January 31st 2015

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Articles from this issue:

CANBERRA OBSERVED Is time running out for Tony Abbott?

QUEENSLAND STATE ELECTION Choice facing Queensland voters on January 31

NATIONAL AFFAIRS Will Australia strengthen country-of-origin labelling laws?

GREAT THINKERS What Edmund Burke has to say to the modern world

SOCIETY Fatherlessness linked to increased risk of child abuse

LIFE ISSUES Assassinations should be 'safe, legal and rare'

LIFE ISSUES Shocking figures on Holland's euthanasia-fest

EDITORIAL Greek elections new threat to eurozone

Economic crisis polarises European politics

EUROPE Paris attack underscores a deeper malaise

UNITED STATES Dismay and outrage at Obama's Cuba policy

CHINA Flood of Chinese 'black money' distorts property market

FOREIGN AFFAIRS Behind Sri Lanka's vote for change

CULTURE What is the point of criticism?

BOOK REVIEW French sanctuary for endangered Jews

BOOK REVIEW Quaker forger who poisoned his mistress

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Flood of Chinese 'black money' distorts property market

by Jeffry Babb

News Weekly, January 31, 2015

The flood of money from mainland Chinese that is pushing up Australian property prices, the emptying of Macao’s gambling dens and the collapse in the global market for ridiculously overpriced French handbags can be reduced to one factor: a major purge of the Chinese Communist Party is underway and gathering momentum. 

Chinese President

Xi Jinping

Australia is the favoured destination for Chinese “black money”, because it is very difficult to retrieve money from corrupt officials and almost impossible to retrieve assets from their children if they are transferred into their names, as they almost always are.

The Chinese economy is slowing. The government keeps pumping money into public works and has attempted to stimulate the property market. These short-term measures will have to end one day and, when they do, the crash that follows will be catastrophic. 

Foreign observers often misunderstand the nature of Chinese society. What they call the “middle class” we would call “battlers made good”. Very few families are more than a generation removed from peasant agriculture. The super-rich, the top one per cent of Chinese society, call the shots. An unholy mix of politics, regional interests, the Communist Party and business determine what happens in China. The Communist Party is so discredited in the eyes of the ordinary people that President Xi Jin-ping is determined to save it from itself.

When President Xi came to power in March 2013, he first moved against Szechuan Province’s strongman Bo Xilai, who had a reputation for being a Leftist radical. It now appears that this was a false trail, and President Xi is in fact reviving the Maoist faction of the Communist Party. The Maoist faction never really went away; it was just lying low. 

Ever since Deng Xiaoping jump-started China’s economic revival with his famous phrase “to get rich is glorious”, economics has been in command. Deng drew on China’s sense of itself as the world’s oldest continuous civilisation to restore balance in its political life. Hiccups such as the Tiananmen Square crackdown in 1989 have been overcome since Deng took control as “paramount leader” and reorganised both business and government. People began feeling better off. Notably, the latest transfer of power is the first that Deng did not orchestrate.

Corruption is endemic in China. At the height of the China boom, infrastructure simply could not handle the demands made on it. For example, China’s railways could handle only 35 per cent of the required freight volume. This was a very fertile field for corruption. Small wonder that the ability to determine whose freight reached its destination, and whose freight was left standing in a railway siding, was a very valuable commodity.

The Chinese communists are not fools. They have long known that if there was a political purge, they could lose everything in the subsequent crackdown. What the government gives, it can confiscate, too. So, the logical precautionary measure has been to get their assets out of China. 

The simplest way has been to use the Macao casinos, a reincarnation of the gambling dens China has tolerated for centuries. Although it is illegal to transfer large sums to Macao, Chinese people have been able, by various nefarious and well-known means, to launder their fortunes as spurious “winnings” at these up-market gambling dens, such as those owned by Australia’s James Packer. 

As for the $5,000 French handbags, any sensible man knows that if Mrs Wang has a handbag and his wife doesn’t, his life will be much easier if he spends a small part of his fortune to make his wife happy. Ditto for his mistress. Naturally, the central government has known that people — mainly government officials — have been getting their loot out of China using their spurious “winnings” at the gambling dens, but the Party has turned a blind eye to the practice. 

China is seeking the co-operation of other nations, including Australia, to bring deviant officials to justice. One problem, however, is that China retains the death penalty, which it uses with great alacrity. Australia will not deport people if it is possible they will be executed on their return home. In addition, Chinese courts are not courts as Westerners understand the term. In China, all three arms of government — the executive, the legislature and the judiciary — are subservient to the Communist Party. The courts exist to promote Party policy, not to see that justice is done.

It is estimated that the super-rich top one per cent have moved a trillion dollars out of China. Shortly before he became President, Xi Jinping vowed to fight both “tigers” and “flies” — that is, leading officials and lowly bureaucrats – in order to root out corruption.

Reining in the tigers, however, is far more problematic than swatting the flies. This is in no small part due to the fact that the tigers are either high Party officials or have very strong guanxi (Chinese for “connections”) with the Party.

The boom in apartment sales in Sydney and Melbourne results from Chinese officials salting away money where it can’t be touched. And as Australia is a country ruled by law, not by the Communist Party, they know it will be safe. 

Jeffry Babb is a Melbourne-based writer, who has spent several years in China and visited most of the country’s provinces and major cities.

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