Economy

Riding a tiger

Beijing finally makes the Zhou Yongkang corruption probe official

China's then Public Security Minister Zhou attends the opening ceremony of the 17th National Congress of the Communist Party of China at the Great Hall of the People, in Beijing

Factional strife: Zhou is now officially under investigation for graft

On October 12, 1976 Britain’s Daily Telegraph broke the news that Mao’s widow was under arrest. Jiang Qing, Mao’s third and final wife, and the other members of the Gang of Four had been detained at gunpoint two days earlier. Beijing’s leaders had intended to delay announcing this to the public for two months because they needed time to purge the gang’s allies in major cities, especially Shanghai. But the Telegraph’s Beijing correspondent Nigel Wade had other ideas. Nosing around unexciting articles in China’s state media, he sensed that a political shake-up was imminent. Through his diplomatic sources he got the scoop that stunned the world. The Xinhua news agency was subsequently forced to confirm that the Gang of Four had been arrested and a detailed announcement was made public a week later.

Their downfall brought an end to the chaotic Cultural Revolution but it was significant in another respect: two of the Gang of Four sat on the Standing Committee of the Politburo. In the wake of their imprisonment, Party elders agreed to an unspoken rule: Politburo Standing Committee members (both incumbent or retired) wouldn’t be pursued on grounds of economic or social crimes. None were for more than three decades.

But the pact was broken this week when Beijing finally announced the fate of former security chief Zhou Yongkang, who retired from the Politiburo Standing Committee in 2012.

“Zhou Yongkang investigated for serious disciplinary violation” was the short but dramatic English language headline published by Xinhua on Tuesday evening, although a Chinese version published minutes earlier, and containing less than 70 characters, had offered slightly more detail, suggesting that the 71 year-old’s case will be handled by the Party’s Central Commission for Discipline Inspection.

The fact that Zhou was no longer described as a “comrade” was meaningful, the Hong Kong Economic Times said, as it suggested that his expulsion from the Party would only be a “procedural matter”.

“When it comes to the law and Party discipline, no one should bet on the odds of escape and entertain the illusion that there is some kind of safe box,” the People’s Daily later wrote. “There is no special member in the Chinese Communist Party before the Party’s discipline.”

The news about the investigation brought an end to intense speculation surrounding Zhou that begun when Bo Xilai was arrested in early 2012. Zhou was said to be Bo’s chief backer and the South China Morning Post even suggested that the two were alleged to have teamed up in a failed coup shortly before Xi Jinping was due to take power. (Bo, the former Chongqing Party chief, is now serving a life sentence in jail for corruption.)

Over the past two years, foreign and domestic media have reported extensively on corruption scandals that were linked to Zhou’s circle of political and business friends. Rumours grew that Zhou himself would be purged – although analysts cautioned that this would be a momentous step. That said, many media outlets seem to have prepared detailed articles on Zhou’s fall in readiness for this week’s news, almost in the style of obituaries. At the forefront was Century Weekly magazine – a publication thought to have close relations with anti-graft tsar Wang Qishan – which ran 100,000 words recounting how Wang’s team had carefully netted Zhou and a number of his powerful allies over the past 20 months.

The account was a detailed one. The purge began with the arrest of Li Chuncheng, then vice Party boss of Sichuan province, who was taken away by investigators in December 2012. Century Weekly said his first reaction was ask for a toilet break, to give him a moment to throw away his mobile phone SIM card and “immediately destroy his guanxi map”.

After detaining several senior officials in Sichuan, investigators turned their focus to the energy sector. Last September this resulted in a stunning crackdown at the state oil giant, CNPC, where Zhou spent 30 years of his career (see WiC207).

When former vice-minister of public security Li Dongshing was arrested in February, the anti-graft probe shifted direction again, this time into the police and intelligence bodies that Zhou had once led as security chief. During his tenure, spending on public security is said to have surpassed the amount budgeted for the military.

Many of the disgraced officials also brought down their business cronies. That included Liu Han, a mafia-style boss who ran roughshod over Sichuan for nearly 20 years, and now stands sentenced to death for the murder of nine people (see WiC227).

What is the scale of the corruption alleged against Zhou? There is no official estimate yet. The New York Times said Zhou’s family held assets worth about Rmb1 billion ($160 million) based on publicly available records, but that this figure may be an underestimate as it doesn’t include real estate or overseas assets. Reuters guesses much more, reporting that the authorities have seized assets worth at least Rmb90 billion from family members and associates of Zhou, adding that in excess of 300 people have been taken into custody or questioned.

On the Chinese internet, news of the investigation into the former political heavyweight was treated with interest but little surprise. Less than an hour after Xinhua made the announcement, terms relating to Zhou that had been barred for more than a year online (his name, for instance) were unblocked. Even so, many netizens were cautious, continuing to use Master Kang – a popular instant noodle brand – as a synonym for the politician.

The obliteration of Zhou’s powerful political faction seemed to be welcomed by investors. True, China’s stock market fell a notch on the day Zhou’s disgrace was made public, but that was after six consecutive days of advances. The Shanghai index climbed 6.5% in July, and the upbeat mood got a boost from the announcement. Analysts, for example, now seem more excited about the prospects for the state oil sector in a post-Zhou world. One reason? “If Zhou’s cronies could siphon multibillions of cash from the state energy firms, the sector must be much more profitable then it appeared in the past,” a financial columnist at Hong Kong’s Singtao newspaper has argued.

According to Bloomberg, investors also think that Zhou’s ousting will let the central government focus on other key issues, including economic reform. Indeed, on the same day of its dramatic announcement about Zhou, Xinhua confirmed that the Party’s Fourth Plenum will meet in October to discuss “key issues concerning the rule of law” and deepening economic reforms. Under the leadership of Wen Jiabao and Hu Jintao – Xi’s predecessors – powerful interest groups including those in the petroleum industry were said to have stymied reform efforts.

Elsewhere, observers were keen to know if the investigation into Zhou means that Xi Jinping’s war on graft is going to broaden or whether the news is more likely the highwater mark of the anti-corruption effort. Only time will tell.


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