Arrest of NKorean SAR chief turns spotlight on China's tax cheats

Asia Times ^ | Oct 8, 2002 | Antoaneta Bezlova

[Int]

Arrest turns spotlight on China's tax cheats
By Antoaneta Bezlova

BEIJING - Beijing's crackdown on tax cheats has gained momentum with the arrest of a prominent businessman Yang Bin - hand-picked by North Korean leader Kim Jong-il to lead Pyongyang's bold experiment with free enterprise - as Chinese President Jiang Zemin is struggling to persuade the Communist Party to change its constitution and welcome capitalists into its ranks.

Last month, the Chinese orchid tycoon made the headlines when Pyongyang announced that he was to become the chief executive of Sinuiju Special Administrative Region (SAR), a walled capitalist enclave in hardline-communist North Korea.

Yang, a horticulture and property tycoon named by Forbes magazine as China's second-richest man, was detained by Chinese authorities last week and placed under house arrest. He was reportedly being investigated for tax irregularities.

Yang's arrest comes amid a highly publicized campaign of the government to force China's nouveaux riches to pay taxes in accordance with the law. China needs to plug the holes in its notoriously inefficient tax-collection system in order to sustain its economic policies.

However, the arrest could also signal a rift between China and North Korea. Reports said Beijing was angry that Pyongyang had not consulted it over its decision to name Yang as chief executive of its new SAR. Meanwhile North Korea's official Central News Agency said a group of officials is set to go to Beijing next week, and that although "the goal of the visit is to increase friendly relations between the two countries", Yang would be on the agenda. And both the North Korean Embassy in Beijing and the consulate in Shenyang have protested Yang's arrest to the Chinese authorities, South Korean media said.

This year, while the Chinese government is spending record amounts on infrastructure and fiscal stimulus, tax-revenue growth has slowed. The fiscal deficit is projected to skyrocket to an all-time high of 390 billion yuan (US$47 billion).

Jiang is pushing for a radical change in the Communist Party's constitution next month when the party convenes its Congress, which meets every five years. Jiang wants to broaden the party's base by allowing private entrepreneurs to join, but his efforts have been criticized by hardliners as a betrayal of the party, which defines itself as the "vanguard of the proletariat".

Beijing's harsh crackdown on tax dodgers just weeks before it is supposed to welcome capitalists formally into the Communist Party is seen here as an attempt to placate hardliners that the government is not giving privileges away to rich people. As many as 20 percent of party members are already reckoned to be wealthy enough to be considered "capitalists", as they run private companies or semi-privatized state factories.

An official survey found that only four of China's 50 richest individuals paid any income tax last year. In June, Premier Zhu Rongji lashed against the country's wealthy, asking: "Why is it that the richer the people are, the less tax they pay?"

Now Beijing seems to be determined to launch a war on tax dodgers. Collectors have stepped up audits of multinational companies and started investigating the 50 richest people in China. Until last week, the most prominent victim was a popular film star, Liu Xiaoqing, who was detained in June for evading taxes of up to 10 million yuan.

Now Yang, 39, known as China's Orchid King, has become the latest high-flyer to fall prey to Chinese tax auditors. Yang admitted on Thursday that he owed 10 million yuan ($1.2 million) in taxes and had discussed the issue with the authorities.

An ex-officer in the Chinese navy, Yang went to study politics at Leiden University in the Netherlands after casting himself as a student activist in the 1989 Tiananmen democracy movement. In the Netherlands, he took Dutch citizenship and later returned to China to grow vegetables and flowers, especially orchids, in greenhouses. Within less than a decade, he had built up a flower and property empire worth about $900 million.

Yang's assets include the Hong Kong-listed Euro-Asia Agricultural Holdings Co and a property project called Holland Village. The development, which is located near the city of Shenyang - right in the middle of China's depressed industrial rustbelt - is a bizarre combination of Dutch-style residential buildings, a theme park and a huge indoor tropical garden. It is complete with replicas of the International Court of Justice and the Amsterdam train station and guarded by windmills and drawbridges.

As chairman of Euro-Asia Agricultural Holdings, Yang has been dogged by controversy. Over the past few months, Euro-Asia's share price has plunged amid speculation that the company was experiencing financial difficulties and Yang was being investigated by the authorities for economic crimes.

The details of the Sinuiju proposal, announced by Yang at a news conference in Pyongyang on September 23, outlined a Hong Kong-style SAR with its own legislature, court and currency. He promised a "completely private and free capitalist society" where skilled foreign workers would replace the existing impoverished population and where the police would be foreign too. Yang said the SAR would be built on 132 square kilometers of land at Sinuiju on the Yalu River, opposite the city of Dandong in China's northeast.

Yang also boasted of his close friendship with Kim Jong-il, and said that he had taken North Korean citizenship.

Trumpeted by Pyongyang as a proof of its eagerness to reform North Korea's crumbling command economy along China's model of economic reform, the new Korean SAR's inauguration drew mixed reactions in Beijing. While the Foreign Ministry publicly welcomed the plan, trade officials questioned Yang's business reputation and his capacity to run a project of such magnitude and sensitivity. Two weeks later Yang was arrested.

Yang had been scheduled to go to South Korea and Japan this week to drum up investor support for the new SAR.

Hong Kong suspended trading in shares of Euro-Asia Agricultural Holdings Co on September 19 after it emerged that the company had failed to disclose the resignation of chief executive Chen Jun. Trading in the shares was suspended again on Friday.

(Asia Times Online/Inter Press Service)

[William McKinley]

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