What the Panama Papers Mean for China’s Leadership

On April 3, the International Consortium for Investigative Journalists released reports culled from a massive set of documents, now known as the Panama Papers, detailing the off-shore holdings of dozens of world leaders and their associates and family members. Relatives of Chinese leaders including Chinese President Xi Jinping and former Premier Li Peng were among those whose activities were revealed in the leaks, and a follow up report, published April 6, names associates of eight current or former members of China’s elite Politburo Standing Committee. In this ChinaFile conversation, experts discuss the implications of these Chinese holdings, what this could mean for China’s anti-corruption sweep, and what role, if any, the United States may play in further investigations.

Andrew Nathan, professor of political science at Columbia University:

China’s guanxi, or relationship-based, economy comes into sharper focus step by step. We knew about Xi Jinping’s wealthy brother-in-law from Michael Forsythe’s reporting for Bloomberg; and about the wealth amassed by descendants of the founders of the People’s Republic of China from a team Bloomberg report; and about the wealthy wife of former Chinese premier Wen Jiabao from a report by David Barboza in the New York Times. The Panama Papers add more names to the list, and  give us new information about how the red aristocracy plays its money games, while still leaving a lot of questions unanswered.

We can see more clearly that smart officials do not take the money themselves. Those who did, like former security chief Zhou Yongkang and former military leader Xu Caihou, have fallen victim to Xi’s anti-corruption campaign. But it seems to be okay under Beijing’s rules of the game for a high official’s relatives to get rich. By that standard, Xi Jinping is deemed to be clean. We don’t know whether some of these relatives made their money by hard work and smart thinking. But the more cases we learn about, the harder it is to believe that this is usually the case. We need to learn more about what must be the numerous ways in which access produces money. The furtive behavior revealed in these documents suggests that even when such behavior is legal, it is still considered shameful.

The Panama Papers also tell us more about the one-foot-in, one-foot-out strategies of politically connected Chinese families. With their connections they should be able to earn much higher rates of return in the go-go parts of China’s economy than in the strait-laced West, but still they send relatives and assets overseas. They don’t feel secure at home, but what exactly do they fear? Is it political strife within the regime, or the fragility of the regime itself?

When corruption started to sprout in China in the early 1980s, Chinese leader Deng Xiaoping defended his policy of opening to the West by saying, “If you open the window, some flies will get in.” Today it is hard to blame Chinese corruption on Western influence. The behavior revealed in these papers is the structural product of the Chinese system of power concentration and information control.

Bill Bishop, author of Sinocism newsletter and co-founder of CBS Marketwatch:

The China revelations in this leak so far do not seem to contain any huge bombshells, but Beijing’s blanket censorship of the Panama Papers crudely highlights the sensitivity and perceived dangers of the current and likely future disclosures. As usual, control is paramount for the party. It is determined to wage its corruption crackdown on its terms rather than allow its agenda and target list be determined by foreign media or activists outside the party system. So of course there is censorship, but in the background I will wager that Wang Qishan and the Central Commission for Discipline Inspection, China’s corruption watchdog, are trying to pore over any of the documents they can obtain to add to dossiers on senior officials and their families to find any useful information.

I would be surprised though if the relevant authorities in Beijing were not aware of much of what has been exposed, and probably much more that is not public. For example, Xi Jinping’s brother-in-law Deng Jiagui has two offshore firms exposed by this leak, but these two were dormant by the time Xi became General Secretary, consistent with Forsythe’s 2014 report. What these new documents do not tell us is what if anything was in these companies before dormancy, or whether any assets they may have held were truly divested or simply transferred to a trusted friend to hold behind another layer of more impenetrable corporate secrecy.

The U.S. Internal Revenue Service (IRS) should be paying attention to the disclosures related to the Chinese-controlled companies, as there is a decent chance some of the beneficial owners are U.S. citizens or green card holders. U.S. citizens, and I believe green card holders as well, are required to file an annual Form 5471 with the IRS detailing their holdings. How many actually do so, and could these papers be an entry point for the U.S. government to use tax evasion to investigate some of these people?

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