Murder of a British Businessman Offers a Glimpse into the Scale of Chinese Corruption

Just One Example of Massive Illicit Outflows from China, Which Lost US$2.74 Trillion Last Decade

Gu Kailai, the wife of Bo Xilai, a rising star in the Chinese Communist Party, has been arrested by Chinese police on suspicion of arranging the murder of Neil Heywood. Heywood was, according to Reuters, poisoned this past November. The article reports that no motive for the murder had surfaced, until now,

Bo’s wife, Gu Kailai, asked Heywood late last year to move a large sum of money abroad, and she became outraged when he demanded a larger cut of the money than she had expected due to the size of the transaction, the sources said.

She accused him of being greedy and hatched a plan to kill him after he said he could expose her dealings, one of the sources said, summarising the police case. Both sources have spoken to investigators in Chongqing, the southwestern Chinese city where Heywood was killed and where Bo had cast himself as a crime-fighting Communist Party leader.

Gu is in police custody on suspicion of committing or arranging Heywood’s murder, though no details of the motive or the crime itself have been publicly released, other than a general comment from Chinese state media that he was killed after a financial dispute.

Heywood was threatening to expose the family’s lucrative offshore empire. Bloomberg, after sifting through a web of shell corporations in locales ranging from Hong Kong to the British Virgin Islands, found at least US$126 million in assets owned by Gu Kailai and her four sisters. However, there could be far more money hidden overseas. The New Yorker reported this weekend,

How much money did they want to get out of the country? So far, the only figures come from overseas Chinese-language news sites, without sources, which allege that Bo’s wife has told investigators that she transferred overseas $1.2 billion—that’s with a “b.” As ever, online rumors require skepticism, but in this case, they have often proved to be true—so they are worth noting for the moment.

Global Financial Integrity’s research suggests that corruption on this scale does indeed occur in China. In December, our report, Illicit Financial Flows from Developing Countries over the Decade Ending 2009, found that China by far led the world in illicit financial flows over that time period. Our conservative estimates found that a staggering US$2.74 trillion flowed out of China from 2000 to 2009 — five times the outflows of second-place Mexico.

If Gu Kailai did indeed move US$1.2 billion out of China into offshore financial centers, she would not be a unique case in China. Almost unimaginable sums of money are illegally leaving China every single day. The Heywood murder offers us just one small window into the shady world that corrupt Chinese officials access.

This kind of corruption has tremendous consequences for ordinary Chinese people on the ground. That same New Yorker article reported this weekend,

For taxpayers, it was not a victimless crime: a major bridge in Macau, for which [Ao Man Long, convicted of bribery in 2006] is said to have received $1.7 million in kickbacks, was reportedly built of such poor quality that it may be need to be overhauled only seven years after it was built.

Poor governance has wide-ranging consequences. For China, one of these is the loss to overseas banks of US$2.74 trillion. However, I suspect that given examples like the Macau bridge, impacts inside China are extreme. How many bridges, schools, hospitals, and roads are being sub-optimally constructed because someone, somewhere received a seven-figure kickback? The Chinese people are making important investments for their future, and they need their bridges to last seven decades, not seven years.

Chinese Premier Wen Jiabao has called corruption the “greatest threat” to the Communist Party. Bo Xilai was slated to become a member of the party’s power Politburo Standing Committee, but the scandal has derailed his political career. Had the scandal not broke and Mr. Bo ascended to the position, who knows how much illicit wealth his family would have been able to accumulate, if the accusations are proven true.