CAPITALISM'S ACHILLES HEEL Dirty Money and How to

146 CAPITALISM’S ACHILLES HEEL
burdens in the SOEs. Thus the state gets ripped off, and state-owned banks
either continue making loans to losing SOEs or write off loans defaulted on
by bankrupt SOEs. In recent years, “a large chunk of state assets simply disappeared
in the process of transferring the SOE-attached collectives into private
or completely autonomous collective enterprises.” 193 This “large
amount” (estimated by one researcher at $3.7 trillion!) has been moved from
state to private hands at zero or minimal prices. 194 Weak SOEs are left owing
around $600 billion to $700 billion in loans they cannot service. These nonperforming
loans could be as much as 30 percent, or in the estimates of
some experts as much as 50 percent, of all bank lending, meaning that many
depository institutions would be technically bankrupt. In other words, party
officials and enterprise officers have become very rich, and the people are left
holding the bag.
The disturbing story in China is the very wide range of government officials
and enterprise managers who are corrupt and use the mechanisms for
creating and moving dirty money for personal enrichment. China is often
praised for its controlled transition to market economics. The truth may be
just the opposite: As corruption becomes institutionalized, the long, drawnout
transition process risks spiraling beyond control. A few examples drawn
from China’s encyclopedia of fraud make the point.
Bank of China. We might as well start at the top. Wang Xuebing is a former
president of the Bank of China (BOC), likewise former president of the
China Construction Bank, also former chairman of China International
Capital Corporation, an investment banking venture with Morgan Stanley
Dean Witter, and an alternate member of the 15th Central Committee of
the Communist Party of China. Fluent in English and accustomed to the
finer things of life, he cut a wide swath through earlier assignments in New
York, Hong Kong, and Beijing. That is, until he was removed in 2002 from
all his positions and exposed for embezzlement and corruption.
Wang ran BOC’s New York branch from 1988 to 1993. An eight-year
scheme in the 1990s generated suspect loans reportedly totaling $326 million.
195 Following a two-year investigation the U.S. Treasury’s Office of the
Comptroller of the Currency fined Bank of China $10 million for unsound
banking practices. 196 In one of these schemes John Chou and his wife Sherry
Liu, living large in a mansion in New Jersey, borrowed a total of $34 million,
which they shifted around the world, reportedly to Hong Kong, the