China Security Memo: Jan. 28, 2010

13 MINS READJan 28, 2010 | 19:29 GMT

Smuggling Refined Oil

Hangzhou customs officials announced Jan. 21 that they had detained two ships bound for an oil terminal off the coast of Zhejiang province. One of the ships contained 500 tons of refined oil smuggled from Taiwan and was alongside the other ship, transferring the oil, when the two vessels were detained. Eighteen crew members were arrested at the scene, and the investigation revealed that the group was responsible for smuggling 8,600 tons of refined oil worth 45 million yuan (about $6.5 million) and evading 13 million yuan (almost $2 million) in taxes over the past five months. Smuggling subsidized refined-oil products, mainly diesel and other fuel oils, is not a new phenomenon between Hong Kong, Taiwan and China. Most of the reports of smuggling come from Guangdong, Fujian and Zhejiang, coastal provinces near Hong Kong and Taiwan. Oil products from Hong Kong enter the mainland through Guangdong, while products from Taiwan enter through Fujian and Zhejiang. The most common ports are Shenzhen, Zhuhai and Shantou in Guangdong; Fuzhou and Xiamen in Fujian; and Ningbo in Zhejiang. Typically, from 25 to 100 tons are smuggled in at a time, which the Chinese call “ant moving” — smuggling small amounts on numerous occasions. But the bust by Hangzhou custom officials (Hangzhou is the capital of Zhejiang province) was huge. Smuggling 500 tons of refined oil in one load was a risky endeavor, and it suggests that — despite increasing government scrutiny — Chinese petroleum smugglers are bolder now than ever. Several years ago, according to Fujian customs, most of the smuggled oil was “red” and “blue” oil — dyed to distinguish it as being subsidized or tax free for certain industries. In Hong Kong, diesel for ordinary vehicles is taxed at approximately 3,000 Hong Kong dollars per ton (almost $400), but the fuel oil for fishing vessels is tax free. Apparently, red oil can only be used for fishing and maritime purposes, although some sources say it is also used in factories. The unit price of one ton of red oil is said to be about 800 yuan (approximately $117) cheaper than the international diesel price. Taiwan dyes its diesel for the fishing industry blue, which is subsidized (in Hong Kong red oil is tax free). The unit price of blue oil is 1,500 to 2,000 yuan ($220 to $293), cheaper per ton than diesel for ordinary vehicles, according to some estimates. Taiwan smugglers buy the remaining oil subsidy permits from the fisherman and sell the oil to China at a profit. Chinese customs have tightened regulations on refined oil imports, which has reportedly cut down on the smuggling. But the recent Hangzhou customs bust involving 500 tons shows that the practice is still very much alive. It is not clear if this oil was dyed; smugglers have found ways to bleach the product, and there are certain “black-fuel stations” that fence the oil, complete with their own trucking and factory outlets. Many local fishermen and villagers seem to be at least complicit in the scheme, if not actively involved. In 2009, Shenzhen customs raided four such stations that were processing red oil and seized the bleaching equipment. As prices for domestic refined oil have increased, so has refined-oil smuggling, especially in the waters of the Pearl River estuary and delta in Guangdong province. From January to May 2009, Guangzhou customs handled 44 oil-smuggling cases. From January to June, Shenzhen customs had 39 cases. And in July alone, authorities in Zhuhai dealt with 37 cases in four days, seizing more than 1,000 tons of refined oil and breaking up two oil-smuggling rings. The ant-moving technique is slower but surer, and the Hangzhou incident may have been an anomaly. If it wasn’t, and there proves to be a sustained increase in the size of illegal refined-oil shipments, then something has happened to incentivize the risk. It is likely a combination of things: the economic crisis, rising domestic prices and subsidies — all of which have contributed to a smuggling network that continues to grow and thrive, even as authorities heighten their vigilance. (click here to view interactive map)

Jan. 21

  • The Ministry of Public Security announced it had summoned the vice chairmen of the Chinese Football Association, Nan Yong and Yang Yimin, for questioning on Jan. 15. They were detained Jan. 26 for suspected involvement in match-fixing and gambling. Rumors abound that players were named to the Chinese national teams for bribes rather than performance.
  • The former manager of the Shanghai Shenhua Football Club is assisting police in their match-fixing investigation. He was brought in for questioning after his contract with Shenhua ended in December. This investigation may be connected with the recent arrest of two Chinese Football Association officials.
  • Police in Lanzhou, Gansu province seized 5.4 billion yuan-worth (about $800,000) of fake invoices. The suspect was sentenced to two years in prison with two years probation.
  • Shenzhen police arrested four suspects in a blackmail case in Guangdong province, Chinese media reported. On Jan. 12, four men posing as police officers abducted a factory accountant. That night, the suspects called the accountant's brother-in-law asking for 500,000 yuan (about $73,000) in "bail" money. The next day, the family sent 100,000 yuan (about $15,000) to the criminals' bank account, but the four were arrested that afternoon.
  • The former president of the China Construction Bank's Taizhou branch in Zhejiang province was sentenced to 15 years in prison for accepting bribes. Jiang Daqiang accepted 4.53 million yuan (about $660,000) in bribes between 1997 and 2008.
  • Customs officers in Guangzhou, Guangdong province announced they solved a car part smuggling case. A retailer called Guangyuan Car Accessories City is suspected of illegal importing car parts and accessories worth 1.47 billion yuan (about $215 million) which evaded 290 million yuan (about $42 million) in taxes. In April 2009, 150 officers across China's coastal provinces arrested 17 people suspected of involvement in the case.
  • Five officials were removed from their posts in relation to a landslide that killed 277 people in Linfen, Shanxi province. An unlicensed iron ore dump, which was approved by local officials, was found to be the cause of the landslide that destroyed a village and outdoor market.
  • Baidu, the biggest Internet search engine in China, sued U.S. web firm for gross negligence after its site was hacked.
  • A former student leader of the 1989 Tiananmen protests was sentenced to nine years in jail for financial fraud. Hong Kong authorities handed over Zhou Yongjun to mainland police in Shenzhen in September 2008. When Zhou traveled to Hong Kong from Macau while holding residence in the United States, he was found to have fake Malaysian passport. He was arrested over a suspicious transfer of 6 million Hong Kong dollars (about $770,000) by a man named Wang Xingxiang, the name listed on Zhou's fake passport. Using fake passports is common for Chinese dissidents, because Beijing refuses to renew their passports. Hong Kong authorities found no evidence of connection with the financial activities, but Zhou was still prosecuted in his home city of Suining, Sichuan province.
  • The head of the Mian County Supervisory Bureau in Hanzhong, Shaanxi province leapt to his death on Jan. 18, Chinese media reported. Police concluded the man committed suicide by jumping out of a 5th floor window in a hospital.
  • Shenzhen police shot a drug dealer while attempting to arrest him in Guangdong province. The man attacked the police with a knife. After the shooting, the police discovered 150 grams of methamphetamine and 30,000 yuan (about $4,400) in the man's possession.

Jan. 22

  • The vice chairmen of the Chinese Football Association, Nan Yong and Yang Yimin, and the women's football department director, Zhang Jianqing, are under investigation for a sponsorship deal with the British telecommunications company Iphox. The company reportedly paid only a fraction of the 6 million euro (about $8.4 million) sponsorship deal to the CFA, and the money that was paid to the association is believed to have gone missing.
  • The boss of a coal mine was kidnapped by six men armed with knives in Chongqing. On Jan. 24, 70 police were dispatched and were able to free the hostage. An investigation revealed the boss had borrowed 200,000 yuan (about $30,000), and the lender sent the armed men to force him to repay the debts.
  • A court in Windhoek, Namibia unblocked the assets of three suspects who were arrested for corruption in relation to a Chinese company, Nuctech. Chinese President Hu Jintao's son ran the company until 2008. One Chinese representative and two Namibian nationals were arrested in the probe.
  • A man who kidnapped four people and demanded a 400,000 yuan (about $60,000) ransom was sentenced to life in jail in Shanghai. The man and his girlfriend, who was sentenced to eleven years in jail, were caught in a car crash while fleeing the scene
  • A year-long investigation into the fire at the new CCTV building in Beijing ruled out corruption as a possible cause, but 20 people will be charged for crimes related to the fire. The fire was started when a fireworks display hired by the company malfunctioned. The company did not have permits for the fireworks. Many of the builders, designers and city supervisors are being charged.
  • The former president of the Wuhan Guobin Hotel was sentenced to life in prison for fraud in Wuhan, Hubei province, Chinese media reported. He was convicted of defrauding $3.53 million, embezzling 1.66 million yuan (about $250,000) and evading 7.26 million yuan (about $1 million) in taxes. He used fake import contracts to defraud banks of the money and was arrested in August 2007.
  • Police in Xuancheng, Anhui paid 10,000 yuan (about $1,500) in compensation for two family members who were wrongly detained last week in Nanchang, Jiangxi province. The arrest order had come from Xuancheng, and the family was seeking 50,000 yuan (about $7,300) in compensation.
  • A member of the Standing Committee of the Bengbu People's Congress in Anhui province committed suicide by jumping from his office building on Jan. 20, Chinese media reported.
  • A police chief in Chongqing was detained Jan. 20 after a suspect was found dead at a police station. The suspect had been arrested the night before as part of a gambling investigation. Two other officers are also being investigated for the death.

Jan. 24

  • Chinese media reported that the national government plans to shut down 5,000 country offices set up in Beijing to lobby the government. The government confirmed the plan on Jan. 26.
  • State media announced that Wen Qiang, the top judicial official for Chongqing, will go on trial next month in the latest major anti-gang case.

Jan. 25

  • More than 400 residents protested a proposed sludge incineration plant in Foshan, Guangdong province. The residents organized the protest using the Internet and telephones. The proposal has not yet been approved and is undergoing an environmental impact assessment.
  • The former vice president of Beijing Entertainment Newspaper, Zhao Wenyan, was sentenced to 12 years in prison on corruption charges. Zhao ordered subordinates to produce 1.5 million yuan-worth (about $220,000) of fake invoices.

Jan. 26

  • A man in the Daxing district of Beijing was arrested after he kidnapped a woman and set fire to a building where he formerly worked. He had come back to Wingchase, a joint Sino-British company that makes bags and cases, to receive back pay after being fired. After the company and the suspect could not come to an agreement, he took the woman hostage with a meter-long sword and then set the building on fire with gasoline he brought with him. Police were able to distract the man and save the hostage, but the building caught fire.
  • The vice chairman of the Henan Provincial Consultative Conference went on trial for corruption in Weifang, Shandong province. He was charged with accepting nine bribes worth a total of nine million yuan (about $1.3 million).
  • Zaozhuang police arrested three suspects for robbery in Shandong province, Chinese media reported. On Jan. 12, two suspects robbed 560,000 yuan-worth (about $82,000) of gold necklaces from a mall. On Jan. 19, three suspects were arrested in a hotel in Qingdao.
  • A man in Shanghai jumped off a bridge while being questioned by police. His car collided with another in an accident that injured three passengers. The driver jumped from the bridge after being asked for his license.
  • A man was arrested after a stabbing rampage in Jingzhou, Hubei province. He first stabbed his mother in a hospital ward, then attacked people on the street. Seven people were injured.
  • The leader of a slave-labor gang was sentenced to life in prison along with three enslaved factory workers for beating a mentally disabled worker to death in Wuhan, Hubei province. They tied the victim down and used wooden sticks and electric shocks to torture the victim.
  • The Ministry of Public Security in Beijing announced that it had cracked 3,688 counterfeit currency cases seizing 1.17 billion yuan ($171 million) over a 10-month period in 2009. They arrested nearly 6,000 suspects, three times more the same period in 2008.
  • The Ministry of Public Security announced that it would prepare special security measures for the Spring Festival (Chinese New Year) which begins on Feb. 14.
  • Four Uighurs were sentenced to death in Urumqi, Xinjiang for their involvement in the July 5 riot. This brings the total number of death sentences to 26 in relation to the riot.
  • China passed a new animal abuse law that would punish eating cats or dogs with a 5,000 yuan (about $730) fine and up to 15 days in jail. Restaurants serving cat or dog meat would be fined up to 500,000 yuan (about $7,300).

Jan. 27

  • A businessman was on trial in Dongguan, Guangdong for not paying his suppliers for 13 million yuan-worth (about $2 million) of raw materials, Chinese media reported. The individual managed Dongguan Tai Hao Company, which had trouble paying suppliers beginning in late 2007. In October 2008, the man fled after selling most of the company's inventory and not paying back suppliers.
  • Two men were arrested in Guangzhou, Guangdong for smuggling cell phones. The men were reported to have 160 cell phones hidden on their bodies.
  • China's General Administration of Customs announced that it had broken 506 drug smuggling cases in 2009, up 34 percent from 2008. It caught 553 suspects who smuggled 2,119.2 kilograms of drugs, a 150 percent increase.

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