However in the end, with strong support from other SAARC member states, both China and Japan were eventually admitted as observers at the summit. At the same time, leaders of the SAARC also decided to accept Afghanistan as a formal member of the SAARC.

How to Avoid Getting on India’s Nerves

"Wen Fude, Director of South Asia Research Institute at Sichuan University, believed that by actively developing relations with middle or small states in the SAARC, China tends to get on India’s nerves. Therefore, China may start to first develop trade relations with small countries in South Asia such as by increasing investment in these countries to increase their exporting capability, particularly in the textile industry. Since the textile industry is not a sensitive industry, it would not raise India’s suspicion."

Translated by CHINASCOPE from
http://news.xinhuanet.com/world/2005-11/17/content_3794220.htm

My Daughter Calls Me “Ghost Daddy”

On the morning of April 12, 2006, a young taxi driver died suddenly in his taxi, leaving behind two young children, his wife, and two elderly parents. According to his co-workers, the man had been in good health and had worked at least 12 hours a day. They could not believe that he had died so suddenly.

Only 10 days before, another taxi driver from Miyun County died a sudden death while driving customers. He had been on the job for less than a year.

At least seven such sudden deaths of taxi drivers have occurred in Beijing in the past two years, according to incomplete statistics.

A veteran taxi driver expressed his grave concern: "Every time I hear about a sudden death due to a heart attack, I feel a sharp pain in my chest. I fear that it may strike me next."

Last year, physical examinations were conducted on more than 200 taxi drivers in Beijing. The results were shocking: 40 percent of them suffered from enlarged prostate gland problems; 38 percent had high blood pressure; 32 percent were overweight, and 31 percent had high cholesterol. Less than two percent were completely healthy.

What is the life of a typical taxi driver in China? Here is one driver’s story:

"I share a car with my wife. One of us runs the day shift, and the other the night shift, so the car is never idle. My wife gets up every day at 4 a.m. and runs the early shift; I take over the car at noon and work until 2 a.m. or later. As a result, I suffer from all kinds of diseases, such as enlarged prostate gland, stomachache, and protrusion of intervertebral disc.

"My wife has a blood circulation problem in her brain and often feels dizzy. One day after she dropped off a customer, she was hit by a strong dizzy spell and could not drive the car anymore. She had already passed out on the steering wheel by the time the ambulance arrived.

"It cost us more than 2,000 yuan (US$249) for the hospital visit and prescription. My wife was so upset about the cost that for several days, she worked well past noon, trying everything to drive more customers. Now she carries medicine with her whenever she’s behind the wheel.

"Ever since that incident, we’ve not dared to see the doctor even when we got sick. It’s simply too expensive to visit the hospital. We have to endure and suffer. The revenue quota set by the company cannot be missed.{mospagebreak}

"When my stepdaughter was little, she couldn’t understand the situation. She would ask around on the quiet: ‘Is he a ghost? He sleeps during the day and gets out at night.’

"This has been a standing joke among our families. Even to this day, she sometimes still jokingly calls me ‘Ghost Daddy,’ which should be interpreted as ‘Ghost-like Daddy’ because I look awful.

"She constantly complains: ‘Other kids always do things with their parents, going on a trip or playing in the park. But you spend all your time in the taxi. I can only picture our family outings in my school essay.’

"I know my kids are not happy with me. Since my wife and I became taxi drivers, we have not had dinner with our two kids together even once. My parents are over 80 and still pretty healthy. I have no time to take care of them, so they have to fend for themselves. My mother has bound feet. Whenever I think about her standing and tottering on her small feet, cooking and doing laundry, I always feel sad and am in tears.

"Over the years, we’ve run into all kinds of people. From time to time, there are those who, for various excuses, refuse to pay the full amount or anything at all. It happens too often to remember every case.

"Still, this is nothing compared to robbery. One time, I drove two customers to their destination. The one in the passenger’s seat handed me a 100 yuan (US$12) bill. I could tell at first look that it was counterfeit, but I did not dare to say that. Instead I said: ‘Sorry. But I don’t have any change. Can you pay me in smaller bills?’

"I was not comfortable with the looks on their faces, so I said, ‘Never mind. It’s a short ride anyway. Don’t worry about the money.’

"There was a public restroom nearby. After they got out of the car and went into a side alley, I parked my car and went to the restroom. When I came out, I was surprised to see these two men waiting outside, each holding a brick. Next I felt a wave of dizziness and everything went dark.

"When I woke up, my cell phone and 700 yuan (US$87) in cash were gone. My driver buddies later told me that I was a lucky guy. At least my car was still there, and my injury was minor. Compared to those who had their cars hijacked and were killed, I was pretty lucky.

"Although the price of fuel is getting higher and higher, the company’s revenue quota is fixed. The only variable is our driving hours. It’s very common to see drivers working under extreme fatigue.{mospagebreak}

"Now my biggest dream is to drive an unmarked car so there would be no pressure to pay the company. After paying for fuel, the rest of the money would go into my own pocket. Nowadays there are too many unmarked, or illegal, taxis. Just look around the entrance of each subdivision and the long-distance bus stations, and you’ll see how many unmarked taxis there are in Beijing."

So now you know what’s on a taxi driver’s mind. He’d rather drive an unmarked car than a legal taxi.

According to statistics, there are as many as 260 taxi companies in Beijing, employing close to 100,000 drivers, 90 percent of whom live on the outskirts of Beijing. On average, these people work over 14 hours a day and go back home two to three times a month. They are the major breadwinners of the household.

With gas prices continuing to rise and concern over their health, taxi drivers are becoming more and more discontent with company revenue quotas. Almost all of them think that the quotas are too high and want them to be lowered. Most of them also believe that the majority of the taxi companies do not care about the welfare of the drivers. Physical exams and benefits are out of the question.

Yet what the drivers resent the most are the various fines that the taxi companies impose on them. Each major taxi company has a rule that if a driver is fined by the police for a traffic violation, the company will impose an additional fine. The amount ranges from 40 percent to 100 percent of the police fine. This is to "reinforce the discipline of the taxi drivers," says the company. But many believe that this is extortion in disguise.

It is estimated that companies typically collect 70 percent of a driver’s income as their revenue quota. In other words, companies make a windfall without doing anything. The companies can collect such high quotas because the drivers do not have much negotiation power. They have to accept their company’s harsh terms. In order to meet these terms, the drivers have to work long hours before they can make any money.

The bottom line is: Taxi drivers work harder than coal miners. Their job forces them to work under constant pressure and fatigue. The demand on their physical and mental strength is unparalleled.

Why can’t the revenue quota be lowered?

A hearing on adjusting taxi fares was held on April 26. An adjustment in taxi fares would have a direct impact on most residents in Beijing. It would have an even greater impact on the 100,000 taxi drivers. Yet, how many of these drivers were invited to the hearing?{mospagebreak}

On May 20, for the first time in six years, Beijing’s taxi fare was increased from 1.6 yuan (US$0.20) to two yuan (US$0.25) per kilometer after the four-kilometer base. But few drivers were optimistic.

On the surface, fare adjustment seems to increase drivers’ income. However, the rapidly improving city bus and subway systems provide customers with transportation alternatives. With the current taxi idle rate at above 50 percent, higher fares may result in fewer people taking taxis, or pushing more passengers into illegal taxis, whose number is estimated at 70,000. That outcome would make things even harder for taxi drivers.

Lao She (1899-1966), a famous Chinese playwright and author of humorous, satirical novels and short stories, is perhaps best known for his story "Camel Xiangzi" or "Rickshaw Boy," in which he traced the fall and ruin of a Beijing rickshaw puller named Xiangzi.

Xiangzi was from the countryside. The dire conditions there forced him to move to the city, where he dreamed of establishing a new life through his honest and hard labor. He tried all sorts of odd jobs and in the end settled on pulling a rickshaw. Although he had left the farmlands, he was still a farmer at heart. He was used to hard physical labor and longed to own a rickshaw cart as reliable as the land.

The city of Beijing seemed to offer Xiangzi an opportunity to fulfill his dream—buying his own cart and being his own boss. After three years of hard work and saving, Xiangzi finally bought his own cart, only to have it stolen less than six months later. But Xiangzi was not ready to give up his dream. He had his doubts, wavered at times, but always managed to pick himself up and try again. In the end, Xiangzi’s struggle was met with defeat. He never fulfilled his dream and died one snowy night.

In China today, how many Xiangzis are chasing their dreams, driving a taxi days and nights?

Helen Chou is a freelance writer based in New York.

China’s Anti-Corruption Policy Adjusted to Protect High-Level Officials

[Bowen Press, Beijing, May 16, 2006] In order to cooperate with the "Eight Glories and Eight Shames" education policy that was recently mandated to all corners of Chinese society [a new public education campaign initiated by the current Hu-Wen administration], the top leaders of the Chinese Communist Party’s (CCP’s) Central Committee made an important adjustment to the existing anti-corruption policies. According to inside sources, the yet-to-be announced adjustment may reverse the existing anti-corruption policies.

This change was made in the politburo meeting earlier this year after the "Two Conferences" [the Chinese National People’s Congress Conference and the Chinese Political Consultation Conference] in March 2006. Following the "Two Conferences," the CCP’s politburo held two more expanded meetings, where President Hu Jintao made speeches with emotion and declared that the communist government "is in critical condition." He also pointed out, "If the CCP fails, it must be caused by its own corruption." These two high-profile meetings intensified the effort to fight corruption and promote a clean government.

But according to Bowen Press‘s exclusive source, after a politburo meeting at the end of March, the standing committee of the politburo had a crucial, smaller scale meeting. In that meeting, a new policy was agreed upon to ensure that high-ranking officials would not be involved in the anti-corruption campaign.

In that meeting, Luo Gan summarized the situation of how the overseas "anti-China forces" had taken advantage of China’s anti-corruption campaign, especially corruption scandals involving high-ranking officials, to stir up anti-China sentiment both on the mainland and overseas. Luo Gan’s speech drew rapt attention from the members of the politburo, including Hu Jintao. Hu later commented that this new strategy on the part of the anti-China forces was worth special attention.

By the meeting’s end, the eight-member (one absent) politburo standing committee had made a decision: In principle, when a senior Party or government leader above deputy governor level is found guilty in a corruption case, he or she will no longer be tried in a court of law or in front of any other judiciary organization. When the cases are not very serious, or when the offenders have returned the embezzled money and properties and shown remorse, these people can be forced to resign or be fired. These cases should be handled within the organization. If the cases are serious, they should be handled by the Party disciplinary committee. These cases should not be made public, lest they have a negative social impact.

Among the politburo standing committee members, only Wen Jiabao and Zeng Qinghong had reservations about this decision. All the rest agreed. Luo Gan later also said that the executions of Hu Changqing [former Vice Governor of Jiangxi Province], and Cheng Kejie, [former Vice Chairman of the Standing Committee of the National People’s Congress, and Vice Secretary of the CCP Committee of Guangxi Zhuang Autonomous Region], had not curbed the senior cadres from committing crimes. In addition, some overseas individuals with ulterior motives were using the criminal activities of these two former officials to attack the CCP. These were serious lessons to be pondered.
{mospagebreak}
Although the CCP is still discussing this matter, it will issue a policy document soon. In the meantime, this "Justice does not apply to high-ranking officials" policy has already quietly influenced actual cases since the beginning of April. From reliable sources, Deputy Governor Wang of Hainan Province was scheduled to go to trial, but he was "saved" by this new policy. Three deputy-governor-level officials from Shanghai, Jiangsu, and Hubei Provinces were also going to court for corruption, but this new policy spared them as well.

Translated by CHINASCOPE (excerpt) from http://www.bowenpress.com/cn/2006/china/37_1.shtml

How Much Capital in China Results from Corruption?

[Dajun Editor’s comments: The major potential economic risks that China is facing today involve capital resulting from corruption. It may be a judgmental mistake to believe that capital resulting from corruption constitutes a small portion of the Chinese economy. For most ordinary Chinese people, who know little about the real situation, their benevolent thoughts may be far from the actual truth. Professor Yang Fan, one of a few who are relatively closer to reality, has included reasonable estimates in his article, although readers might not necessarily agree with his point of view.

Two different views coexist regarding how to judge capital resulting from corruption. Those who believe it as an inevitable consequence of economic reform want to offer amnesty to all criminals; those who strongly deem it to be illegal are concerned with the lasting search for accountability. This has become a historic puzzle for Chinese politicians to handle.]

China’s Economic Growth and the Influx Of International Speculative Capital

The Chinese economy is now on a path of long-term high growth, with society automatically driving itself forward. However, its potential growth depends on macroeconomic and social stability to be fully realized. Except for two issues, many tricky problems can either be solved or alleviated as long as the authorities and society make great efforts. The first issue results from the fact that China’s economy has become more and more reliant on the international market. Thus, an unexpected external attack or blockage might be sufficient to halt domestic progress. The second is if a financial crisis occurs. In order for such a crisis to take place, three preconditions must exist. 1) Long-term accumulation of potential crisis factors such as state banks’ bad debts. A financial crisis will occur if the debts are not handled properly. 2) Realistic superficial crisis factors such as the scale of speculative capital. 3) A political environment such as improper reform or macroeconomic policy.

The turning point in China’s economic growth will be the aging of China’s population over the next 10 to 15 years. During the 60 years after the People’s Republic of China was established, the economy has been growing at a high speed. Using an annual rate of seven percent, the economy has expanded 64 times, and it will be as much as 128 times in 10 more years. This is the longest period of sustained high-speed growth in human history. The top reason for the growth is not the reform of the system, but the steady high-speed growth of China’s population, creating a relatively younger population. When there are more young people, the savings rate will be higher. Thus the investment rate will be higher and the economy will grow at a higher rate. With the aging of the population, the savings rate and economic growth rate are certain to be lowered, exposing the problem created by banks’ bad debts. If domestic technology does not advance and domestic industrial production is controlled by foreign capital, when the profits are taken out of the country, a financial crisis will be inevitable.{mospagebreak}

The crisis may even come sooner. Some foreign [anti-China] forces don’t allow China to really rise, and don’t allow China to adjust the policies that may endanger their interests. They may use various measures to influence China’s policies. The most likely one could be spreading the "theory that China’s reform is going backward," and plotting for capital withdrawal.

How Much Foreign Capital Can Be Withdrawn?

The first part is foreign debt, which amounts to around several hundred billion U.S. dollars.

The second part is the profit that foreign investors earn in China. The current annual amount is US$30 billion, and in a few years it will reach US$ 60 billion, close to annual foreign direct investment; China will no longer have a net foreign capital inflow. Over the years, the return of foreign profit, which constitutes the discrepancy between GDP (gross domestic product) and GNP (gross national product), has become larger and larger. The problem is that most of the profit generated by foreign direct investment was not returned, but was kept within China in the form of reinvestment in Chinese yuan. The withdrawal of foreign capital, once it occurs, will not only include the annual yield of tens of billions of U.S. dollars, but also the total investment stock of hundreds of billion of U.S. dollars.

The third part is the reflux of international speculative capital. The more speculative capital that flows into China, the bigger the economic bubble it creates, and the larger the impact it will have when the capital is withdrawn. During the 1998 Asia Financial Crisis, there was an expectation that Chinese currency would depreciate, spurring a removal of foreign money out of China in an amount as high as US$20 billion. After 2000, with the rising expectation that the Chinese yuan would appreciate, together with the requirement to open the domestic market after China’s joining the WTO, massive international speculative capital rushed into China. From 2000 to 2002, the item of "statistical discrepancies" on the balance statement of international income and payments, a rough indicator of the magnitude and direction of international speculative capital, has been growing from a negative US$10 billion to a positive US$10 billion. Ever since 2002, our foreign exchange reserve has increased from US$300 billion to US$900 billion. After trade surplus and foreign direct investment are excluded, the rest can be counted as international speculative capital, which totals at least US$400 billion.

The fourth part is the domestic capital resulting from corruption, which substitutes for and merges with international speculative capital. One thing to note is that some of the foreign capital entering China is the reflux of domestic corruptive capital leaving China. Capital outflow is for money laundering; the Chinese economy and the favorable policy for foreign investment attract the inflow.{mospagebreak}

How Much of China’s Capital Results From Corruption?

According to the estimates in my article "Capitalization of Political Power" published in Chinese Reform Daily in 1988, over the 20 years of economic reform, the money siphoned off as a result of political power amounts to 30 trillion yuan (US$3.75), which includes graft from the agriculture sector, the business sector (including deductions in domestic and international trade), dual-tracking of prices of the means of production, dual-tracking of exchange rates, stock IPOs, and judicial corruption. For the seven years after 1988, the bad money generated from the privatization of state-own enterprises and from the real estate industry should add up to no less than 15 trillion yuan (US$1.9 trillion).

Hu Angang [translator’s note: Hu Angang is an economist in China] summarized the systematic economic losses from corruption into 10 categories based on the investigation and punishment published by the government. The economic losses from corruption is defined as the economic losses resulting from various government agencies or public sectors abusing their public power within the system so as to profiteer for groups of people within the system. Between 1999 and 2001 alone, the annual losses accounted for 14.5 percent of GDP.

Take the list of economic losses from corruption for 1998 as an example:

Officials’ corruption, bribery and embezzlement—2.0 billion yuan (US$0.25 billion)

Smuggling—80 billion yuan (US$10 billion)

Monopolistic sectors such as electricity—5.0 billion yuan (US$0.625 billion)

Pharmaceutical industry—10 billion yuan (US$1.25 billion)

Tax evasion—10 billion yuan (US$1.25 billion)

Public sector expenditure including the fiscal, financial and food sectors—100 billion yuan (US$12.5 billion)

Corruption in public investment—6.0 billion yuan (US$0.75 billion)

Privatization of state-owned enterprises and bad state bank loans—60 billion yuan (US$7.5 billion)

Arbitrary fee collection in the public sector—10 billion yuan (US$1.25 billion){mospagebreak}

Financial fraud—10 billion yuan (US$1.25 billion)

The total of economic losses from corruption was 300 billion yuan (US$37.5 billion), and this is only the part that can be investigated. If the ratio of the investigable part is 30 percent, the actual total money from corruption will be 1.0 trillion yuan (US$125 billion). For the eight years between 1998 and 2005, we can roughly estimate this amount to be 8.0 trillion yuan (US$1.0 trillion).

We have not counted the private luxury consumption for which people applied for reimbursement from the state funds. As I once estimated, the underground transactions (such as the sex industry) in 1998 were about 500 billion yuan (US$62.5 billion), 300 billion yuan (US$37.5 billion) of which were reimbursed by state funds. For 10 years, the total amount of reimbursed private luxury consumption would have been 3.0 trillion yuan (US$375 billion). Combining that with corruption in education circles, the medical profession, and mass media, I estimate that total money from corruption amounts to 60 trillion yuan (US$7.5 trillion) for the 30 years since the economic reform started.

In 2005, China’s GDP totaled 17 trillion yuan (US$2.13 billion), with the growth part being 1.6 trillion yuan (US$200 billion). The scale of capital from corruption, if calculated as 20 percent of GDP, should be 3.4 trillion yuan (US$425 billion), which is twice as much as the GDP growth part. We may compare the total of capital from corruption, 60 trillion yuan (US$7.5 trillion) over 30 years, with other economic stock variables. The total residential bank deposits are 14 trillion yuan (US$1.75 trillion), and the total market value of the stocks of listed companies is just over 2.0 trillion yuan (US$1.25 billion).

This capital from corruption includes about US$30 billion that is transferred out of China every year so as to avoid foreign exchange regulation. For 10 years, the total capital outflow was US$300 billion, which is so-called flight capital. By definition, flight capital means the transfer across the border of income from illegal sources, including that earned from smuggling, trafficking drugs, money laundering, tax evasion, and foreign exchange evasion. The government investigated and punished US$30 billion of flight capital. We estimate that because of foreign exchange regulation, 90 percent of the money from corruption could not leave China. The money leaving China and flowing back into the country is called reinvestment after money laundering.

Net Domestic Capital Outflow and Turnaround of Speculative Capital

Flight capital is not the same as capital outflow. Flight capital, with a total scale of US$400 billion (and there is also 10 times more capital from corruption waiting for flight), is an illegal capital outflow, while the net domestic capital outflow is due to the fact that domestic saving exceeds investment. The influx of international capital, including foreign direct investment, international speculative capital, and domestic corruptive capital joining international speculative capital after money laundering, is influenced by China’s macroeconomic and political conditions.{mospagebreak}

Capital outflow includes mainly the currency capital, including US$900 billion of foreign exchange reserves, US$400 billion of legitimate domestic residents and business deposits, and US$400 billion of capital from corruption, for a total of US$1.7 trillion. At the same time, China has attracted US$600 billion of direct investment, which consists of capital goods including equipment and intellectual property rights. The international speculative capital in the form of currency flowing into China, which only became significant after 2000, amounts to US$400 billion. So the total capital influx is US$1.0 trillion. By reckoning, there is a net outflow of capital from China with a total scale of US$700 billion.

Although it seems against common sense, it is actually not against economic principles. According to macroeconomic equilibrium, domestic savings should be equal to investment. If savings is less than investment, there will be a net capital inflow. Ever since 1993, China’s domestic saving has been surpassing investments continuously every year, so there can only be net capital outflow. If China continues to attract foreign capital goods using favorable policies or accepts the entrance of international speculative capital, the domestic capital surplus will be squeezed out in the form of foreign exchange. It has only been at great risk and low yield to circulate more than US$1.0 trillion on the international market. Even if the money was invested in a safe place, such as in U.S. Bonds, the annual yield is only 4.0 percent. However, foreign capital goods when invested in China will generate at least a 20 percent profit.

In other words, China’s economy has been out of balance with the international economy for a long time. For China, the benefit is to gain in export-oriented manufacture and more employment, at the cost of low capital yield. Although the benefit still outweighs the cost at present, the situation will be different once the international environment deteriorates. Over the past 10 years, China’s growing exports have covered up the reality of net capital out flow; international speculative capital has covered up the flight of domestic capital from corruption. The real danger is the capital that will leave sooner or later. If it flows back in an intensified way under certain circumstances, a financial crisis will be unavoidable.

Yang Fan is Professor at China University of Political Science and Law.

Translated by CHINASCPOE from http://www.dajun.com.cn/jubaizijin.htm