Fallout from the Panama Papers has landed in China, throwing doubts on President’s anti-corruption campaign and revealing a continued disregard for environmental regulations.
The Panama Papers have shaken political figures around the world, among them being none other than the governmental elite of China. As governments sought to manage the fallout, Beijing was doing what it does best whenever viral topics damage the party’s image. Within less than 48 hours, any reference to the Panama papers was deleted or blocked in mainland China. Even by the standards of the “Great Firewall of China,” the speed at which this occurred was impressive.
As more details have emerged, it is apparent that the order to block discussion of the papers came from the uppermost ranks of the Chinese Party of China (CPC). The papers revealed that close relatives of President Xi Jinping and other members of the Politburo have benefited from the services of Mossack Fonseca, the firm at the heart of the scandal. While Chinese citizens are not banned from setting up offshore accounts, the CPC forbids its members and discourages their relatives from doing so.
Offshore accounts make it easier to provide anonymity in financial dealings by blurring ownership — a key selling point for Chinese elite that long used connections to get rich. In the context of China’s ongoing anti-corruption crackdown, the Panama papers are a huge embarrassment for the leadership.
While questions of legality have not been brought up (the Minster of Foreign Affairs has labeled the accusations as ‘groundless’), the revelations foster the perception that elites close to the standing committee are using their personal relationships for financial gain. In turn, an issue close to the interest of average Chinese citizens has taken a turn for the worse in the broader public sphere—a development which risks stoking social unrest.
Xi’s anti-corruption crackdown sought to regain people’s trust and rid a country known for endemic corruption at every level of society. The problem is that corruption was previously seen as a legitimate tool which was necessary to get anything done in China. Dig deep enough into a large swath of Chinese elite, and there’s a good chance that financial irregularities will be uncovered from past — if not present — dealings.
This is the crux of the issue: the Panama papers have only revealed the tip of the iceberg, casting serious doubts about the ultimate purpose of Beijing’s reforms. While the anti-corruption campaign seems to have improved the perception within China that the country is less corrupt, there can be no doubt that Xi is also using it as a tool to go after his political enemies. With the release of the Panama Papers, risk has mounted from both continued corruption and the strains on public faith in government that follow.
Corruption fuels environmental damage in China
If Xi’s anti-corruption drive was exposed as a one-sided affair (protecting those in his inner circle), his enemies would become empowered while the public would lose trust in the party. There is already deep resentment within China against the lack of respect towards regulations and the usage of personal networks for financial gain.
Both of these trends have exacerbated another point of tension — China’s environmental woes. While the government has made it a priority to improve environmental standards in the face of almost weekly reports on hazardous air pollution levels, the Panama Papers and their fallout risk shattering the belief that necessary reforms will actually be carried out.
Only a few months ago, the Sierra Club — one of the largest US environmental grassroots movements — revealed that 21 business executives across several heavy industries in China were responsible for more than 10% of China’s CO2 emissions. While 10% may seem minimal, the real concern is that many of these individuals were able to profit by bribing government representatives to turn a blind eye to flagrant violations of environmental regulations. As a result, these business leaders amassed fortunes of more than $70 billion.
Liu Zhongtian, head of aluminium giant China Zhongwang Holdings and one of China’s most energy-intensive companies, was accused by short seller Dupre Analytics of allegedly siphoning money from his company for personal gain. The company has since refuted these allegations.*
Indeed, in order to fight pollution, environmental agencies in China were given increased power to review and approve permits for various industries and their factories. As a result, it appears that some officials used their new authority to accept more bribes and issue permits to serious polluters. Even retired Ministry of Environmental Protection (MEP) Vice Minister Zhang Lijun was investigated for selling fraudulent quality control and emissions certifications while undermining competitive tender processes for personal gain.
While the link between corruption and environmental damage has been clearly proven, China’s anti-corruption drive now seems incapable of preventing the numerous abuses of power which are plaguing the environment and seriously damaging China’s economic growth. The World Bank estimates that environmental damage could be costing China up to 6% of its GDP per year.
The true meaning of the Panama Papers goes far beyond the financial affairs of the Politburo, which have little tangible impact on the welfare of the average Chinese citizen. Rather, the scandal lays bare the plutocratic mores of China’s elites and deals a blow to hopes of significantly reforming the country. Until the government gets serious about stopping abuses of power — especially within its inner-circles — there will be little hope of real change for China’s 1.3 billion people.
* With regard to the situation surrounding Liu Zhongtian, an earlier version of this article used the word discovered rather than alleged. The article has been updated to reflect that change.