Hội tụ:  -Xin quý độc giả lưu ý:  Những bài phân tích về “tình báo kinh tế” được web HT phổ biến trên mạng lưới này nằm trong điều luật bản quyền (copyrighted articles), do đó –có tính giới hạn. Chúng tôi (web HT) phải trả tiền để được đọc những bản phân tích (giới hạn) này, và muốn chia xẻ với quý độc giả muốn nghiên cứu, tìm hiểu được đọc; tuy nhiên, việc “tái xử dụng” tài liệu để phổ biến hoặc trích dẫn thì tác giả phải ghi xuất xứ từ gốc: “Stratford Incorp.”  Xin cám ơn.

(lưu ý: những “references màu đỏ” là phần do web HT bổ túc thêm, không phải từ nguyên bản.) 

 

A Mysterious Plane Crash 

CHINA SECURITY MEMO: DEC. 3, 2009

An MD-11 cargo plane operated by Avient Limited crashed during takeoff at Shanghai Pudong International Airport on Nov. 28, killing three of the crew including two pilots, who were American. The plane was headed for Kyrgyzstan and then on to Zimbabwe according to immediate reports on the accident. The details of the crash and the cargo of the plane is still unclear, but rumors about the nature of the cargo circulated shortly after the crash, suggesting that it may have been transporting weapons.

According to STRATFOR sources on the ground investigating the crash, the airplane tail dragged during takeoff, which may indicate the cause of the crash; there is no external evidence of the plane being attacked despite some rumors that it was shot down. A number of factors may have caused the tail to drag: the cargo was too heavy, the cargo shifted during takeoff, or the pilot may have been insufficiently familiar with the MD-11 (Avient bought this plane in November and in the past usually used DC-10s for cargo flights). STRATFOR sources reported another interesting detail of the crash: The pilots, taking off from a 12,000-foot runway, had ample distance to abort the takeoff but did not. 

The Chinese and Avient quickly said that the plane was carrying electronics in response to the speculation that the plane was carrying weapons. STRATFOR sources reported that the Chinese have been very open in the investigation and the cargo was still accessible during the initial investigation and appeared to be electronics, but not heavy enough to have caused the airplane tail to drag. If there was any illegal cargo, the Chinese were very quick to cover it up before the outside sources were invited. The Chinese even invited the U.S. National Transportation Safety Board (NTSB) to investigate the crash, which is not unprecedented given that it was a U.S.-manufactured plane operated by a non-Chinese company.

The speculation on illegal or "gray" (1) cargo emanates from Avient's reputation for engaging in such activities, coupled with China's interest in Africa and frequent implications of close ties with rogue regimes. (In the spring of 2008, an arms shipment was stopped at South African ports en route to Zimbabwe and forced to find another delivery route.) Avient has headquarters in London, but the Air Operating Certificates for their airline is in Zimbabwe. Due to Zimbabwe's lax regulations, it is cheaper for an airline to operate where there is little oversight in maintenance or safety requirements. Furthermore, Avient has been the target of previous investigations of military supplies to both the Congolese army and the Zimbabwe Defense Force. The plane's stop in Kyrgyzstan -- a popular transit hub for weapons -- has fueled the rumors about the plane's cargo. (No information on its flight path has been released, but if the cargo was destined for Zimbabwe, as media reports suggested, Kyrgyzstan is not a logical refueling stop.)

Despite these rumors, cargo planes do crash and NTSB investigations outside the United States when invited by a foreign government are not uncommon, even in China. It is quite possible that Avient actually was carrying electronics cargo. In May 2008, Avient signed a cargo transport agreement with China Southern Airlines, so the transport of the cargo in question and the stop in Kyrgyzstan may have been in line with that agreement. There is little information on this agreement or on the current relationship between the two parties, but such an agreement suggests that Avient was conducting legitimate business in China.

Regardless, an NTSB investigation is not expected to provide clarity on the cargo, only the factors of the accident. Whether the airplane was overloaded or there were other factors remains to be seen. Nevertheless, the NTSB will defer to the Civil Aviation Authority of China to make any conclusions released to the public regarding the accident, since it occurred on Chinese soil.

( photos no displayed)

Nov. 19

A boss in Chengdu, Sichuan was executed for killing an employee. The boss had taken out a 150,000 yuan ($22,000) insurance policy for the employee payable to the boss. The boss was heavily in debt.
A man from Dandong, Liaoning province was sentenced to 10 years in prison for stealing explosives. He worked with explosives and stole approximately 55 pounds of explosives, 237 detonators, and 54 meters of Primacord between 1999 and 2006.
The former political commissar of the Public Security Bureau of Zhongxian county in Chongqing was sentenced to 10 and a half years for accepting a bribe worth 120,000 yuan ($18,000). He altered the charge against an illegal gambling operations owner from a criminal to an administrative case in return for the bribe.
A teacher in Dafu, Hunan province was sentenced to 12 years in jail for raping two students and molesting 16 others.
78 people posing as monks attacked police in Jinghong, Yunnan province. Police received a report that dozens of monks were sleeping under a bridge, and went to the bridge to disperse them.
The People's Bank of China (PBOC) and the Ministry of Public Security announced a 10-month crackdown on credit card fraud to begin January 2010, Chinese media reported. In the first eight months of this year, Chinese authorities filed 6,362 bank card fraud cases, double the number in 2008. The fraud amounted to 440 million yuan ($64 million) according to the PBOC.

Nov. 20

Huang Shannian, a Chinese billionaire, was apprehended by the Central Commission for Discipline Inspection on Sept. 21, Chinese media reported. The report said he is accused of illegal construction in Zhoushan, Zhejiang province. He is invested in Zhoushan Golden Gulf Shipping Company, which was constructing docks without National Development and Reform Commission approval.
Police killed two kidnappers in Baoshan, Yunnan province. Three kidnappers had returned to the house of the woman they kidnapped after asking for 60,000 yuan ($9,000). The police were able to arrest the driver but shot the other two after they threatened to stab their victim.
A former prison warden and six other prison employees were arrested after four inmates escaped in Inner Mongolia (2) . They are accused of dereliction of duty. The escaping inmates had fatally stabbed another prison official.


Nov. 21

Between 100 and 200 shopkeepers in Kunming, Yunnan province blocked a road in protest of the relocation of the Luo Shi Wan Wholesale Market. More than 1,000 spectators gathered and 25 were arrested after bricks were reportedly thrown at the police.
The deputy editor of the Hebei Youth Newspaper was attacked and seriously injured in her apartment in building in Shijiazhuang, Hebei province. The woman suspected that one of her media reports offended someone.

Nov. 22

Shenzhen customs confiscated approximately 100 tons of diesel fuel being smuggled from Hong Kong to Huizhou, Guangdong province. The customs officers noticed a wooden fishing boat without fishing equipment after an anonymous tip.

Nov. 23

An official from the Wuhan State-Owned Asset Department was arrested in Hebei province on Nov. 16, Chinese media reported. He is suspected of abusing his authority and working with others to dispose of state-owned assets, which resulted in 2 million yuan ($293,000) in losses.
Four South Koreans were fined 126,000 yuan ($18,000) after being held responsible for negligence in the death of a 24-year-old woman found near their apartment in Guangzhou, Guangdong province. The woman was a model and died by falling from the apartment on the 30th floor after consuming a large amount of alcohol. There was no evidence of foul play, but the Koreans were found negligent. 
More than 1,000 citizens protested the Guangzhou Municipal Government in Guangdong province over the building of a garbage incinerator in the Panyu district. They were concerned about dioxin from the plant.
Border guards on the Mongolia border in Ganqimaodu, Inner Mongolia seized a coal car containing 8 Russian shotguns and 18 pounds of smuggled gold.

Nov. 24

Two offenders in the Sanlu milk powder case were executed in Shijiazhuang, Hebei province. In 2007 and 2008 they produced 770 tons of melamine that ended up in the milk powder. (3)

Nov. 25

A teacher in a Nanchang, Jiangxi school for helping youngsters overcome internet addiction was accused of providing "king powder", which is usually some mix of ketamine and ecstasy in powder form, to students.
China has increased stops to catch drunk drivers in a public campaign over the last three months. An average of six people have been detained each day in Shenzhen, Guangdong province. Those arrested have had their licenses suspended for three months.
A woman was in court in Chongqing for killing her husband by encouraging him to drink himself to death. At the urging of her and two friends, he drank a half gallon of rice wine.
The former political adviser of Quzhou, Zhejiang province was on trial for bribery. He accepted 1.79 million yuan and $2,000 Australian dollars in bribes (a total of $265,000), and lost 24.6 million yuan ($3.6 million) of national assets.
A man in Gaoming, Guangdong province was fined 1 million yuan for posting false property information online.
Two suspects were arrested for digging a 32-meter tunnel to rob a jewelry store in Jiangyang, Fujian province, Chinese media reported. They dug the tunnel for more than a month, and the robbery took place in September.
Police in Xi'an, Shaanxi province offered a 10,000 yuan ($1,500) reward to help find a woman who kidnapped a newborn baby from a hospital maternity room while disguised as a nurse.

Nov. 26

A man who attacked pedestrians in Harbin, Heilongjiang Province was shot to death by police. He had wounded 11 and killed one person when police responded with tear gas.
The former chairman of a real estate company was on trial for gathering 30 men to destroy a woman's shop as well as beat her and her husband. He is also accused of blackmailing the victim. The accused is on his second appeal.
A poultry supplier was beaten by security guards in a Huizhou, Guangdong province supermarket for flirting with a supermarket employee. The owner had ordered the security guards to confront the supplier, and they destroyed his orders and schedule. Police intervened and the supermarket paid the supplier 5,000 yuan ($750) and he agreed to stop doing business with the store.

Nov. 27

An employee of Zhejiang On-Line News was found dead with her throat cut in Jiaxing, Zhejiang province.
A minister of tax administration in Wuhan, Hubei province was accused of bribery on Nov. 13, Chinese media reported. He had accepted bribes of 1 million yuan ($150,000) to provide a fake tax investigation report and possessed property of unknown origin worth 10 million yuan ($1.5 million).
A woman in Chengdu, Sichuan province burned herself in protest of her eviction. The government ordered demolition of a three-story factory, which she had built with her husband in the 1990s.
50 police officers were sent to disrupt a fight between 100 men with knives and clubs in Haikou, Hainan province. Many fled by taxi and 32 people were arrested.

Nov. 28

A Taiwan maritime patrol seized a Fujian based fishing vessel suspected of smuggling drugs. Three sailors and eight illegal passengers were arrested, but no drugs were found.
A former judge facing bribery charges committed suicide in his cell in Chongqing. He had accepted more than a $500,000 dollars in bribes between 1998 and 2008. His arrest was part of the anti-corruption crackdown in Chongqing.
Police arrested a man suspected of killing six of his family members in Sanya, Hainan province.

Nov. 30

The Great World Shopping Mall in Harbin, Heilongjiang province was set on fire.
11 suspects were arrested in Suihua, Heilongjiang province for killing an official from the Urban Administration Bureau. The 32-year-old official was stabbed in front of his office after an argument with another motorist.
Three relatives of a man who died from lung cancer in the Fujian Provincial Tumor Hospital in Fuzhou were arrested for blocking the hospital's hallways. They were upset with the hospital's treatment of their relative and would not move until they were paid 500,000 yuan ($73,000).
10 journalists and nearly 50 officials are facing prosecution in a state council probe that found bribery was used to cover up a mine disaster in Hebei province. Bosses of the Lijiawa mine covered up an explosion in July 2008 by relocating bodies, destroying evidence and bribing journalists with 2.6 million yuan ($380,000).
An American wanted for ecoterrorism in the United States was sentenced to three years in jail for making illegal drugs in Dali, Yunnan province. He is wanted in California and Washington for a series of arsons related to radical environmental groups. Chinese authorities found 15 kilograms of marijuana buried under his courtyard.
Two people from Choshui village, Yunnan province were arrested for killing and eating a tiger.

Dec. 1

Over 30 people protested the demolition of their houses in Guiyang, Guizhou province and 24 were arrested, Chinese media reported. Their protest was in response to men from the Guizhou Boyu Real Estate Development Company breaking into their houses with steel pipes and kidnapping 13 occupants on Nov. 27. Two excavators then demolished 26 houses.
A man from Jiangxi knifed himself in Beijing at the former CCTV headquarters after they would not broadcast a program about his personal memorabilia. He was admitted to the hospital.
Violence at a barreled water shop in Guangzhou, Guangdong ended with eight people wounded. A few men with knives vandalized the shop and later a man in a white van shot at onlookers with a shotgun, causing the injuries.
The majority owner of Shenzhen Airlines, Li Zeyuan, was detained for economic crimes. The airline is China's largest privately owned carrier. His alleged crimes are unclear, but speculation is that it involved with the privatization of the airline in 2005
26 suspected gangsters from the deadliest crime ring in Chongqing went on trial for three people, illegal gambling, loansharking, (4) and money laundering. (5) Chen Zhiyi, the mob boss, was also accused of raping an underage girl to bring him good luck in poker. A former vice governor of the municipality is on trial as one of their clients. Three other gangs are on trial as well.

Dec. 2

The former chief of Xinzheng Municipal Forestry Bureau in Henan Province was sentenced to 19 years in prison for bribery and embezzlement, according to Chinese media. He collected a total of 2 million yuan ($293,000) in illegal bribes and state funds.
The Yibin police in Sichuan province rounded up a large drug producing and trafficking ring, Chinese media reported. 64 medicine factories in 21 provinces were involved in an operation that seized 10 tons of methamphetamine, valued at 2.17 billion yuan ($318 million). Police broke up five trafficking gangs and charged 45 suspects. They also seized drugs, weapons and property worth 87.8 million yuan ($13 million).
15 people involved in smuggling people out of China were sentenced to six to 12 years in prison in Weihai, Shandong province, Chinese media reported. In early 2009, they had organized the transport of 51 illegal immigrants from northeast China abroad, charging up to 50,000 yuan ($7,300).


Copyright 2009 Stratfor. 

 Reference: 

1

The Thriving 'Gray' Arms Market 

More than 100 tons of commercial-grade explosives being transported aboard the Honduran-flagged merchant ship MV Eugenia fell overboard in bad weather off the coast of Mumbai, India, on Dec. 22, 2005, the shipmaster claimed. With wind speeds never topping 10.4 mph that day, however, the ship unlikely encountered waves large enough to knock six large containers off its deck — raising the possibility that the explosives were offloaded at sea for sale on the “gray” arms market.  

From that location in the Arabian Sea, the explosives could easily end up in the hands of militants in South Asia, the Middle East, the Horn of Africa — or all of the above. There is a lot of money to be made from selling 100 tons of high explosives, and the introduction of such a large amount on the illegal arms market puts a great many people at risk of militant attack.  

The term “gray” arms market refers to arms or explosives that are procured legitimately and then diverted illegally to others — often militants — through back channels. The black arms market, on the other hand, refers to arms and explosives that are stolen and then sold in illegal markets, usually to non-state actors. 

Gray-market arms-trafficking occurs throughout the world. In West Africa, arms procured by Libya are diverted through Burkina Faso and end up in the hands of militants in Liberia and Sierra Leone. Panama is used a transshipment point for arms going from smugglers to Colombian militant groups the Revolutionary Armed Forces of Colombia and the National Liberation Army. In the course of combating militant groups in the northern and eastern parts of India, the government in New Delhi reportedly has seized nearly 39,000 weapons of all types that originated outside the country. 

The MV Eugenia was headed to the Iranian port of Bandar Abbas, where its cargo was to be offloaded and sent overland to Jaranz, Afghanistan. From there, the explosives were to be used by the Indian government’s Border Roads Organization for road construction. The ship, which has a history of transporting arms, has run into problems in the past — such as poor maintenance and hiring crews that are not qualified to transport arms and explosives under international maritime rules — the Indian media outlet Sahara Time reported. On Dec. 22, the MV Eugenia’s crew totaled six — two Russians and four Myanmarese. That number likely was too small to handle such a dangerous cargo under the rules of the International Maritime Dangerous Goods Code, which governs the shipment of dangerous materials by sea.  

The diversion of weapons and explosives — which occurs frequently in the developing world — often is underreported, or goes unreported completely. This contributes to the wide proliferation and easy availability of arms and explosives in the developing world. Even though arrests often are made and some arms conduits are disrupted, poor enforcement of international shipping regulations and the ready availability of weapons and explosives will ensure that the gray arms market continues to thrive. 

2.

China Security Memo: Oct. 22, 2009

State Council Order No. 564

The Chinese press reported Oct. 20 that Premier Wen Jiabao had signed the No. 564 State Council Order on “Security Services Regulations,” which will go into effect Jan. 1, 2010. The new regulations make it clear that the Public Security Department of the State Council is responsible for the supervision and management of all security services in the country. They also make the security industry more of an open market, prohibiting state organs and their staff from establishing or participating in the operation of private security companies.

But with this openness comes increased scrutiny from the state and a higher threshold for entering that market. Before the new regulation, private security companies were owned or managed solely by the Public Security Bureau, but they were greatly outnumbered by black-market operations. Legitimate private security companies were registered as “consulting” firms, if they were registered at all.

Now, the new regulations require anyone wishing to pursue a security career to pass a formal qualification examination. Furthermore, the public security organizations of each municipal government must review the applicants and keep fingerprints and other personal information on file, which is common in many countries. Also, new security companies must now pay no less than 1 million yuan (more than $150,000) of registered capital, e.g., start-up cash, in order to apply for a business license. This should weed out smaller, more fly-by-night organizations.

The new regulations focus particularly on the entertainment industry, where security personnel are often said to be engaged in protection rackets and in running prostitutes and drugs. Entertainment venues will now have to hire officially sanctioned security guards or face punishment (though loopholes and bribes will likely shelter these venues to some extent). According to a STRATFOR source in Beijing, there are some areas in the city where gangs coerce bar owners to allow gang members to provide the security. If the owners do not comply, gang members smash the bars up. When owners do comply, the new security personnel do very little, especially since most of the new clientele are fellow gang members. Occasionally, the gang will hire someone to come in and create trouble so the security personnel can show they are doing their job.

These new regulations were also prompted by incidents in which security guards used excessive force. In August, six guards in Chengdu, Sichuan province, were sentenced to three to five years in prison for beating a 13-year-old boy to death in January for trying to steal a manhole cover. Also, in January, three guards from a Chongqing entertainment venue beat a man to death in a parking dispute. More recently, security guards outside a Wal-Mart in Jingdezhen, Jiangxi province, beat a woman to death for shoplifting — her receipt was later found in her pocket.

The new No. 564 State Council Order is part of a move by Beijing to clamp down on the abuse of power and to centralize authority. The central government has also given the People’s Armed Police primary responsibility for handling public security incidents, and it has made cleaning up organized crime a priority, evidenced by the massive gang arrests and ongoing trials in Chongqing. The new regulations concerning the security industry extend this effort into venues previously overlooked by the state.

Prison Break in Inner Mongolia

On Oct. 17, four prisoners escaped from a maximum security prison in Hohhot, Inner Mongolia. (Maximum security prisons in China take in prisoners who are sentenced to 15 years or more or the death penalty). Two days later three of the men were captured and one was killed in a massive manhunt involving 6,000 armed police who set up more than 150 checkpoints and searched 12 cities.

According to Chinese media reports, the prisoners — two of whom were serving life sentences for robbery and two of whom had been sentenced to death for robbery and manslaughter — scheduled their escape for a Saturday, when there would be a change of guard. The escape involved a decent degree of organization and planning (though there is no information indicating a network either inside or outside the prison), in addition to a little luck.

The inmates were able to capture one prison guard, killing him with what the Chinese press called “knives to cut paper” (probably box cutters) and stealing his uniform and I.D. badge, which they used to get through the first of four prison gates. Initial reports said the inmates cut off the guard’s finger, which they used to get through a biometric fingerprint scanner at the second gate. But the Chinese press later denied this detail, reporting Oct. 22 that the facility does not have such a scanner.

When the prisoners approached the third gate, which reportedly was equipped with a biometric iris scanner, they sneaked through while another guard was passing through the gate, bypassing the security scanner. By the time they reached the last gate, a security guard approached them and they reportedly “hacked” him with some sort of knife, possibly the same knife used to kill the first guard. As they were making their getaway, they took a female visitor prisoner and hijacked a taxi.

Prison breaks are uncommon in China, and the manhunt in this case was run by Zhou Yongkang, the top law-and-order officer in the central government’s Politburo, indicating that the matter was of the highest importance to Beijing. As Beijing clamps down on security operations throughout the country, this prison break will likely result in new rules and regulations to enhance prison security. Investigations into the matter have already begun in earnest, and Hohhot Justice Bureau officers are already claiming that lax security and prison mismanagement are to blame for the incident.

Oct. 15

• The Beijing Public Security Bureau broke up a gang Sept. 22 that allegedly facilitated illegal immigration for Chinese citizens seeking travel visas, arresting five suspects. The gang reportedly charged its clients tens of thousands of yuan in exchange for forged documents, accommodation arrangements, and interview preparation with embassies and consulates.

Oct. 16

• The former deputy chief of the Shenzhen branch of the Land and Resource Bureau in Guangdong province, Luo Yanguang, was suspended from his position for involvement in a 10 million yuan (more than $1.5 million) dispute, Chinese media reported. Luo deposited 10 million yuan into the bank account of a female acquaintance. After Luo’s relationship with the woman went bad, she reported the infraction.
• The Shenyang Intermediate People’s Court sentenced Jiang Runli, the deputy secretary general of Fushun city, Liaoning province, for taking bribes and abusing her powers. Jiang had received money and luxury items totaling 4.7 million yuan (more than $700,000) between 2001 and 2006, when she headed the city’s planning and land resources bureau. In return, Jiang helped property developers win bids or avoid punishment.

Oct. 19

• A judge in Jinhua, Zhejiang province, was sentenced to 9.5 years for corruption, according to local Chinese media reports. The investigation revealed that he embezzled more than 181,000 yuan ($26,500) of public funds and took 30,000 yuan ($4,400) in bribes.
• A young man wearing a dark-color cap broke into Zunyi Intermediate People’s Court in Guizhou province at 4 p.m. on Oct. 14 and stabbed four people with a dagger, killing a judicial policeman and wounding two security guards and a female staff member, Chinese media reported. The suspect escaped; a suspect was detained Oct. 19.

Oct. 20

• The Beijing Procuratorate (a body with powers similar to that of a public prosecutor, but that is the word China uses in English) filed suit against the president of a real estate company accused of cheating 22 people out of more than 140 million yuan (more than $21 million), Chinese media reported. He allegedly forged documents and promised to purchase houses for the victims over the course of a year. The Beijing Second Intermediate Court has accepted the case.
• The third session of the Sino-U.S. counternarcotics intelligence exchange conference was held in Beijing, Chinese media reported. Chinese and U.S. anti-drug agencies reached a consensus to deepen the exchange of intelligence and jointly investigate the Golden Triangle and Golden Crescent areas. The deputy administrator of the U.S. Drug Enforcement Administration led a delegation to the summit; Yang Fengrui, who is the deputy secretary-general of the National Drug Control Commission and the chief of PSB Drug Control Bureau, also attended.
• Police in Guangzhou, Guangdong province, said they broke up a network that produced and distributed 2.3 million fake invoices with a face value of about 100 billion yuan (more than $15 billion). A police statement said a family in Linhai, Zhejiang province, had set up the network. One of the gang’s leaders was once a tax official in the Linhai city government, according to a Guangzhou newspaper.

Oct. 21

• The former vice director of a police station in Dongguan, Guangdong province, was sentence to a “limited term” of imprisonment for hiring four men to murder a man who was reportedly the director’s “rival in love.”
• Huang Guangyu, the founder of Gome Electronics, was charged with insider trading and will likely be sentenced to a maximum of 10 years. A Chinese legal journal reported that Huang may only get five years in prison if he can convince the court he committed the crime on behalf of his company rather than as an individual.
• A Chongqing court handed down a death sentence against Yang Tianqing, 35, and five other defendants for murder, assault, extortion and other charges linked to organized crime. Three of those sentenced were given two-year reprieves, meaning their sentences were likely to be commuted to life in prison after two years, dependent on their behavior in prison, according to a court statement.

3.

China: The Economic Roots of the Milk Scandal 

Summary

The tainted milk scandal in China reveals how corruption is intensifying in the country’s supply chain, reflecting socio-economic stresses that will increase as a result of the global economic downturn.

Analysis

While China’s tainted milk scandal has not entirely run its course, a general picture is taking shape in the international media, showing that government accountability has become a major concern for the Chinese public. But the milk scandal is really just one reflection of deeper stresses and strains that China is feeling as the global economic slowdown takes effect.

The scandal began with an old dairyman’s trick: Chinese dairy farmers diluted their milk with water to produce more product at a lower cost. But this time, there was a twist. By measuring protein levels in samples, regulators nowadays can easily detect such a crude method of increasing output. So suppliers began injecting melamine, a relatively cheap industrial chemical used in plastics, into the milk to boost protein levels and cover their tracks.

China’s dairy farmers shipped their diluted, melamine-tainted milk to 22 major food-processing manufacturers, such as the Sanlu Group, which was responsible for producing the baby formula that caused the first sicknesses. These big food producers likely knew they were buying thinned milk, but they had no incentive to expose the suppliers, since forcing them to sell only undiluted milk would reduce supply and cause milk prices to go up, increasing producers’ input costs. The major food manufacturers may have given silent approval to their suppliers’ toxic practices; they allegedly connived with local government to prevent unfortunate revelations that could have interfered with the Beijing Olympics.

After the Olympics, a deluge of reports of dairy-sickened babies broke, and soon the Ministry of Health admitted to 50,000 cases of illness and two deaths (later revised upward to four deaths, with an unofficial estimate of 90,000 cases). Public anger rose to a high pitch over the government’s ineptitude in providing safety for its citizens. State-run media, attempting to vent collective frustrations, launched indirect criticisms even at the nation’s leader, President Hu Jintao.

But amid the outcry about the quality of Chinese goods, the important thing to remember is that the milk scandal has economic roots. The Chinese dairy producers and manufacturers, however blameworthy, were probably not acting purely out of malice or greed. Putting a toxic chemical into milk and baby food, with full knowledge that getting caught will lead to harsh punishment or even execution, seems more like an act of desperation than anything else.

Chinese companies were already running on thin profit margins, and were pinched harder when the global economy began to change in 2008. High inflation in the first half of the year took a hefty toll on most of China’s major and minor manufacturers and exporters. From 2006 to 2007, dairy exports grew 157 percent, totaling $242 million — but in 2008 dairy farmers found themselves crammed between growing input costs (livestock, feed, facilities) and government-mandated price caps. Mengniu, a milk firm, has seen its share price drop 12 percent since October 2007 due to higher costs of raw milk (due in part to rising costs of grain to feed the cows) and price controls directed at the dairy sector (tightened on Jan. 16 to counteract inflation). Farms and their workers accordingly resorted to subtler cost-cutting methods to save themselves from diminishing profit margins.

The scandal has struck China’s economy where it was already hurting due to global financial turmoil and economic slowdown: the export sector. As the scandal unfolded, Hong Kong, Singapore, New Zealand, Canada, the European Union and others canceled imports of Chinese dairy products, and then China temporarily banned its own exports. The global reputation of Chinese-made goods has been blemished yet again by another quality control scandal.

All of this has compounded China’s numerous other socio-economic problems. The central government has cracked down after the milk scandal, arresting 27 government and corporate culprits. But STRATFOR sources in China indicate that corruption is intensifying across the country’s supply chain, criminals are becoming craftier and more successful, security forces are coming up short in manpower and expertise to meet the volume of cases — and as a result, judicial punishments have reached a higher threshold, with the most serious sentences being issued more frequently.

Deep economic pressures in China are forcing their way out into the open and emerging in the form of social problems that generate instability. This phenomenon is taking place all over China. Beijing has no choice but to focus on internal issues for the near future in a bid to keep things steady as the world slips into recession, dragging China’s export sector with it.

4.

A Contract Killing in Guangdong

Dehua county police in Quanzhou, Fujian province arrested two suspected hired gunmen after they killed two people and wounded three others in a contract hit. According to Chinese media, the boss of a waste gypsum recycling business in Chaozhou, Guangdong province hired the two gunmen in April and paid them 50,000 yuan (more than $7,000) to kill a business a competitor. The gunmen followed the victim, who was driving in his truck, and when they passed the truck in their van they forced the truck to a stop and fired six rounds from a shotgun, killing their target and another person in the vicinity and wounding three other bystanders. After confirming their target was dead, the gunmen drove off and tossed the shotgun into a pond.

Hiring thugs and low-level company employees from an offended company to intimidate and harm competitors is not uncommon in China, where the legal system is unable to efficiently address company disputes, claiming they are “internal civil matters.” This leaves the aggrieved parties to take matters into their own hands. Hired mobs are known to use pipes and other crude tools to smash property and beat people, actions that can accidentally result in death when the situation escalates. It is unusual, however, for an aggrieved party to put a price on someone’s head, and contract killings involving firearms — shotguns, no less — are extremely rare.

A renowned Triad in early August, a leader was murdered outside of his five-star hotel in Hong Kong, hacked to death with a machete by rival gang members (contract killings are more common in Hong Kong than on the mainland). Traditionally, when criminals kill other criminals or victims of opportunity in China they usually use knives or machetes. Such weapons are easier to acquire than guns and tend to cause a particularly brutal death. Criminal gangs like to exploit the fear factor, and hacking an enemy to death with a machete is a good way to do that.

But hiring gunmen is a different matter. In the Chaozhou case, it is not clear if the gunmen were professional and part of a larger organized crime network. It may have been an isolated incident, but given the spread of firearms in China and an economic environment that has led to a rise in crime, hiring gunmen for contract killings may be on the rise as well. This would be especially likely in the Chaozhou area, which is one of the most violent parts of China and also has been hit particularly hard by the economic crisis.

Chongqing Crackdown Continues

The crackdown on gangs in Chongqing continues and is said to be expanding. Recent arrests include two senior police officers, Chen Honggang, traffic chief of Chongqing’s public security bureau, as well as Peng Changjiang, the bureau’s vice director. The local government has 200 security teams, up from 14 at the beginning of the crackdown, with 7,000 police officers engaged in the crackdown. This is almost a quarter of the city’s total police force. According to media reports, more than 1,500 people have been arrested so far, including 67 organized crime leaders and 50 government officials and police officers.

The hunt for Chongqing gangsters has even gone beyond the municipality’s borders, with the capture of one person linked to organized crime in Chongqing who had fled back home to Inner Mongolia when the crackdown began in the city. Organized crime groups are known to prey on poor migrants and the unemployed, so it is likely that other migrants who were involved in Chongqing’s organized-crime networks tried to escape the heat by fleeing back to their hometowns.

The Chongqing government on Sept. 15 banned all department heads from leaving the municipality during the National Day holiday Oct. 1 so that they “could respond quickly to any incident.” However, this move was probably intended to keep officials suspected of links to organized crime from leaving the city during the holiday. Should criminals who escaped the dragnet maintain their organized-crime affiliations — in Chongqing or elsewhere — it is possible that the disabled Chongqing network could regroup by expanding outside the city or by replicating itself elsewhere in China.

Still, such an expansion would not be easy given the entire country’s ongoing crackdown on organized crime. Moreover, the crackdown in Chongqing has as much to do with power politics as it does with the concentration of organized crime groups in the city There are rumors that the party secretary of Chongqing, Bo Xilai, initiated the massive crackdown to heighten his image at a time when he could be sidelined from contending for leadership among the “Fifth Generation,” which is set to take power after 2012. The party secretary of Guangdong, Wang Yang, a popular contender for a leadership role, is Bo’s predecessor in Chongqing, and rumor has it that Bo is trying to discredit Wang by highlighting the growth of organized crime under Wang’s watch.

Regardless of the politics, the crackdown on organized crime in Chongqing has been extensive and is ongoing, and there is a strong likelihood that those involved in the Chongqing networks are looking for another place to call home.

5.

Cracking Down in Chongqing

On Aug. 14, news of a major crackdown on organized crime (OC) in Chongqing hit the Chinese media. Although OC crackdowns are not uncommon in China, the scale of the crackdown in Chongqing is notable. The biggest catch in the case so far is Wen Qiang, director of the Chongqing Justice Bureau and former deputy police chief, who allegedly was protecting the OC network in Chongqing. Other Chongqing police officers have been implicated, as have prominent businessmen who have ties to Wen. Authorities reportedly have broken up at least 14 criminal gangs in the region.

According to media reports, OC has saturated businesses in Chongqing for decades, mainly in the form of protection rackets and loan-shark schemes. Due to the participation of local police in the OC network, options for legitimate businesses to operate outside the network have been slim and complaints to the authorities have been covered up, gone unheeded or resulted in police threats.

The crackdown is being run by newly appointed police chief, Wang Lijun, who was commissioned by Chongqing’s popular Communist Party secretary, Bo Xilai. Wang Lijun is known for busting Chinese Triad gangs, and sources tell us that after his wife and son were said to have been killed by Triad members as a warning to him to back off, he became even more persistent in his anti-Triad efforts.

Busting criminal gangs in Chongqing has become a priority for the central government for several reasons, chief among them the fact that Chongqing is the center of the government’s drive to develop western China. And given Chongqing’s importance in the west, Beijing wants to make sure that it has tight reins on the region. The municipality of Chongqing, like the coastal province of Guangdong to the southeast, is far from Beijing and both areas have been known for openly defying central edicts and for a prevalence of OC.

Historical roots also play a role in the prevalence of OC in Chongqing. During World War II, when the ruling Guomindang (the Chinese Nationalist Party, still known as the Kuomintang in Taiwan) moved its base to Chongqing, the region became a central depot for weapons manufacturers. That, coupled with the fact that the Guomindang was known to have close ties to the Triads, influenced the growth of OC in the region. In the 1990s, according to STRATFOR sources, when the central government was laying off employees of state-owned enterprises, Chongqing was hit particularly hard and unemployment soared, which further fueled OC in the city.

Organized crime has existed in China since long before the Guomindang or the Chinese Communist Party arrived on the scene, though under Mao, the Communist Party weakened OC and drove it underground. Today, for the most part, OC in China is regionally contained, and when it threatens or appears to spread outside its bounds, the central government is quick to step in, especially in areas that are important to its political, social and economic goals. Nevertheless, OC has so permeated businesses in Chongqing that, even though Wang Lijun has assured legitimate business owners they will not be prosecuted for being forced to take part in protection rackets, the government has its work cut out for it.

Extra Vigilance in Beijing

Beijing police announced Aug. 19 that they had begun collecting “personal details” from residents of diplomatic compounds in preparation for the People’s Republic of China’s upcoming 60th anniversary on Oct. 1. STRATFOR sources have noted an increase in the number of security personnel stationed across both Beijing and Guangzhou, and news on Aug. 19 noted that China was increasing its security presence and “anti-terror patrols” prior to the anniversary.

Many of the measures will be similar to those put in place for the Olympics. Visa checks will become more frequent, with authorities targeting travelers — including migrants and foreigners — who do not have proper identification or documents. Visa checks also give authorities an opportunity to monitor other activities perceived to be potential threats to Chinese social stability. As the anniversary nears we expect security activity to intensify, which will make travel and supply-chain movement more difficult, especially in Beijing.

Aug. 13

• More than 300 homeowners protested outside the Shenzhen government headquarters over safety concerns in a low-income housing project. Local authorities reportedly had tried to coerce the residents to sign an unfair compensation agreement by harassing their employers at work and their children at school. Shenzhen officials are investigating the case.
• Local media reported that the Shenzhen Intermediate Court handed out an 11-year sentence and a four-month sentence Aug. 12 to two people who smuggled 80 million yuan ($11.7 million) worth of agricultural chemicals from nearby cities in Guangdong and Yunnan provinces. Between 2003 and 2008, the two smugglers imported 83 tons of pesticide, 684 tons of peat and 32 tons of other chemicals through a trading company agent, evading customs duties amounting to 12.2 million yuan ($1.7 million).
• Jiang Zhanchen, former president of the Hong Kong Yimeng International Group, went on trial for allegedly executing a pyramid scheme. Through a subscription-based book he published in 2006, Jiang is said to have enticed more than 90 people to invest in bronze products and to have cheated them out of a total of 9 million yuan ($1.3 million).

Aug. 14

• A Communist Party official said that China will start a two-year investigation of the construction industry for corruption and business malpractice. In late June, the widely publicized case of a 13-story building collapsing in Shanghai generated rumors that corruption in the construction sector contributed to the structural failure.
• Local media reported that Tianjin police recently arrested three suspects in connection with an underground drug-processing factory. Police also seized 247 kilograms of precursor chemicals and 16 processing machines in the crackdown.
• The Yangzhou Intermediate Court sentenced Wang Yong, former director of the Yangzhou Highway Financial Department, to life imprisonment and seizure of all personal property. Wang was found to have borrowed 200 million yuan ($29.2 million) in highway construction funds to friends.

Aug. 15

• Protesting a private steel mill’s bid to take over Henan province’s state-owned Linzhou Iron and Steel, about 400 Linzhou workers gathered outside the factory for a second time since their first protest Aug. 12. This time, the workers trapped a provincial official inside a room until the local government finally agreed to cancel the deal. The two sides are now negotiating how to handle the situation, which is reminiscent of last month’s protest by Tonghua Steel workers in Jilin province.

Aug. 16

• Legal sources close to the ongoing Rio Tinto investigation revealed that three well-known Shanghai-based lawyers will be defending an Australian national, Stern Hu, and three Chinese citizens in the transnational case involving the alleged theft of corporate secrets. On Aug. 13, Australian Trade Minister Simon Crean said that internal pressure in China helped downgrade the charges against Hu from theft of state secrets to theft of business secrets.
• A 34-year-old unemployed man injured a security guard with a kitchen knife at a Nanjing police station. Police said the man tried to attack two officers and a guard upon entering the station, but police overwhelmed him. The man reportedly needed money to pay his rent after his mother refused to give him money.

Aug. 17

• Hundreds of villagers from Fengxiang county, Shaanxi province, stormed a smelting plant to protest the alleged lead poisoning of more than 600 children in the county. One of the children affected was a second grader who reportedly had a toxicity level of 400 milligrams of lead per liter of blood. A later update put the number of poisoned children at 851 out of 1,016 who were tested from three villages in the county.
• The Fifth Chongqing Intermediate Court tried a drug trafficking gang for smuggling seven kilograms of drugs and illegally possessing 10 firearms. However, the gang leader denied all charges, claiming he was unaware of the weapons, which were discovered in a home he rented.
• The Qinghai Taxation Bureau cracked the largest tax-evasion case ever in the province, local media reported. Several construction companies building a segment of the 10.5 billion yuan ($1.4 billion) Qinghai-Tibet railway used more than a thousand fake invoices to evade taxes amounting to 4.94 million yuan ($716,000). Invoice fraud has been linked to several notable cases in China.
• Following a U.S. Department of Justice claim that employees from six Chinese state-owned companies accepted bribes from a U.S. supplier, Chinese oil giants PetroChina and China National Offshore Oil Corp. each looked into individual transactions of the suspects and found no evidence of wrongdoing, local media reported. The U.S. Department of Justice had previously announced that California-based valve manufacturer Control Components Inc. admitted paying bribes to the two Chinese oil companies between 2003 and 2007. The other four Chinese firms mentioned in the claim are Jiangsu Nuclear Power Corp., Guohua Electric Power, China Petroleum Materials and Equipment Corp. and Dongfang Electric Corp.
• More than 100 workers from Henggang Public Transportation gathered in front of the Shenzhen Intermediate Court to protest a private firm’s plan to take over the company. Many of the workers reportedly may lose their jobs or retirement benefits if the company is privatized.

Aug. 18

• The Wugang municipal government in Hunan province believes that 1,354 children out of 1,958 tested may have unsafe concentrations of lead in their blood, local media reported. The suspected poisoning is linked to a local zinc factory that is thought to have violated manufacturing standards. The factory has since been closed, two managers have been detained and a third one has been reported missing.
• Xu Zhiyong, a major Chinese civil rights activist, was arrested for tax evasion, one of his lawyers said. Xu is the co-founder of the Open Constitution Initiative, a legal-aid group that has been critical of Beijing for its handling of a tainted-milk case and unrest in Tibet in 2008.
• The police department in Datong, Shanxi province, recently cracked a female-trafficking case, local media reported. Throughout the investigation, which was conducted from April to June, police rescued nine Burmese women, 20 women from Yunnan and an infant. The suspects are currently on trial.

Aug. 19

• The Health Bureau in Pingyao county, Shanxi province, received a report from the People’s Hospital that 60 consecutive phone calls were made by patients who complained of food-poisoning symptoms. After further investigation, the calls were linked to a specific village where more than 200 residents have now showed symptoms of food poisoning. So far, health officials suspect the cause to be homemade food and the inadequate packaging of processed food.
• A local court sentenced the former chief of the Nanhai District Public Security Bureau in the Shenzhen special economic zone to 16 years in prison, local media reported. The charges against Liao Xianwei include abuse of authority, loss of national assets, corruption and misappropriation of public funds. From 1993 to 1999, Liao embezzled 400,000 yuan ($58,500) in public funds and accepted bribes of 7 million yuan ($1 million).