DECEMBER 22, 2000 VOL. 26 NO. 50 | SEARCH ASIAWEEK

Smuggler No. 1
Was Lai also a pawn in a power play?
By SANGWON SUH

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To the Chinese government, Lai Changxing is a criminal of the worst sort. He parlayed his connections with senior cadres and army generals into a smuggling empire and evaded $6 billion in taxes. To Canadian authorities, he is a headache. They would like to deport him for immigration offenses, but his lawyers are pressing them for political asylum. But to residents of his native Xiamen, Lai is a hero. "Sure, the nation may have lost tax money," says a taxi driver in the coastal city, "but we see him as the local boy made good. His Yuan Hua group is our very best company, capable of competing with companies anywhere else."

Whatever else he may be, Yuan Hua's founder is a key figure in China's biggest-ever corruption scandal — one that may reach into the highest echelons of power in Beijing. According to Chinese authorities, Lai, 42, used his high-level contacts to build and operate a vast smuggling ring based in Xiamen, Fujian province, opposite Taiwan. His influence was supposedly such that a Taiwan intelligence officer even tried to recruit him as a spy. Before mainland authorities closed in on him, Lai escaped to Canada, where he is now fighting extradition.

More intriguing is the prospect that Lai may also be a pawn in a political showdown between President Jiang Zemin and powerful factions in the People's Liberation Army. "Lai was just a small potato," says a businessman familiar with the case. "He was an instrument used by many senior people as they fought for turf." Among Lai's most influential patrons has been retired PLA strongman Gen. Liu Huaqing, who has been at odds with Jiang in recent years. The crackdown against Lai may be a bid by the president to curb the clout of Liu and his allies while boosting his own position within the military.

In Xiamen itself, all that remains of local dreams to become a modern metropolis to rival Beijing or Shanghai is a rain-filled pit in a deserted construction site. Located in the new industrial district of Jiangtou, the 60-meter-wide hole was supposed to house the foundations of a Lai mega-project, the 88-story Yuanhua Center. It now lies abandoned in a weed-choked field littered with earth-moving equipment. Nearby stands the partially built Yuanhua International Hotel. Police raided the sites earlier this year and chased away the construction crews. "Had the central government delayed its crackdown on Lai, Xiamen would be more prosperous," sighs a local businessman.

The man at the vortex of this drama was born to peasants in a small village just north of Xiamen. Lai's family was too poor to educate him beyond elementary school. That did not halt his rise. Starting as a clerk in a Xiamen trading company, Lai showed a knack for business and building contacts with police and military officials. He set up Yuan Hua in the 1980s. In the early 1990s, he expanded its operations to Hong Kong. Tapping his PLA links and Hong Kong's position as a regional business hub, Lai built a multibillion-dollar empire in just a few years.

His smuggling operation then began in earnest. He started illegally to import everything from cars and gasoline to electronics and cigarettes on behalf of his highly placed friends. He reportedly wined, dined and bribed local police and customs officers into turning a blind eye. Lai built a luxurious six-story entertainment compound — nicknamed Little Red Mansion — where official visitors would be treated to karaoke and sex with hostesses. Sometimes, the guests were secretly filmed and reportedly blackmailed into cooperating with him.

Lai's days became numbered in 1998 when Beijing launched a nationwide anti-smuggling drive. The following year, 84 of his associates and employees were convicted and 11 were sentenced to death. Tipped off by contacts of his own imminent arrest, Lai fled to Canada with his family in August 1999. He was on the run until Nov. 23 this year, when he and his wife were arrested by Canadian authorities on illegal-immigration charges. Lai's lawyers are pressing for political asylum by arguing that deportation to China would be tantamount to sending him to his death.

Back in Xiamen, Lai's popularity is grounded in more than birth ties. "Local people feel he was very generous with his money," says a Beijing economist who closely monitors Fujian affairs. "He often gave to good causes and local benefits. The cheap oil he smuggled into China not only gave Xiamen an affordable cost of living, but allowed the city to sustain rapid growth with low inflation." His construction projects also benefited the local economy. The two buildings in Jiangtou may never be completed, but Xiamen already has the Yuanhua International Cinema City. A $60-million theme park with a miniature version of Beijing's Forbidden City, it is a top tourist attraction.

Xiamen residents acknowledge that Lai broke the law, but point out that he was just one of many businessmen working with PLA-linked smuggling rings. Jiang's crackdown, they believe, is less about smuggling than about keeping potentially unruly generals in line. "Many PLA officers still make fun of Jiang because he never served in the army and lacks battle experience," says a military specialist. "They refuse to pay him allegiance."

A particular thorn in Jiang's side is a faction headed by Liu Huaqing. Jiang's former No. 2 in the powerful Central Military Commission, Liu owes his position to the late patriarch Deng Xiaoping, who, like Liu, is from Sichuan province. In the early 1990s, Deng made Liu China's top soldier and instructed him to ensure a smooth succession for Jiang. "Liu did so, but then he and Jiang fell out over when he should retire," says a Hong Kong businessman with close Beijing ties. "Jiang wanted him out sooner, to shore up his own control of the army."

Though Liu finally retired in 1997, he still commands allegiance from many PLA units, including in Fujian. The general is also an ally of the National People's Congress chief — and sometime Jiang opponent — Li Peng, another Sichuanese. "The crackdown in Fujian is a struggle between [Jiang's] Shanghai clique that currently rules China and the Deng loyalists who make up the Sichuan clique," says a Beijing businessman with interests in Xiamen. "Lai used them, but they also used him."

And he was hardly unique. Many top mainland Chinese tycoons, notes the businessman, have made their fortunes through shady dealings involving officials. "[Lai] wasn't evil, at least not by mainland standards," he says. "He was just someone whose luck ran out." Lai is clearly hoping it will return during his fight against extradition. In the meantime, Xiamen will have to find new means to finance its dreams.

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