China Security Memo: May 7, 2009

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[Teaser:] Operating in China presents many challenges to foreign businesses. The China Security Memo tracks and summarizes key incidents throughout the country over the past week. (With STRATFOR Interactive Map)

China Security Memo: July 16, 2009

<h3>OC Operations<h3>

Chinese Public Security Minister Meng Jianzhu said July 7 that China is launching a new security operation targeting organized criminal activity ahead of the 60th anniversary of the People's Republic of China this October. Meng cited the country's economic problems as a source of increased criminal activity and called for the police to "cut off ties between gangsters and economic operations and prevent them from infiltrating the political sector." The effort marks the continuation of a crackdown on organized crime that began in earnest toward the end of 2008, when officials noted that organized crime was increasing as the economy slowed.

Organized crime poses obvious security challenges for a country like China. But Meng's emphasis on the economic and political sectors indicates that China's recent crackdown is about tackling those operating outside state control, making it part of a wider net to catch both corrupt officials and criminals who threaten the economic underpinnings of China's social stability. Two recent examples of organized criminal activity described below show how such illegal networks can undermine Beijing's economic and territorial consolidation of power.

<h3>Organized Crime Arrests in the South</h3>

A trial began July 13 for 37 members of an organized criminal gang in Guangzhou. The members are being charged with illegal possession of firearms, public fighting, kidnapping, illegal detainment of a person, disturbing the public, swindling and destruction of public property. The charges stem from the group's alleged involvement in the theft and fencing of steel shipped from Hengshan, a major steel hub for the south, to Guangzhou, Zhongshan and Zhuhai cities between April 2007 and June 2008.

The gang allegedly engaged in highway robbery of trucks transporting steel and used physical violence in doing so, according to the charges. Gang members sometimes kidnapped the drivers, hijackedthe vehicles and used the drivers and vehicles as collateral to engage in extortion. The gang then turned around and sold the stolen steel to construction firms in the cities, overcharging purchasers by lying about weight. One of the leaders of the gang even went so far as to register a company, the Guangzhou City Tianhe Jiajian Trading Company[is this the false name?], under a false name to provide legitimate cover for the group's activities and then hired unemployed workers (mostly from Hengshan) through the company to be his thugs. By June 2008 the gang had established control of the steel supply of nine cities in Guangdong province, including the capital, Guangzhou.

Cargo theft is rampant throughout the world and the crimes that this gang is accused of committing are consistent with traditional organized-crime tactics. However, the product they were steeling (steel) is not a typical black-market commodity elsewhere in the world. Successful theft and fencing of a commodity requires the concealment and covert transportation of that commodity.

Shipments of steel are neither easy to conceal nor easily transported without someone finding out about it, making it a very difficult commodity to sell and fence. However, it appears that the gang was successful not only in hijacking steel shipments to corner the market but also in makingagreements with over 20 constructioncompanies to supply steel, falsifying weight to dupe the companies. It is possible that these companies aided the group in concealing and transporting the hijacked shipments.

Nevertheless, the fact that the gang was able to do this for 15 months, despite possible cover given by the steel industries with which they collaborated, demonstrates the ability of organized-crime groups in Chinato successfully penetrate and disrupt legitimate markets in the country-- not just the illegal ones.This could have a significant impact on legitimate business operations in China.

Authorities in Yining city in western Xinjiang province revealed July 13 that they had arrested 70 suspected members of two criminal gangs. The members are being charged with conspiring to riot in connection with the July 5 unrest in Urumqi. Yining city is a Chinese outpost along the border with Kazakhstan that has a long history of criminal activity.

Yining lies along two roadways that connect western China to Central Asia-– highways 218 and 312 (see map). So situated, Yining is known as a transit route for legal and illegal trade alike. Opiates and weapons from Afghanistan, Pakistan and Central Asia are smuggled into Chinathrough Yining, as are counterfeit goods smuggled from China to Central Asia. The route is also heavily used for human trafficking back and forth between China and Central Asia.

Border areas are politically fragile, especially when cross-border economic bonds are strong.[Jen, this isn’t crystal clear to me. The stronger the economic bond between two countries the more politically fragile (do you mean ‘lawless’?) the border areas? Is so, can we briefly explain why?]Unregulated and below the surface, smuggling activities involve cross-border cooperation in undermining and deceiving Chinese authorities in order to conduct business. The threat of gangs like the one whose members were recently arrested for fomenting social unrest in Xinjiang becomes more urgent when the gangs are also involved in illicit cross-border trade. Similar to China's 2001 "Strike Hard" campaign[Jen, can we link to this, are briefly describe?]that originally targeted organized crime and expanded to include separatist activity, especially in Xinjiang, the latest national anti-organized-crime operation will also be aimed at separatists.

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<li>Beijing police arrests six people on allegations of forging over 6.6 million RMB notes, the latest arrests are part of a campaign against counterfeiting that started on January 20th this year. The total number of cases during this period reached 21, resulting in the seizure of over 10 million forged RMD, 130,000 forged USD, and criminal arrests of 49 people and detention of 90 people.</li>

<li>The former director of the Land and Resources Bureau in Yiwu, Zhejiang was sued by the locals for bribing 960,000 RMB and selling land-use rights illegally for up to 2.54 million RMB, according to the Chinese media.</li>

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<li>A former county secretary in Fuyang, Anhui has been arrested for corruption and the unlawful incarceration of a local dissident early this year, local media reports. The dissident tipped off officials on the secretary's corruption, including evidence of misusing local funds from the impoverished county to construct a "white house"-like municipal building as his office.</li>

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<li>Homeowners from the area in which a 13-story building collapsed on June 27 in Minhang, Shanghai protested the scant compensatory payout offered by the developers. Around 50 protestors staged a silent <link url=" outside the government building in downtown</link>.</li>

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<li>A special forces captain from the Haozhou, Anhui police department is under investigation for taking bribes in connection to over 6000 crime cases since 1988, Xinhua reports. He allegedly released over 10,000 suspects in connection to prostitution rings and brothels in the process.</li>

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<li>A district-level National People's Congress member from Wuxi, Jiangsu has been put under police surveillance after allegedly deploying a scheme that took in 250 million RMB promising loaners a 10% monthly interest, the Chinese press reports.</li>

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<li>Beijing media reports the ongoing development of an academic dishonesty case at the SouthwestJiaotongUniversity in Chengdu, Sichuan. The vice president of the school was accused two years ago of plagiarism in one of his essays on management. The university is currently awaiting a third-party review of the case.</li>

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<li>An R&D director from a wind-power technology firm stole 600 RMB worth of a core technology from the company in May 2008, according to police in Zhongshan, Guangdong. The technology was previously bid at 30 million USD by a foreign firm. <li>According to an executive, the technology made up 30% of the total assets of the firm, one of the top three wind-power suppliers in China, and that its theft may even compromise the security of state secrets.</li>v

<li>The Beijing Second Intermediate People's Court sentences former General Manager Chen Donghai from Sinopec Corp. to a 2-year deferred death sentence on charges of corruption. Chen was found to have taken in bribes of 196 million in the period 1999 to 2007.</li>

<li>An explosion at a chemical factory in Luoyang, Henan killed 5 and injured over 100 in the early morning. Shock from the explosion shattered glass windowpanes as far out as 300 meters. Police are investigating the cause of the explosion.

Rio Tinto evacuated its staff in the research departments of the iron ore and steel divisions after four of its employees were detained last week on <link url=" of bribery and stealing state secrets</link>.</li>

<li>Around 200 African protestors surrounded a police station in Guangzhou after a Nigerian was allegedly killed after jumping out a window when local police came to investigate illegal currency trading and visa violations. Official Chinese news reports claim the man is not dead but in the hospital, despite the protesters claims.</li>

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