The fallout from a report on the secret offshore holdings of China's business, military and political elites continues.

In case you missed it, here's a brief summary of the report, compiled from leaked financial documents by the International Consortium of Investigative Journalists (ICIJ):

  • Relatives of at least five current or former members of China's Politburo Standing Committee, the country's most powerful decision making body, have incorporated companies in the Cook Islands or British Virgin Islands (BVI).
  • The files include details of a BVI company, Excellence Effort Property Development, 50% owned by Deng Jiagui, the brother-in-law of President Xi Jinping.
  • The Hong Kong office of Credit Suisse registered a BVI company for Wen Yunsong, son of former premier Wen Jiabao, while his father was still in office. Other western banks and consulting firms, including PricewaterhouseCoopers and UBS, also helped elites set up companies in tax havens.
  • Others notable persons include heads of state-owned enterprises, more than a dozen of the country's wealthiest men and women, and members of the National People's Congress,
  • It is estimated between US$1 trillion and US$4 trillion in untraced assets have left the China since 2000.

While the use of tax havens is not necessarily illegal, the revelations add to the increasing scrutiny of the accumulation of vast wealth by China's powerful and well connected elite.

At the time of writing, the websites of many news outlets that had published details of the report were blocked or partially blocked in China. These include the website of the ICIJ itself, El País, a Uruguayan newspaper, France's Le Monde, CBC of Canada, and The Guardian, which ran with the story on the front page of its UK edition Wednesday.

The Chinese internet has been scrubbed clean of news of the report. The Weibo blog account of the ICIJ has been deleted. A keyword search for 'ICIJ' and 'China offshore' on Baidu, China's (censored) Google equivalent, turns up only one relevant search result: a discussion on Zhihu, a web forum known as a relatively free space for the exchange of online opinion. Zhihu is one of the services many Chinese are turning to as they abandon Weibo, which has been subject to a fierce crackdown on freedom of speech since the inauguration of President Xi.

Ironically, another Baidu search for 'British Virgin Islands tax avoidance' returns hundreds of results for pages that promise to explain the process of moving funds offshore.

The revelations come at an awkward time for the Chinese leadership. President Xi has led an anti-corruption drive in the government since coming to power. He has promised to target 'tigers' as well as 'flies' in the fight. Along the way his government has imprisoned civil activists who call for the full disclosure of officials' assets. One prominent activist, Xu Zhiyong, went on trial the day the ICIJ report was published.

With the heads of many powerful state owned enterprises, titans of private industry — and the president's own brother-in-law — now revealed to be hiding massive wealth abroad, Xi's anti graft drive faces a make-or-break challenge to its credibility.

The ICIJ findings are a scandal, for sure. But they're hardly a surprise. Reports on the secret wealth of the Chinese elite have been surfacing for several years now, thanks to extensive investigations by the New York Times, Bloomberg and others. The ICIJ report merely gives us an idea of the scope of the wealth being amassed.

There's one other reason why the ICIJ findings aren't necessarily a surprise. Official state media news agency Xinhua (hardly a bastion of investigative reporting) reported on Chinese companies' exploiting the BVI as a tax haven back in November 2005. The Chinese language article is here. The author cites official statistics that 'of the more than 80,000 companies registered in the BVI, around 20,000 have relations with Chinese enterprises.' The report says Chinese enterprises are heading to the BVI for tax avoidance in droves.

The author goes on to interview Robert Matta, CEO of the BVI Financial Services Commission. Matta is asked, 'How can Chinese enterprises take advantage of offshore centres to avoid taxes?'

It appears a lot of people read his answer.

Photo by Flickr user Martin Wippel.