It’s hardly surprising, but the rank hypocrisy of the elite officials who run the Chinese Communist Party has been exposed in all its filthy rich glory in the Panama Papers.

The names of the senior Communist Party’s officials, and their families, that have emerged are hardly a surprise either: front and centre is Deng Jiagui, the brother of China’s supreme leader Xi Jinping, whose family has reported on Bloomberg to be worth US$2 billion.

The most interesting two names are Liu Yunshan and Zhang Gaoli, two members of the ruling Politburo Standing Committee (PBSC). Their relatives have been identified.

Here is where it gets interesting: a number of well-informed China watchers say that Liu — who was always seen as the member of the PBSC least aligned with Xi — is engaged in a power struggle with a party chief.

Peter Lee, who runs the China Matters bog, wrote in the Asia Times last week:

“Xi is now actively engaged in uprooting Liu Yunshan’s influence. Indeed, after the National Party Congress, it appears a good deal of personnel reshuffling is going on, and it is a good bet it will strengthen Xi Jinping’s hand and weaken Liu Yunshan’s.

“And, in parallel with Xi’s game book for economics and politics, any considerations of liberalization of media will be preceded by actions to ensure that it will serve as a Xi Jinping asset, and not a threat.”

Like all of the party’s tea-leaf-reading exercises, it can be taken as a strong maybe and this is a glass-half-full version.

Still, whatever the truth, rather than embarrassing Xi — and his battle against corruption in the party — many argue that this gives him further ammunition against his opponents. Others named are families of the “red nobility” — former leaders such as Li Peng, Zeng Qinghong and Xi’s jailed rival and former Politburo member Bo Xilai. (You can read more about the Chinese elites and their fortunes here and here.)

But the problem is so much more widespread. Mossack Fonseca, the Panamanian law firm from which a staggering 11.4 million documents were leaked, has scaled up its operations in China over the past 20 years and now has eight offices there — more than any other country on Earth. Siphoning money out of China via offshore shenanigans has become a Communist Party parlour game.

It is Hong Kong that is at the epicentre of the Panama Papers China piece. The city has the most registrations for both “total” and “active” offshore companies. HSBC bank is listed twice in the top 10 banks using the services of Mossfon, as the shadowy law firm is affectionately known.

According to the documents, Hong Kong was home to 2212 intermediaries including law firms, accountancy firms, consultancies and banks that help their clients hide their wealth, compared with 1924 in Britain, 1223 in Switzerland and 617 in the US

Hong Kong has as many as 37,700 offshore companies registered in Panama through Mossfon — the most in the world — compared with 34,300 in Switzerland and 32,700 in the UK.

It confirms what anyone in the Hong Kong markets will tell you privately, that the place is the world’s biggest money laundry as party officials and other Chinese millionaires/billionaires siphon their money offshore. While the use of tax havens is not necessarily illegal, sifting large sums of money out of China is.

And it’s here that irony bumps up against reality. Under Xi, the party is tightening its grip on the former British colony and Asia’s biggest financial centre outside Tokyo — probably already bigger. Most long-time expat residents of Hong Kong are, at the very least, vaguely uncomfortable, some more so. Plans to ease themselves out are being laid.

Yet as much as Beijing might squeeze, it will stop short at killing the golden goose. Even if Xi did want to, it would be a step too far for the powerful interests inside in the party.

So it’s no surprise that censorship in China on the Panama Papers has been blanket and was stepped up this week after the publication of several lengthy stories on the Chinese Party connections revealed in the documents. The Chinese internet has been scrubbed of all mention of the revelations by Chinese censors.

“Please self-inspect and delete all content related to the ‘Panama Papers’ leak,” the propaganda department told media outlets, according to the China Digital Times, which published edits from the group nicknamed Minitrue, after the Ministry of Truth in George Orwell’s 1984.

Xi believes he can’t execute meaningful economic reform without first pulling his critics and enemies into line. Yet the party’s commerce-based factions (it’s all about money, not ideology) — for example the energy, power or Shanghai factions, which all overlap — have amassed so much wealth and therefore power that they may be impossible to bring to heel completely. The lack of reform of state-owned enterprises and the key industry sectors they dominate is evidence of this.

Yet such conditions, by definition, make the ground in China less fertile for economic reform; competition to drive more efficient industries requires a more, not less, open environment for information.

Still, it seems that finally after several rounds of trying, the strenuous efforts of government stimulus and debt-shuffling are beginning to work, at least a bit in the sagging economy. The currency has stopped falling and commodities prices have stopped falling, at least for now.

Yet basic mathematics tells you that continuing to pump money into an economy — so business can pay off, rather than take the pain of real restructuring — and junking excess capacity and “old economy” industrialisation means all China is doing is kicking the can down the road.

Just because they are rich does not mean the Chinese elites are stupid; they are taking capital of the country for a reason. Foreign investors are also increasingly questioning their investments in what is still only a middle-income developing nation where 200 million people still live in poverty according to international standards.

This is the real warning that the the Panama China revelations hold.

Peter Fray

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