Bloomberg News

Bo Downfall Shows Crony Communism Widening Rich-Poor Gap

May 02, 2012

Bo Xilai, then Chinese Communist Party secretary of Chongqing, attends the closing ceremony of China's National People's Congress (NPC) at the Great Hall of the People in Beijing, China, on Wednesday, March 14, 2012. Photographer: Nelson Ching/Bloomberg

Bo Xilai, then Chinese Communist Party secretary of Chongqing, attends the closing ceremony of China's National People's Congress (NPC) at the Great Hall of the People in Beijing, China, on Wednesday, March 14, 2012. Photographer: Nelson Ching/Bloomberg

Behind the crimson walls of the former imperial compound that is Beijing’s equivalent of the White House, Communist Party leaders cranked China’s decades-old propaganda machine into overdrive. Tapping a system used to quell public dissent since Mao Zedong’s anointed heir was accused of treason in 1971, apparatchiks distributed internal documents to bring more than 80 million party members into line.

Then, at 11 p.m. on April 10, the announcement was made by China’s official Xinhua News agency: Authorities were investigating Bo Xilai, the son of a prominent Communist revolutionary and former leader of Chongqing, for “serious discipline violations.” His wife and household helper were being held as suspects in the murder of a 41-year-old British associate and family friend, Neil Heywood, following a business dispute, Xinhua said minutes later.

The statements ended a month of official silence and online rumors -- suggesting corruption, abuse of power and even a coup plot -- since Bo was fired as head of China’s biggest and fastest-developing municipality. It also halted the rise of the 62-year-old Politburo member, who was a contender for elevation later this year to the nine-member Standing Committee that rules China.

The self-styled crime-buster and champion of the poor who revived Mao-era songs and ideals has become a symbol of the social ills he was fighting. His removal may prove to be a two- edged sword for China’s leadership as it prepares for its once- in-a-decade change of power later this year, fueling anger over how the spoils of China’s wealth creation are creamed off by officials as social inequality widens.

‘Warning for Years’

“People inside the party at the highest level of government have been warning for years that this kind of corruption will destroy the party,” says Minxin Pei, a professor of politics at Claremont McKenna College, California, who specializes in China. “But the medication may be equally lethal. That’s the dilemma.”

No specific allegations have been published against Bo and authorities haven’t released details of the investigation. Even so, microbloggers beat online censors to turn their ire on the ruling Communist Party elite and a system that they see allows those with power to plunder the nation’s wealth for their own gain.

Some 16,000 to 18,000 officials from the government, judiciary and state-owned companies fled China with 800 billion yuan ($127 billion) since the 1990s, according to a report by the central bank that briefly appeared on its website in June last year.

Major Purges

High-profile purges of the former leaders of Shanghai and Beijing, who had the same party rank as Bo; a former supreme- court judge; the former railway minster; and thousands of local and regional officials have failed for decades to eradicate China’s widespread graft. The country lost $2.74 trillion over the decade ending 2009 to corruption, five times more than second-place Mexico, most of it secreted overseas, according to Global Financial Integrity, a Washington-based research organization.

As Bo rose from a provincial bureaucrat to the Communist Party boss of Chongqing, where he rated a salary of about 10,000 yuan ($1,585) a month, his family’s wealth grew dramatically. His relatives have accumulated at least $136 million, according to data compiled by Bloomberg on the extended family’s business interests, including those of his wife’s older sisters. Li Wangzhi, Bo’s son by a first marriage, and at least two of Bo’s brothers held positions in banking and industry. Bo’s other son, Bo Guagua, studies at Harvard University in Cambridge, Massachusetts.

Blog Backlash

The revelations sparked a backlash in a country where income inequality has grown to be the biggest in Asia, according to Terry Sicular, a professor at the University Of Western Ontario, and per capita income ranks 121st out of 215 countries, beneath Namibia and Dominican Republic, according to the World Bank.

“This case likely outrages Chinese because it appears to be a blatant example of the most powerful elites feeling they can ignore the rules and commit acts with impunity that ordinary people couldn’t possibly attempt, much less get away with,” said Martin Whyte, professor of sociology at Harvard.

Like Watergate in the U.S., Bo’s undoing is a milestone in unearthing corruption at the core of China’s elite, according to Claremont McKenna’s Pei. It echoes the fall of General Lin Biao, who died in a plane crash in 1971 after an alleged coup and whose reported opulent lifestyle shocked Chinese, he said.

Officials feared that Bo’s fall could be as shattering, said Dali Yang, a political scientist at the University of Chicago and head of its Beijing center. To control public reaction, workers at Party headquarters in Beijing conveyed messages internally “to prepare the elite for the formal announcement,” he said, citing conversations with other professors in China who received internal documents.

Party Challenge

The risk for China is widening cynicism that could taint everyone in power and challenge the legitimacy of the regime, said Andrew Nathan, a political scientist at Columbia University in New York City. China’s rulers spend more on public security than on national defense in the face of about 500 disturbances a day, including protests by people who’ve lost homes and land to official projects or been the victim of corruption or brutality.

“The bitterest element in this saga is the lack of confidence and trust in the system,” said Ai Weiwei, an artist in Beijing whose own clashes with authorities led to him being detained and having his movements restricted. “There is no way to know the truth.”

The stream of posts on mainland microblogs since Bo’s ouster often appeared faster than China’s censors could delete them. “This system resembles the feudal times more than the feudal times itself,” wrote one. “After all the public are like abandoned dogs. That doesn’t seem to have changed after a thousand years,” wrote another under the name RedsGerrard.

Blocked Tomato

Censors blocked sensitive words including Bo’s name and even “tomato,” which sounds like “western red city” in Chinese and is used to refer to Chongqing under Bo’s Maoist mobilizations.

Bo’s status as a member of China’s red nobility has been highlighted by microbloggers. His father Bo Yibo was a revolutionary hero of Communist China and one of the “Eight Immortals” who helped introduce economic reforms in the 1980s.

Scions of influential Party figures, often called princelings, hold positions of power throughout China’s political and business universe. Former Premier Zhu Rongji’s son, Levin Zhu, is the president of the investment bank China International Capital Corp. Li Xiaolin, the daughter of former premier Li Peng, is the chairman of utility China Power International Development Ltd. Premier Wen Jiabao’s son, “Winston” Yunsong Wen, is chairman of China Satellite Communications Corp. and a co-founder of Beijing-based private equity company New Horizon Capital.

Born to Rule

One of them was reported as saying the princelings were born to rule. A profile in the official Chongqing Evening News of Chen Tonghai, the son of an early revolutionary who became the top official in the northeast city of Tianjin, quoted him as saying that if the Republic’s eldest sons didn’t monopolize, who would?

Chen, a former chairman of China Petroleum & Chemical Corp., received a suspended death penalty in 2009 for taking 196 million yuan in bribes. Chinese media reported allegations he was spending 40,000 yuan a day and was sharing a mistress with his allies.

“The Bo Xilai affair reveals a political culture that resembles the mafia,” said Perry Link, a China scholar at the University of California, Riverside. “It is not an exception, but a representative slice.”

Last Appearance

March 9 was the last time Bo was seen publicly, slouched in an armchair before a roomful of reporters in Beijing, where leaders had assembled for the annual legislative gathering. He angrily defended his family against allegations that their lifestyle of overseas private schools and fast cars was far beyond his government paycheck.

“I’ve heard some are throwing filthy water on Chongqing, and even on my own family,” Bo said, wearing a bright yellow tie and dark blue suit. “Some even said my son, studying overseas, drives a red Ferrari. That’s absolutely nonsense. Not only my son, but I and my wife have no personal assets. That’s been the case for decades.”

Bo, a journalism graduate, has long courted the media, using it to set himself apart from the run-of-the-mill bureaucrats during his seven years as mayor of Dalian, a port city in Liaoning in China’s northeast.

Kissinger and Gore

He waged a publicity campaign that featured articles by writers comparing his political savvy to Henry Kissinger, his environmental consciousness to Al Gore, and his public adoration to Princess Diana, according to “China’s Leaders: The New Generation,” by Cheng Li, a China specialist at the Brookings Institution in Washington. After Bo moved to Chongqing in 2007, his crime crackdown, economic plan and battle against social inequality became a focus of national media coverage that was coined the “Chongqing model.”

Less than a week after the press conference, Bo was removed from his position. The first signs of trouble came a month earlier when Chongqing’s former police chief Wang Lijun, the architect of Bo’s anti-mafia campaign, fled to the U.S. Consulate in Chengdu, 165 miles (266 kilometers) away, where he outlined to startled American officials a plot of money laundering, betrayal and murder involving Bo and his family, according to current and former U.S. officials briefed on the matter. After spending the night of Feb. 6 holed up in the consulate ringed by police, Wang turned himself over to central authorities, according to the officials.

Strike Black

Bo’s crackdown on organized crime was a cornerstone of his tenure, called “da hei,” or “strike black” in reference to the Chinese word “black society” for organized crime. Chongqing police arrested 1,544 people in the two months after the offensive started in June 2009, according to Xinhua.

The crackdown inspired nationwide copycats -- and allegations of abuse. In 2011, police across China arrested 29,000 suspects from 3,000 gangster groups, according to the National Dahei Office, which co-ordinates organized crime investigations across the country.

“The Chongqing crackdown became a model,” said lawyer Zhu Mingyong, of Beijing Zhongguan Law Firm. “Many policemen in other cities got very excited watching that campaign, because it means ultimate authority is going to the police.”

More than half of the 25-member Politburo visited Chongqing to endorse Bo’s policies, according to Bo Zhiyue, a senior research fellow at the East Asian Institute of the National University of Singapore. Their praise overlooked allegations of police brutality and abuse of the legal system.

Revoked Confession

Li Zhuang, a defense lawyer, was jailed for 18 months in February 2010 after being convicted of inciting his client to commit perjury by telling the court he was tortured into a false confession, according to Xinhua. Li was released in April 2011. One of Li’s assistants who testified against him has since filed a lawsuit against Chongqing police saying they forced him to testify, according to a statement by his lawyer.

Other lawyers alleged similar harassment. At a legal seminar in July 2010, Zhu of Beijing Zhongguan played video and audio recordings of his client Fan Qihang, sentenced to death for running a criminal gang in Chongqing. In them, Fan described how he confessed after spending five days suspended from the ceiling, unable to rest his feet on the floor.

Zhu says he saw familiar patterns of abuse in other cities. Yang Jinde, a car dealer in central China’s Nanyang city, was jailed after leading dozens of employees to Beijing to protest a court ruling in 2010 relating to a real-estate dispute.

Leg Irons

Yang claims he was handcuffed and put in leg irons, then locked inside a small iron cage with a police dog to get a confession that he was a crime lord, according to an interview with Zhu.

Zhu secretly filmed a meeting with Yang in detention. The cellphone video shows a paralyzed and emaciated Yang wrapped in a white cloth and lying on a bench. Yang was sentenced in November 2011 to 18 years for organizing criminal activities and other offenses. Part of the prosecution’s evidence was that he asked his staff to read two management books according to the court rulings, including a Chinese translation of “No Excuse! Incorporating Core Values, Accountability, and Balance into Your Life and Career,” by Jay Rifenbary.

Police in Chongqing and Nanyang refused to comment when reached by phone.

The anger building before Bo’s fall broke through after he was removed from power.

‘Wrong, Wrong, Wrong!’

“Singing red songs is using the power of government to fill the vacuum of faith. Wrong!” wrote Zhou Lian, an associate professor of philosophy at Renmin University of China in Beijing, on his microblog. “A mafia crackdown using the legal system to replace rule of law. Wrong! Subsidizing the poor by hijacking the rich is also wrong! All the paths Bo took are wrong! Wrong, wrong, wrong!”

The Cultural Revolution had a big impact on Bo’s family. Bo and his father were jailed and his mother committed suicide. The family was rehabilitated in the 1980s and his father helped craft China’s early economic reforms while Bo studied at university.

Bo scaled the ranks in northeast China’s Liaoning Province and got a post in Beijing as minister of commerce in 2004. Three years later he arrived in Chongqing and took a seat on the politburo.

“When he went to Chongqing everybody potentially in the running for the politburo standing committee was either Tweedle Dee or Tweedle Dum,” said Claremont McKenna’s Pei. To set himself apart, Bo “hit on this brilliant idea of repackaging himself.”

Red Songs

In 2008, Bo issued a list of revolutionary songs people were encouraged to learn. The following year, as the anti-mafia clampdown moved into high gear, toppling the former director of the city’s judicial bureau, millions of Chongqing residents got quotes from Mao’s Little Red Book sent to their mobile phones. Local television stations were dedicated to revolutionary propaganda.

Part of the package was spending on social programs, using Chongqing to try reforms to address China’s growing inequality. The city borrowed at least 157 billion yuan through local government finance vehicles, according to data compiled by Bloomberg, to fund social housing for locals and migrants and to plant trees.

While China stopped issuing national figures measuring inequality, Chongqing trumpeted its own success. At his March 9 press conference, Bo emphasized Chongqing’s efforts to reduce the urban-rural income gap. Huang Qifan, the city’s mayor, said five days before that the city had reduced the wealth gap as measured by the Gini coefficient to 0.42 from 0.44.

Dream Home

“People in Chongqing still think highly of Bo Xilai,” said Zhou Xingli, a 46-year-old unemployed woman outside her home in the government’s Minxin Jiayuan housing project halfway between the airport and the city center. “Without him, people like us will never in our lifetime get a home like this. He did a lot of real things for Chongqing. Look at all the trees.”

Zhou pays about 50 yuan a month for a 40 square meter flat in Minxin, which means People’s Hearts in Chinese.

Elsewhere in China, the Bo saga is seen by some as part of a political struggle, like many other purges and counter-purges that mark China’s history.

Staring into a lake at the central park in Shanghai’s Lujiazui district, 24-year-old Gao Wen says he doesn’t think Bo’s ouster will strike a blow to the powerful, whose main motive is to protect their own interests.

Corruption Problem

“Everyone talks about change,” said the unemployed financial technician. “Probably no one, even if they want to, has the capability or determination to fix the corruption problem.”

Chinese state media has moved to damp speculation about the case. An April 26 article in the Global Times, a Communist Party paper, accused the Western media of exaggerating the negative influences of Bo on the Party’s work.

While Bo has vanished, the political damage has already been done, according to Nathan of Columbia.

“All the worst things you ever imagined are actually true,” Nathan said. “It’s not like nobody knew about this stuff, but now they know that it really is true and it’s as bad as it can possibly be.”

--Shai Oster, Fan Wenxin and Dune Lawrence. With assistance from Michael Forsythe, Yidi Zhao and Dingmin Zhang in Beijing, Indira A.R. Lakshmanan in Washington, Natasha Khan, Vinicy Chan and Ben Richardson in Hong Kong and John Gittelsohn in Los Angeles. Editors: Neil Western, Adam Majendie.

To contact Bloomberg News staff for this story: Shai Oster in Hong Kong at soster@bloomberg.net Wenxin Fan in Shanghai at wfan19@bloomberg.net; Dune Lawrence in New York at dlawrence6@bloomberg.net; Michael Forsythe in Beijing at mforsythe@bloomberg.net;

To contact the editors responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net Peter Hirschberg at phirschberg@bloomberg.net


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