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42 Provincial Bank Governors Flee China
By Tian Sui
10/16/2005

In mid-September 2005, Beijing set up a task force code named "05-9" to probe the foreign flight of 42 provincial bank governors.

Task Force "05-9"

On Sept. 14, the State Council and the Central Commission for Political and Legal Affairs ordered that Task Force "05-9," comprising members from the Central Disciplinary Commission, the Ministry of Supervision, the Procuratorate, the Ministry of Public Security and the Commission for Bank Supervision, and headed by Zhang Shutian, deputy Party chief of the Central Commission for Discipline Inspection, be formed to investigate the group flight of 42 branch governors of China's four major commercial banks. The appointment of Mr. Zhang, who is also the Party chief of the Central Military Commission's disciplinary body and deputy director of China's military's General Political Department, shows Beijing's resolve to crack the high ranking underground network in China's financial system.

The case, the largest and longest of this sort since the founding of the PRC in 1949, involves a wide range of sectors. Early reports show funds in bad accounts, fake accounts, graft and embezzlements at more than US$9 billion and foreign exchange totaling more than $2.23 billion.

Banks Involved in the Case

At least 42 local bank governors or deputy governors of the four major commercial banks in 13 provinces, cities and prefectures are involved in the case. The branches under Industrial and Commercial Bank of China include those in the provinces of Fujian, Guangdong, Jiangxi, Zhejiang, and the city of Shanghai; the branches under Bank of China include those in the provinces of Jiangsu, Guangdong, Shangdong, and the city of Tianjin; the branches under China Construction Bank include those in the provinces of Hunan, Hubei, Shanxi, and Henan; and the branches under Agricultural Bank of China include those in the provinces of Hunan, Hubei, Henan, Shan'xi, Shandong, and the city of Tianjin.

The Scheme

The 42 bank and deputy governors went to Hong Kong first with different business groups before Oct.1 in the name of experience-sharing with a Hong Kong financial institution, and never returned to China from their overseas vacations after the business trips were over. The destinations they had picked are Australia, New Zealand, Canada the United States, and Western Europe. Many among them were greeted by their family and relatives, who had been there waiting.

Zhu Rongji and China's Financial Industry

China's financial industry has long been notorious for its corruption. In November 1993, Zhu Rongji, China's former premier and then governor of the People's Bank of China, picked 17 people from Beijing and Shanghai and named them governors or deputy governors of the Bank of China (Hong Kong), Jiahua Bank, Guangda Bank and the four major commercial banks in China. Now, the few left trouble-free are Dai Xianglong (mayor of Tianjin), Zhou Xiaochuan (governor of the People's Bank of China), and Guang Bei (Bank of China (Hong Kong)).

Wen Jiabao and China's Financial Industry

In 2003, Wen Jiabao vowed after he became China's premier that an important task for his government was to intensify effort in restructuring the country's financial system and establish and improve a mechanism that is in line with the international financial markets. Mr. Wen went to financial institutions for inspection nine times since he became one of China's top leaders.

In early August this year, Li Jinhua, the nation's top auditor, told the State Council in a report that he could not come up with scientific and objective data on the bad assets in China's financial system even after auditing and review were done. Accounts remain confusing, suspicious outflows of funds are continuing and funds kept by Party and government agencies are rising, Mr. Li said.

A Joint Report by the Central Bank and the Commission for Bank Supervision

In August 2005, a report submitted jointly by the People's Bank of China and the Commission for Bank Supervision says that by the end of December 2004, the bad assets for the four major state commercial banks totaled $408 billion. Between May 2000 and November 2004, the People's Bank of China received seven fund injections from the state for a total of $277 billion in light of its bad assets accounting for 24.8 percent of the deposits. An outcry in public goes: "The wealth of hundreds of millions of middle and lower classes, created and accumulated in the two decades of labor since the reforms and opening up of China, has been fed to the state treasury and insatiably pocketed by the small portion of privileged bureaucrats."

73 Provincial Banks Fail to Submit Auditing Reports

The joint report also revealed that 73 provincial branches of the four major commercial banks did not submit their auditing reports for 2004 and they are respectively: 19 under Industrial and Commercial Bank, 11 under Bank of China, 16 under China Construction Bank, and 27 under Agricultural Bank of China.

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