China's growing security challenges

Businesses trying to operate in the city of Chongqing are being squeezed out by organised crime, while in Beijing, travel and supply chain problems are expected around the 60th anniversary of the founding of the People's Republic.

Stratfor.com
On August 14, news of a major crackdown on organised crime (OC) in Chongqing hit the Chinese media. Although OC crackdowns are not uncommon in China, the current scale of the crackdown in Chongqing is notable as authorities have reportedly broken up at least 14 criminal gangs in the region.

The biggest catch in the case so far is Wen Qiang, director of the Chongqing Justice Bureau and former deputy police chief, who allegedly was protecting the OC network in Chongqing. Other Chongqing police officers have been implicated, as have prominent businessmen who have ties to Wen.

According to media reports, OC has saturated businesses in Chongqing for decades, mainly in the form of protection rackets and loan-shark schemes. Due to the participation of local police in the OC network, options for legitimate businesses to operate outside the network have been slim and complaints to the authorities have been covered up, gone unheeded or resulted in police threats.

Organised crime has existed in China since long before the Guomindang or the Chinese Communist Party arrived on the scene, though under Mao, the Communist Party weakened OC and drove it underground.

Today, for the most part, OC in China is regionally contained, and when it threatens or appears to spread outside its bounds, the central government is quick to step in, especially in areas that are important to its political, social and economic goals.

Nevertheless, OC has so permeated businesses in Chongqing that, even though Wang Lijun has assured legitimate business owners they will not be prosecuted for being forced to take part in protection rackets, the government has its work cut out for it.

In the 1990s, according to Stratfor sources, when the central government was laying off employees of state-owned enterprises, Chongqing were hit particularly hard as unemployment soared, further fuelling OC in the city.

The current crackdown is being run by newly appointed police chief, Wang Lijun, who was commissioned by Chongqing’s popular Communist Party secretary, Bo Xilai. Wang Lijun is known for busting Chinese Triad gangs, and sources tell us that after his wife and son were said to have been killed by Triad members as a warning to him to back off, he became even more persistent in his anti-Triad efforts.

Busting criminal gangs in Chongqing has become a priority for the central government for several reasons; chief among them is the fact that Chongqing is the centre of the government’s drive to develop western China. Given Chongqing’s importance in the west, Beijing wants to make sure that it has tight reins on the region.

The municipality of Chongqing, like the coastal province of Guangdong to the southeast, is far from Beijing and both areas have been known for openly defying central edicts and for a prevalence of OC.

Historical roots also play a role in the prevalence of OC in Chongqing. During World War II, when the ruling Guomindang (the Chinese Nationalist Party, still known as the Kuomintang in Taiwan) moved its base to Chongqing, the region became a central depot for weapons manufacturers. That, coupled with the fact that the Guomindang was known to have close ties to the Triads, influenced the growth of OC in the region.

On August 14, a Communist Party official said that China will start a two-year investigation of the construction industry for corruption and business malpractice. In late June, the widely publicised case of a 13-story building collapsing in Shanghai generated rumours that corruption in the construction sector contributed to the structural failure.

Legal sources close to the ongoing Rio Tinto investigation have revealed that three well-known Shanghai-based lawyers will be defending an Australian national, Stern Hu, and three Chinese citizens in the transnational case involving the alleged theft of corporate secrets. On August 13, Australian Trade Minister Simon Crean said that internal pressure in China helped downgrade the charges against Hu from theft of state secrets to theft of business secrets.

And following a US Department of Justice claim that employees from six Chinese state-owned companies accepted bribes from a US supplier, Chinese oil giants PetroChina and China National Offshore Oil Corp. each looked into individual transactions of the suspects and found no evidence of wrongdoing, local media reported.

The US Department of Justice had previously announced that California-based valve manufacturer Control Components Inc. admitted paying bribes to the two Chinese oil companies between 2003 and 2007. The other four Chinese firms mentioned in the claim are Jiangsu Nuclear Power Corp., Guohua Electric Power, China Petroleum Materials and Equipment Corp. and Dongfang Electric Corp.

Extra Vigilance in Beijing

Beijing police announced on August 19 that they had begun collecting "personal details” from residents of diplomatic compounds in preparation for the People’s Republic of China’s upcoming 60th anniversary on October 1. Stratfor sources have noted an increase in the number of security personnel stationed across both Beijing and Guangzhou, and news on August 19 noted that China was increasing its security presence and "anti-terror patrols” prior to the anniversary.

Many of the measures will be similar to those put in place for the Olympics. Visa checks will become more frequent, with authorities targeting travellers — including migrants and foreigners — who do not have proper identification or documents.

Visa checks also give authorities an opportunity to monitor other activities perceived to be potential threats to Chinese social stability. As the anniversary nears we expect security activity to intensify, which will make travel and supply-chain movement more difficult, especially in Beijing.

Stratfor provides intelligence services for individuals, global corporations, and divisions of the US and foreign governments around the world.