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Li Huabo, Corrupt Chinese Bureaucrat or Fall Guy?


Li agreed to be photographed provided he could obscure his identityPhotograph by Kxx for Bloomberg BusinessweekLi agreed to be photographed provided he could obscure his identity

On a typically humid Singapore afternoon, Li Huabo leads visitors through the gates of his luxury condo complex—past the swimming pool, Jacuzzi, and reflexology center—to his three-bedroom apartment. He puts a stack of files on the dark marble dining room table while his wife gets juice from the kitchen, which looks out on a nature preserve. Li, 51, is stocky, with a boyish face framed by dark wire-rimmed glasses and black hair. He’s as ordinary as a man could be. You’d never know he’s facing charges related to alleged crimes in his native China, where Li claims he could have received the death penalty.

For nearly 30 years, Li worked as a low-level government accountant in a poor county next to Lake Poyang in southeastern China’s Jiangxi province. He supplemented his meager functionary’s salary by running businesses on the side—a practice that’s officially prohibited but nonetheless commonplace among Chinese officials, many of whom have used their connections to amass huge fortunes in the private sector. Two years ago, Li quit his job stamping checks, sold his share of an oil refinery, unloaded his pink five-story villa, and moved his money and family out of China. Like other newly rich bureaucrats, he’d yearned to move somewhere safe, he says, where he wouldn’t have to worry about Communist Party crackdowns, health-care scares, or pollution.

As he recounts his story, Li pauses to fetch a heavy gold Rolex—one of the last tokens of success he owns. In March 2011, one month after arriving in Singapore, he was arrested and accused of being the ringleader of an elaborate scheme to embezzle more than 90 million yuan ($14.5 million) from the Chinese government and funnel part of the money through Singaporean banks. Singapore police acted after a tip-off from Li’s remittance agent and a request from Beijing via Interpol. Although the two countries don’t have an extradition treaty, they share an interest in stemming the flow of dirty Chinese money into the island nation. Li claims interrogators told him that if he cooperated, they’d try to help. If he didn’t, he could face a far worse fate back home.

Li refused and now faces up to 15 years in prison if convicted on three counts of banking stolen funds totaling S$182,770 ($146,771). A Singapore judge is expected to hand down a verdict on April 5. These days, Li spends most of his time sitting at home, living off the monthly check of S$4,000 the Singapore government has sent him since early 2011, when it froze all his bank accounts and property. His former co-workers framed him, he repeats like a mantra. “They want to hurt me,” he says.

There’s no shortage of numbers about corruption in China. How reliable these numbers are is another matter. Last year prosecutors investigated 47,338 cases of official misconduct, 5 percent more than the previous year, and recovered 8.8 billion yuan. Despite strict currency controls, money is still getting out of China. Since the 1990s around 18,000 officials and state employees have left with some 800 billion yuan, according to a central bank report leaked online in 2011. Global Financial Integrity, a Washington-based anti-money-laundering watchdog group, estimates that $3.79 trillion in illicit funds flowed out of China from 2000 to 2011.

While the wealth and misbehavior of senior Communist Party officials and their families have received international attention, the more insidious forms of official corruption take place at the local level. Tales of corruption have become the stuff of popular roman à clef novels such as The Diary of Government Official Hou Weidong, written by a midlevel sanitation official, which describes a culture of endemic graft. Rarely, however, do outsiders hear directly from bureaucrats caught up in corruption cases. Li told his story to Bloomberg Businessweek during a four-hour interview at his home in Singapore. He maintains he’s innocent of the charges against him—a fall guy, not a crook. His story provides a glimpse of the pervasiveness of influence peddling at all levels of China’s bureaucracy and shows how difficult it is to stop abuses that have become an accepted part of doing business.
 
 
Poyang is one of China’s poorest counties. It’s named after what was the country’s largest freshwater lake, before drought and dams shrunk the lake from 4,000 square kilometers to just 200. Government jobs are coveted in a place like Poyang. Last year a record 1.5 million candidates nationwide applied online for 20,000 civil service jobs, state-run news agency Xinhua reported.

In Poyang some 400 bureaucrats handle finances for the county’s 29 townships. They earn an average 1,000 yuan a month, but the pay’s only part of the package. Bribes are common, and the right position opens up wide opportunities for making money. “People envy you if you have a government job,” says Li, who earned 3,000 yuan a month by the time he left his job.

Li’s family was successful. Before his father retired in the 1980s, he worked for local law enforcement agencies and the county construction bureau. He was also a member of the Public Security Bureau, the powerful state police. “I was afraid of my father,” Li says. “He was an official and wasn’t very expressive.”

After graduating from vocational school in 1980 with a degree in accounting, Li was assigned a job in the county finance department. Private business was still unheard of in much of China; he was grateful for the “iron rice bowl” benefits of a government job. “I didn’t choose my job. If you could get something, you would go,” he says.

Photograph by Kxx for Bloomberg Businessweek

Li watched his colleagues play politics to rise up through the party ranks, but he focused on making money. Using connections, he bought goods at cheap government prices and sold them on the free market. With friends he traded anything he could get a good price for: cotton, coal, grain, even fertilizer. “I was earning 30 yuan a month from my job,” he says. His sideline was making him rich. “Back then if you had 10,000 yuan in the countryside it was pretty good,” Li says. “I was richer than my colleagues.”

Officials routinely ignored regulations forbidding commercial ventures. Li estimates two-thirds of his co-workers were in business. “If I’m in the government and you’re in the government, we won’t talk about our business affairs because there were regulations against it—but we all did it,” he says. “Let’s say I’m in charge of a department, in charge of coal, then I’ll invest in coal. If I’m in charge of food, I’ll invest in food. Sometimes you do it through a family member. The higher up the officials, the further away the relationship.”

Contacts helped him open a tourist agency specializing in trips south to Macau, the former Portuguese colony, which is the only Chinese territory with legalized casino gambling. Li’s best bet, though, was on oil. He bought 42 percent of a small refinery. Executives there used connections at China’s biggest oil field to divert thousands of barrels of state-owned crude to the refining operation. The investment coincided with a fuel shortage that drove profits higher. Li says he made more than 100 million yuan ($16.1 million) during three years from his investment.

Li doesn’t apologize for profiting from his position of influence. That’s how the system worked. “It’s a form of corruption, giving favors. We would help each other out. Sometimes you needed to pay money to get something done. You’d have a friend contact a friend, who contacted the person you needed to reach,” he says.

Occasional anti-corruption crackdowns ordered by Beijing bypassed Li’s poor corner of China. He uses an old Chinese saying to explain: “The mountain is high, and the emperor is far away.” By 2002, Li earned enough to buy a white Honda sedan. A year later he bought a plot of land in a new part of town to build a five-story villa for 700,000 yuan. A nursery rented space on the ground floor. He was living his version of the Chinese dream. “It’s true that the county is poor,” he says. “But many people aren’t.”
 
 
The turning point in Li’s fortunes came in 2006. By then he was section director of the economy and construction unit under the Poyang County Finance Bureau. He oversaw disbursement of government subsidies for fuel and infrastructure projects such as shoring up aging reservoirs. He was well-liked and reliable even though he didn’t show much ambition to go higher.

One day, Ouyang Changqing, head of the county finance department, called with a message: He wanted Li to sign off on a loan of 3 million yuan to a municipal engineering company. The county routinely fronted money to construction companies who needed cash upfront, but Li thought the case was odd since the loan would be guaranteed by the local rural cooperative credit union, where Li had recently opened an account at his boss’s behest.

Ouyang was a powerful figure in Poyang, running the finance department and sitting on the local branch of a nationwide political advisory body. But he had a checkered past. The Communist Party of China expelled him in 1997 when a dike he oversaw as local party secretary burst during a flood. In 2001 county authorities reinstated him to the party and gave him a government job; two years later he was put in charge of the county finance department. His son, Ouyang Song, held a no-show job at the police department and owned part of a high-end restaurant around the corner from his dad’s office.

Soon after Ouyang’s call, Xu Detang, head of the credit union, rode the elevator up to the bare office Li shared with colleagues. Xu was tall and handsome, known around town for his Audi and high-interest loans to property developers. He’d divorced his first wife to marry a much younger woman but kept 10 mistresses and liked to go out to restaurants and dance halls, state media later reported. His exploits earned him the nickname “Pervert Xu.”

Xu’s role in the loan was complicated. The construction company, he told Li, was controlled by friends and relatives of county finance chief Ouyang. But the credit union had used up its annual lending quota, a tool Beijing regulators used to keep the economy in check. Xu suggested that instead of lending money, the credit union would guarantee a loan by the county government to the construction company. Once the credit union had a fresh loan quota next year, the loan would be repaid. Chinese police say Xu was basically using the credit union to funnel money out of the government and into Ouyang’s pocket.

Li would soon be asked to sign off on more loans. “I saw that all the paperwork was in order,” Li recalls. “In the finance bureau, the chief is the biggest. Whatever he said happened. I couldn’t ask questions, and I wouldn’t dare ask questions.”

The loans were undetected during a three-month audit by Beijing in 2007 and continued at least through 2010. The finance department even won three annual honors for outstanding performance.

Still, doubt gnawed at Li. Money wasn’t enough to ensure his safety. Even Huang Guangyu, a home appliance tycoon and once the richest man in China, was sentenced to 14 years in prison in 2008 under corruption charges that also took down high-ranking officials. “Before, I didn’t have anything to lose,” he says. “Once I had money, I started to worry. Everyone doing business in China is a little afraid. Today you live in a villa; tomorrow, maybe a jail.”

On one of his flights to Macau, Li noticed an ad for an agency that helped investors gain permanent residency status in Canada, New Zealand, or Singapore—for the right price. He contacted an immigration agency based in Shenzhen in 2009 and started the process of transferring the equivalent of S$1.5 million into a Singapore government-approved investment fund that would grant him and his family permanent residency. To avoid raising suspicion and get around the $50,000 annual limit on the amount individuals can carry out of China, he tapped a network of friends and relatives to make deposits of $30,000 to $50,000 in different Chinese bank accounts. The money passed from those bank accounts through underground remittance agencies in Xiamen. It was deposited with a broker in China, who would contact a counterpart in Singapore without any money crossing a border. Li had used such money brokers earlier to get cash offshore for his gambling trips.

In the meantime, Xu’s investments were starting to unravel. With a group of business partners, he’d bought an interest in a seafood market, which out-of-town investors with cash-flow problems had sold to him cheaply. Xu told Li he’d flip the stake to someone else for a profit. Instead, the market’s walls began cracking because its foundation was too close to a riverbank, he told Li. Xu’s other projects were equally ill-fated.

Li submitted his resignation in April 2010. He told Ouyang he wanted to do other things, but he thinks his colleagues knew he wanted to leave the country. Ouyang demanded he stay through the end of the year, Li says. The borrowing from the construction company increased. By the end, the company borrowed 98.5 million yuan, equal to about one-fourth the county’s annual budget. In January 2011, Li sold his house to a friend for 800,000 yuan and told neighbors he was going on a vacation.
 
 
There are two versions of what happened next. Li says he took his family to Macau, where they redeemed loyalty points at a casino for a flight to Singapore. Authorities in China tell a different story. According to their version, late one night after work on Feb. 11, Li called a colleague named Cheng Sixi. Over a bad phone line, Li confessed he’d stolen a huge amount of money from the government and then fled to Canada. (Li contends he never made any call to Cheng Sixi.) Stunned that Li had the courage to pull off such a crime, Cheng alerted Ouyang, according to authorities.

At the same time, Li’s brother-in-law, who had helped Li transfer funds out of China, gave Chinese authorities a letter from Li to his former co-workers explaining how he’d used a shell company to embezzle money with the help of Xu; it was one of three similar letters to them from Li. In the letters, he said he needed the money to repay gambling debts in Macau. Li maintains that all the letters are fake.

Local government party officials set up a task force, dubbed the “2-11 team” after Feb. 11, to investigate the allegations. On Feb. 17, 2011, Xinhua published a report with a hand-drawn picture of Li that was broadcast on major state-run television stations. The story alleged that Li and accomplices had set up a shell company in 2006 and used bogus government seals and fake invoices to steal millions. In a televised interview, finance chief Ouyang blamed it all on Li. He said he was ready to accept the consequences no matter what. A few days later, Ouyang was detained.

The investigation netted 57 people. Ouyang was sentenced to 19 years for embezzling 45 million yuan, receiving 2 million yuan in bribes, accepting 700,000 yuan in payouts for job promotions and placements, and having an additional 5 million yuan he couldn’t account for. Li’s old colleague Cheng—the man who allegedly took the confessional phone call—was sentenced to three and a half years. The fate of Xu, the head of the credit union, is harder to figure out. Provincial authorities declined to reveal what happened to him.

On Feb. 23, 2011, Interpol issued a red notice for Li, the closest thing to an international arrest warrant. He was picked up in Singapore after the man who helped Li get his money out of China tipped off police. During his two days of detention, Li says, he was coerced into confessing with the threat of deportation to China, where he thought he would face the death penalty. The Jiangxi courts published an order to confiscate Li’s assets, including the car, four properties in Singapore, and all his bank accounts.

Two days after Li’s arrest, he was released on bail, and the case has slowly wound its way through the Singaporean legal system. At his trial, which began in September, Li insisted he’d been framed, saying all his money came from the profits of his businesses. He presented accounts from his oil refinery that show it was profitable and said there was no link between him and the shell company. But he struggled to explain the discrepancies between his testimony and what he first told police. “I was very confused so I admitted that the money in my account was embezzled, was corrupt money,” he told the court through an interpreter. “I was told that China only wants my money and not me.” The prosecutor in the case mocked Li’s claims of victimization. “Many people framed you, so many people, isn’t it?” the prosecutor said.

It’s unclear what will happen to Li’s legal status in Singapore if he’s convicted on April 5. As the sun sets toward the end of our interview, he steps onto the balcony of his apartment, which looks out on a lush hillside. Earlier, his daughters had come home from school. He says he’s tried to conceal from them most of the details of the charges against him. Whatever he did back in China, he says, he did to secure their futures. “Of course I’m worried. But I think I proved I’m innocent. I hope the judge believes me. I never took that money. I made my own money,” he says. “I trust Singapore law is fair.”

Oster is a reporter for Bloomberg News in Hong Kong.
Tan is a reporter fro Bloomberg News in Singapore.

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