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Aug 19, 2008 | 13:27 GMT

26 mins read

Organized Crime in China

Summary
STRATFOR's seventh in-depth look at organized crime focuses on China. Unlike in Italy, Russia and Japan, Chinese organized criminal groups have not broken out on the national stage, and instead are extremely localized. Hemmed in domestically, organized criminal groups in China must go abroad to grow.
Editor's Note: This piece is part of an ongoing series on organized crime worldwide. Images of a shipping container full of filthy, sick (and sometimes dead) Chinese immigrants flash across TV screens or newspapers fairly regularly. Probably the highest profile groups behind this human smuggling are a subgroup of Chinese organized criminal organizations known as "snakeheads." But domestically, organized crime in China is much more diverse. Just as in Italy, Russia and Japan, Chinese organized criminals control territory, extort businessmen, traffic drugs and prostitutes and partake in government corruption. Unlike in Italy, Russia and Japan, however, Chinese organized criminal groups have not been able to break out on the national stage. By opening up economically, Chinese criminals have capitalized on increasing domestic wealth. But the Communist Party of China (CPC), by keeping a firm grip on the political system, has prevented any single group from rivaling the central government in any way. Beijing has shown its ability to crush religious, political and militant movements, and has succeeded in preventing organized crime from becoming a nationwide force. Because of this, organized crime in China is extremely localized. Groups can control criminal activity in townships by relying on corrupt local politicians. But as soon as the groups begin to outgrow their localized area, the central government cracks down on them with arrests and harsh penalties. Hemmed in domestically, organized criminal groups in China are forced to go abroad to grow. Their influence is increasing everywhere from the United States to South Africa to the Philippines. These groups traffic drugs, smuggle human cargo and run criminal activities in Chinatowns across the globe.

The History of Chinese Organized Crime

Chinese organized crime originated in localized secret societies of rural China. The southeastern province of Fujian was — and is — one such hot spot. It is thought to have been the birthplace of the Heaven and Earth Society — a secret group of Buddhist monks who banded together in the mid-1700s to defend against an emperor who thought the group was too powerful. In Western countries, this group became known as the Triad — a name that reflects the triangular symbol of the Heaven and Earth Society but is now a generic Western label for Chinese organized crime. Today, there are many different varieties of Chinese organized crime, including ethnic and regional groups, not just the Heaven and Earth secret societies. As with other organized criminal groups, there is a degree of legend behind the stories explaining the group's founding. Chinese secret societies in fact are more likely to have formed gangs for protection, only going on the offensive once they grew stronger than the forces against which they had banded together. They accordingly became involved in theft and protection rackets, and imposed very expensive dues to join the gang. In his book "The Dragon Syndicates," Martin Booth calculates that dues may have equaled up to one month's salary, and that, in order to afford the payments, members were forced constantly to recruit new members, as dues flowed up the chain of command. This pyramid-like structure led to the gangs' growth and ultimate involvement in shady activities: Gangs were moneymaking ventures, and bosses would not have discriminated against a member who acquired his dues through dubious means. During the 1800s, these local gangs entered the opium trade and expanded into other areas of China. Due to the physical size of China, the central government had (and still has) trouble exerting its control over the entire country. Efforts by the central authorities to stamp out criminal groups tended only to scatter the gangs –- ironically, helping spread their influence well outside Fujian. By the early 20th century, the most successful criminal organizations were operating in Shanghai. In 1844, American, French, English and other colonial interests carved up Shanghai. These countries staked out districts of the city from which they operated foreign trade and investment. By the early 20th century, Shanghai was extremely wealthy, but was plagued by dysfunctional law enforcement. Each foreign-controlled sector (known as a "concession") was responsible for administering activity in its area, meaning that each concession was under the jurisdiction of a different law enforcement agency. The Chinese had been forced to grant extraterritoriality to the foreign concessions, and so had no law enforcement jurisdiction in these areas. Criminals dealing in everything from gambling to prostitution to opium knew about Shanghai's fractured law enforcement, and exploited it. If the police in the French concession were after a specific gang, the gang could quickly move to the American concession to avoid arrest. Crossing the street was equivalent to crossing an international border between two countries that did not coordinate law enforcement activities very well — if at all. One gang rose above all the others: the Green Gang. Initially led by Huang Jinrong (the police chief of the French sector of Shanghai in its glory days), Du Yue-sheng ran the operation. While Huang may have set the precedent of combining local officialdom and crime, Du took it several steps further by becoming a socializing philanthropist who was not shy of the limelight. Du and his gang provided a level of uniformity across Shanghai that local officials could not. Whereas official administrators were bound to their own jurisdictions, the Green Gang and Du operated all over the city. His universality in the city was an important strength that made governments and businesses beholden to the Green Gang. In 1923, Du allied the Green Gang with Chiang Kai-shek's Nationalist movement to put down communist forces in Shanghai. He also helped Chiang defend Shanghai against the Japanese when they invaded in 1937. But, ultimately defeated by the communists, the Green Gang scattered. Mao Zedong's takeover in 1949 sealed the fate of a great majority of organized criminals in China. Criminals fled Shanghai and China for Hong Kong and Macau, while some followed Chiang Kai-shek to Taiwan, where they re-established their criminal enterprises. None of these successors reached the level of organization, wealth or influence of the Green Gang attained during the early 20th century in Shanghai.

Economy

Organized crime in China virtually disappeared under Mao's rule. Any rival to the central state was unacceptable, and most experienced criminals had fled China and were now operating on its periphery. The opium trade dried up, gambling was outlawed and subversive groups were disbanded under the threat of death. China under Mao closed up, and having been burned by foreign involvement in the past, removed itself from foreign dependencies. By 1975, starvation and economic stagnation led to plummeting living standards. The stability that Mao had intended to impose on China from the center via various isolationist measures began to unravel and produce destabilizing forces. Poverty and starvation now trumped foreign interference as the major threat to the government. So, in 1975, Deng Xiaoping initiated a series of economic reforms that led to the opening of China. The reforms devolved economic decisions to the local level, letting states and townships take responsibility for their economic activities. The result was an economy less regulated by the central government, but still very connected to politics on the local level. Furthermore, special economic zones (SEZ), several of which opened up in Fujian — the historic birthplace of Chinese organized crime — allowed individuals to set up their own businesses. Entrepreneurs and local politicians saw the opportunity to make money and quickly drove a wedge through this crack in economic regulation and started enterprises in anything they could get their hands on. The legal code was convoluted, contradictory and — as long as politicians and party officials were making money off of the dubious enterprises — largely went unenforced. The economic liberalizations allowed enterprises to experiment with new business models, and many of the enterprises pushed the envelope of legality. Some ambitious businessmen partnered with companies from Taiwan, Macau and Hong Kong, where organized crime had a strong economic representation. For a few, the combination of murky business operations in China along with criminal partnerships in Taiwan, Macau and Hong Kong resulted in outright illegal operations. As entrepreneurs started dealing in narcotics, human smuggling and extortion, cooperation with local authorities grew more and more important. Entrepreneurs depended on local economic bureaucrats and law enforcement officials for protection, and local officials in turn depended on the entrepreneurs for money, business ties and their efficiency. As long as the new enterprises did not flaunt their illegal activities, the authorities turned a blind eye.

Illegal Drugs

China's experience with the British opium trade during the 19th century had led to a zero-tolerance policy for drugs during Mao's rule. But as openings in the economy emerged under Deng, organized criminals were attracted to the profits that narcotics brought in. Geographically, China straddles the drug-producing areas of the Golden Triangle along with Laos, Myanmar and Thailand, and it is near the Golden Crescent — the poppy-producing areas of Afghanistan and Pakistan. Overland drug routes from China's frontier in the west to the ports in the east became profitable under the guise of legitimate trade. By the 21st century, Chinese criminal enterprises had begun branching out from heroin to ephedrine. In 2005, the U.S. State Department estimated that the Chinese narcotics industry was worth $24 billion. The Golden Triangle produces up to 80 tons of heroin annually, most of which gets smuggled over the border to China through the mountainous jungles of northern Myanmar. Initially, in the 1980s and early 1990s, heroin traveled from Myanmar, through China and on to foreign markets. This flow brought financial wealth to China without the social side effects of drug abuse. It is believed the People's Liberation Army (PLA) was involved in transporting drugs during this time. But as the Chinese economy started to heat up and incomes grew, drug consumption expanded. By the late 1990s, domestic drug consumption became a destabilizing force that Beijing had to address. It reformed the PLA by increasing its budget — thus removing the need to moonlight in the drug trade — and stationing troops along the Myanmar border to slow the drug trade into China. Crackdowns did slow down the heroin trade (though the difficult terrain along China's border with Myanmar ensures that smuggling will never be stopped altogether), which in turn increased demand for methamphetamines. As heroin became more expensive and more risky to handle (possession of 100 grams, or about 3.5 ounces, can bring the death sentence), Chinese narcotic producers turned to other drugs, such as methamphetamines. Ephedrine — a legal drug found in many over-the-counter medications, including cough syrups used in the manufacture of methamphetamine — proved attractive to Chinese criminals involved in narcotics. China led the pack in reported methamphetamine seizures from 2000 to 2006, accounting for 39 percent of worldwide seizures in 2006, according to the U.N. Office on Drugs and Crime 2008 World Drug Report. Chinese businessmen with one foot in the legal pharmaceuticals industry and another foot in the illicit narcotics trade can ship ephedrine all over the world. In February, 2 tons of ephedrine from China were confiscated at Mexico City's international airport. Subsequent seizures in Guadalajara indicate that Mexico is joining China in the ephedrine trade.

Human Smuggling

Fujian continued to set the pace in the 1980s and 1990s with human smuggling. Using links to Taiwan and with the cooperation of local governments, an estimated 500,000 Fujianese were smuggled illegally from China to the rest of the world. Many of them ended up in the United States, where immigration authorities estimate that up to 100,000 illegal Chinese immigrants are smuggled into the country each year. But the Fujianese are not limited to the Chinatowns of New York and San Francisco; they have gone to Europe, South America, the Middle East and anywhere else they can find work. In one instance, 58 illegal Fujianese immigrants suffocated in the back of a truck travelling from the Netherlands to the British port of Dover in June 2000. China's snakeheads charge between $50,000 and $70,000 per person to be smuggled abroad. This exorbitant fee by Chinese standards requires the pooled resources of an entire family, if not an entire town. Snakeheads commonly smuggle individuals on credit, letting them work off the smuggling fee once they have reached their new home. This indebtedness often leads to indentured servitude for the illegal immigrant once he or she arrives at the target country. Once in the hands of the snakeheads, illegal immigrants are treated as a commodity, traded and sold for labor in underground economies from San Francisco to Belgrade. Snakeheads use physical and psychological intimidation tactics to detain immigrants. Immigrants are threatened with death after their harrowing trip across the ocean in a shipping container, a journey that can last weeks. They are reminded that because they are illegal, if they go to the authorities, they would be sent back to China. Smuggled women may be forced into criminal prostitution rings in the country they end up in; out of shame, they may not report what happened to them. Smuggled individuals also are expected to send money back home. Families or villages that contribute to the snakehead's fees expect a return on that money. If their chosen brother or neighbor goes to the authorities because of abuses by the handlers, then he or she would likely be deported home to very disappointed family members and neighbors. During the 1990s, human smuggling also helped local government officials. Townships had to meet certain employment quotas. Sending hundreds of thousands of workers off to foreign countries made it that much easier to find employment for everyone else. Plus, the money sent back by these emigrants supported the local economy, creating a win-win situation for local officials.

Legitimate Businesses, Illegitimate Tactics

Not all China's organized criminals are involved in drugs or human smuggling. Many criminal networks operate legitimate restaurants, factories and shops but use criminal tactics to get ahead. Like more traditional organized criminal groups, they will use gangs to intimidate rival businesses or garner political favors from local officials who offer an umbrella of protection for the criminal groups. More recently, as China's central law enforcement agencies have begun to take organized crime more seriously, "strike hard" campaigns have targeted organized criminal rings, breaking up groups all over the country and arresting hundreds of people at a time. Meanwhile, punishment for official corruption is harsh, with the death penalty frequently used to punish local officials involved in graft or accepting bribes. As authorities crack down on illicit drugs, physical intimidation and murder, it is likely that more and more criminals will opt for less serious criminal activities — and even go into legitimate businesses.

International Activities

Exports, not domestic consumption, traditionally have generated wealth in China. Chinese organized crime, too, has sought to export itself to raise revenue while maintaining a low profile at home. Direct international activity involving mainland-based Chinese organized crime has tended to stay close to home. Hong Kong, Taiwan and Macau have been busy locales for Chinese organized crime, and Myanmar, Thailand and Central Asia have become key drug suppliers. Staying close to home allows Chinese criminals the advantage of using the Special Administrative Regions (SARs) of Hong Kong and Macau. These two SARs lie along the coast of Guangdong province, and they officially are Chinese territory but have their own autonomous law enforcement agencies. Communication between law enforcement agencies has tended to be poor, something criminals have exploited to border-hop in order to avoid capture, in a similar fashion to the Green Gang's tactics of manipulating the different concessions in early 20th century Shanghai. Police in Hong Kong and Macau have more experience dealing with — and deeper exposure to — organized crime, and they have established partnerships with mainland police agencies to provide training in anti-organized crime policing. Organized criminal groups in Hong Kong, Macau and Taiwan are spin-offs from traditional Chinese organized criminal groups, but they operate independently from — and are more advanced than — their mainland counterparts. Offshore Chinese organized criminal groups, for example, have far more transnational contacts due to their reliance on foreign commerce. During the time span between 1949 (when Mao took over) and the mid-1980s (when organized crime began to take advantage of economic liberalization), a separation was created between mainland Chinese organized crime and offshore Chinese organized crime. The two sides are now starting to link back together. But after such a long period of time, the links are more similar to international partnerships than Chinese unity. In Chinatowns all over the world, Chinese immigrants who made their initial journey through illegal networks get caught up in illegal activities and come to depend on crime for a living. These immigrants certainly have ties to China and often act as outlets for illicit goods from their homelands; however, their gangs and activities do not necessarily operate under the direct control of groups from mainland China. There are an estimated 60 million people of Chinese descent living outside China, and their tendency to group together in neighborhoods means there are virtual cities of Chinese people outside China. These cities are prone to organized criminal activities, such as protection rackets and extortion, just as much as mainland cities. Finally, the western border with the Central Asian states of Kazakhstan, Kyrgyzstan and Tajikistan is emerging as a drug-trafficking zone. Factions in these countries have long controlled the flow of heroin from Afghanistan to Russia, but China's share of the exported heroin is growing. China's northwestern province of Xinjiang borders these three countries. As the target of infrastructural development plans to maintain China's frontier, more roads, rails and transfer stations are going into the province. But improved Chinese infrastructure helps drug traffickers as much as it does law-abiding citizens. As Xinjiang province's infrastructure improves and more links to Central Asia are developed, the routes between Xinjiang's cities of Urumqi and Kashi to coastal cities such as Guangzhou will be able to handle greater shipments of illegal drugs.

Structure

Unlike most organized criminal syndicates around the world, Chinese groups tend to remain relatively small. While organized criminal groups have been successful at infiltrating local governments and agencies, there is no evidence to suggest that any one group has spread all across China. Groups tend to limit membership to between 50 and 200 people. Some government officials say there are more than 30 million members of underground societies, with around 4,200 known groups operating in China. Thousands more groups probably operate that have not captured official attention. Many organized criminal activities may be as simple as collaborations between a few individuals who take advantage of their connections to supplement their incomes. While there is certainly cooperation between these types of groups, there is a serious limiting factor to the growth of such organizations. China's central government is very protective of its position as centralizing force in the country. Beijing does not tolerate subversive groups that spread nationwide and appear to challenge the central government for control, such as the Tiananmen Square protesters, a resurgent Uighur uprising in the mid 1990s, the Falun Gong standoff and the recent Tibetan rising. Since organized crime by its nature is a force that challenges the writ of the central government and puts economic gain above national security, it tends to get noticed by the central government — but only when it grows large enough to pose a considerable threat. As long as organized crime remains a localized force and groups stay relatively small, such groups can remain below the government's radar. Because modern organized criminal groups must limit their growth, the vertical boss-to-foot soldier structure that is more common in other criminal organizations tends to flatten out in China. Chinese gangs are more accurately compared to a network of criminals who rely on each other's skills and connections, and the leader of any given group can shift depending on personal connections or on the task at hand. One gang member may have deep connections into local politics, another may have connections to local industry, and another may be the gang leader and offer physical muscle for intimidating those who get in the group's way.

Politics, Security and Corruption

Organized crime in China largely takes place with the cooperation of local politicians. The conditions in township governing councils encourage corruption, given that officials are poorly paid, they are expected to meet quotas for economic growth and employment and they largely control the information that gets passed from the local level to the central government. This means local officials must get creative to fund local services such as police and fire departments, and must ensure that economic growth continues along at breakneck speed. All too often, politicians rely on shadow governments — the local power brokers not necessarily tied to the CPC and most likely plugged into an organized criminal network — to make ends meet. Organized crime is attractive in China because it is so efficient. Criminal groups linked to politicians can provide muscle to deter opponents and provide a measure of deniability when an opposition group gets roughed up by an organized gang. When protests over sensitive issues such as land reform and water pollution come up, local officials often send organized criminal groups — instead of the local police or military — to shut down the protests, thus allowing the state to escape from a potentially incriminating situation. There are also cases in which organized criminal groups have purchased equipment, such as cars and radios, for local police forces outright or paid their salaries. Presented in the form of a gift, these donations serve as a tool for organized criminals to purchase the cooperation of the police. Local officials go along with this because it means they have more money for economic development projects. At the highest level of political corruption is the practice known as "maiguan maiguan," or the selling of government posts to criminals or action by government officials to protect criminals. Cash-strapped townships in particular might sell the position in charge of economic development to the highest bidder — which in many cases will be a criminal who can use the post to strengthen business operations and persecute rivals. This practice is nothing new to Chinese organized crime — having been practiced in Shanghai in the early 20th century when the city's leaders were the police chief and director of the office in charge of confiscating opium. Because organized crime has such a grip on local politics in China and because local politics control law enforcement and communication to higher-ups in the Chinese bureaucracy, the central government has found it difficult to crack down on criminal groups. Whistleblowers will periodically go to a high-ranking official with evidence that a local politician is corrupt, but this a very dangerous action considering the kind of people who can be effected by being implicated. Given the risks, whistleblowers are likely to point out corrupt politicians not because of patriotic duty but because a reward, along with protection, is promised to them — frequently by someone looking to eliminate a rival.

Culture

China is a state based on an ethnic majority — the Han, who make up 92 percent of its population — but there are many other ethnic minority groups in China, many of which are involved in organized crime. China has 96 million citizens considered ethnic minorities, and many of them have suffered real or perceived injustices at the hands of the ruling Han majority. The Han constitute the elite in any province that has a strong ethnic minority presence, where they are perceived as the representatives of the central state. Minorities, on the other hand, are often less secure financially, are not afforded as many opportunities — and so are more likely to enter organized crime. This is not to say that Han Chinese are not involved in organized crime, just that the split between ethnic majority and minority in China often is a catalyst for groups forming to defend their interests in the face of a majority group. Another factor in the culture key to understanding how organized crime works in China is the principle of guanxi. Guanxi is a standard in Chinese culture that puts personal relationships and commitments above everything else — including the law. In the West, it is often viewed as corruption, but in China it is seen as pragmatic and logical. Business in China is done largely with guanxi in mind; the concept takes into account personal relationships and personal debts not necessarily in the interest of larger organizations. Organized crime in China depends largely on the principle of guanxi. Criminal organizations stay fluid, informal and hard to catch because the base of the group is not a hierarchy but a web of personal relations that define loyalty. Members of a group or network then go out and pursue their own endeavors, but they retain the ties to their group. When an opportunity to make money presents itself, the group can decide how to take advantage of it. This is not to say that guanxi is an illegal or corrupt practice, it is simply a different way of defining relationships. It is used by organized criminals for illegal purposes — as the favors that organized criminals ask based on guanxi are illegal, such as drug smuggling, paying protection money or having an official ignore specific illegal activities. When the principle of guanxi is combined with the convoluted, sometime contradictory, nature of China's legal code, the world of organized crime in China can become very fuzzy.

Geography

Although organized crime is present all across China, it is most concentrated in the southeast provinces of Sichuan, Yunnan, Guangxi, Hunan, Guangdong, Jiangxi and Fujian. There are several reasons for this distribution. China's southeast is separated physically and culturally from the capital of Beijing, it is nearer to the traditional organized crime hubs of Taiwan, Hong Kong and Macau. These provinces also lie along the drug routes that bring heroin from Southeast and Central Asia. The provinces mentioned above are not as closely controlled by Beijing as China's northern provinces. Fuzhou, the capital of Fujian province, is nearly 1,000 miles from Beijing; Kunming, the capital of Yunnan province, is 1,300 miles from Beijing. Meanwhile, the provinces of Guangdong and Guangxi, rooted in the Cantonese south, are economically imperative to Beijing, being major industrial centers. Guangdong in particular has enjoyed a special level of autonomy from Beijing. Although it does not flaunt its economic importance as much as Shanghai, Guangdong has a tendency to do things its own way. This kind of regional exceptionalism limits central oversight from Beijing and allows criminal organizations more room for influence. Fujian is also a center of Chinese industry. But Beijing keeps the province on a much shorter leash because of its ties to Taiwan (both geographically and culturally). It would be devastating for China if Fujian were to grow too close to the contested island of Taiwan. As Mao consolidated power in 1949, Chiang Kai-shek (who enjoyed the support of the Green Gang in Shanghai) fled to Taiwan along with many members of the underworld. During the second half of the 20th century, Taiwan (along with Hong Kong and Macau) became the hubs for exiled Chinese criminals. But as criminal activity crept back into mainland China, it was Taiwan-, Hong Kong- and Macau-based criminals that led the charge. Geographically, the provinces that were closest and most vulnerable were those in the southeast. Finally, the provinces mentioned above lie along the drug route that brings heroin from Central Asia, Myanmar and Thailand to the coastal population centers and the ports from which heroin is smuggled to the United States. Although drugs are sold throughout China, the major supply chains run through these provinces, making organized criminal activities there more profitable and more likely to cause violence.

Conclusion

Chinese organized crime has benefited from the economic growth that has propelled China over the past 20 years. Any movement that is unable to grow, however, will ultimately die out and be replaced with something else. That the central government has prevented Chinese organized crime from growing and expanding nationally means its effects there are limited. Further putting a damper on organized crime's potential for growth, China earns money through exports, not domestic consumption — meaning Chinese organized criminal groups have modest potential to make serious money in China. Instead, criminals will have to look abroad for new markets and wealth. We have already seen significant Chinese influence in Italian, Mexican, South African, U.S. and Japanese criminal activities, and this influence is only likely to grow. Meanwhile, at home, Chinese organized criminals will continue to exert influence over local governments to ensure that their operations are secure. As long as these relationships stay at the local level and do not spread to become nationwide syndicates, China's central government will focus on more pressing security concerns, such as domestic terrorism and the state of the economy.

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