Why are so many Chinese bosses disappearing? | The Intelligence podcast

Key Concepts

• LEO (Law Enforcement Overseas): An extrajudicial detention system in China that bypasses formal court proceedings.
• Anti-corruption investigators: Agencies responsible for investigating and prosecuting corruption cases in China.
• Credit blacklist: A system that restricts individuals' access to certain services, such as high-speed rail and air travel, based on their creditworthiness or legal standing.
• Deep sea fishing campaigns: A practice where anti-corruption divisions from one local government investigate and detain businessmen in another local government.

Disappearing Chinese Bosses: An In-Depth Analysis

This discussion delves into the phenomenon of Chinese business leaders disappearing into an extrajudicial detention system known as LEO, examining its origins, scale, implications, and the broader context of China's anti-corruption drive and economic challenges.

The LEO System: An Extrajudicial Detention Framework

The LEO system, which has been in place for a considerable time and refashioned to serve the needs of anti-corruption agencies, allows for the detention of individuals suspected of corruption without direct court involvement. Key characteristics of this system include:

• Bypassing Courts: Detentions under LEO do not require prior approval from courts.
• Extended Detention Periods: Individuals can be held for up to eight months, with the possibility of resetting the detention clock.
• Limited Access to Legal Counsel: Detainees typically do not have access to lawyers.
• Harsh Conditions: Reports indicate that detainees are held in windowless, clockless cells, under constant 24/7 supervision with lights on at all times, leading to significant psychological distress.
• Targeting: While historically aimed at Communist Party members and government officials, the system is increasingly impacting business leaders.

Scale of Disappearances and Trends

While a precise, comprehensive count of individuals detained under LEO is unavailable, the available data points to a significant and increasing trend:

• Publicly Announced Disappearances: Listed companies are obligated to inform investors when their top executives, such as CEOs or chairmen, are taken away by anti-corruption investigators.
• January-September 2023 Data: Rosie Blur and Don Winland counted 39 business people who disappeared into LEO during this period.
• Year-on-Year Increase: This figure represents an increase compared to the previous year, which was already a record for individuals entering the LEO system. The pace of disappearances in 2023 is described as "very rapid."

The Anti-Corruption Drive and Its Escalation

The current surge in LEO detentions is occurring within the broader context of Xi Jinping's anti-corruption campaign, which began in 2012. While the campaign is ongoing, its intensity appears to be increasing:

• Record Case Numbers: The first half of 2023 is on track to reach a record 1 million cases by the end of the year.
• Tangential Investigations: The anti-corruption probes often extend beyond the primary suspect, encompassing their entire business network. This can ensnare numerous business people connected to powerful officials.
• "Deep Sea Fishing Campaigns": A notable development is the practice of "deep sea fishing campaigns," where anti-corruption divisions from one local government target and detain businessmen in another local government. This is often driven by local governments facing cash shortages and aims to uncover wrongdoing, potentially leading to asset seizure.

Broader Consequences for the Business Community

The LEO detentions are not isolated incidents but are part of a larger set of pressures impacting Chinese businesses and their sentiment:

• Economic Struggles: The Chinese economy is currently facing significant challenges, exacerbating the difficulties for businesses.
• Credit Blacklist: Approximately 200,000 individuals, many likely from the business community, have been added to a credit blacklist this year. This blacklist restricts their ability to travel by high-speed rail and air.
• Impact on Business Sentiment: The combination of economic headwinds, LEO probes, and the credit blacklist is significantly dragging down sentiment within the Chinese industry.
• Public Discussion of Suicides: There have been five high-profile cases this year where businessmen have died by suicide, leaping from high buildings. This tragic trend is being publicly discussed and is attributed to the immense pressure on the business community, stemming from economic difficulties and the risk of corruption investigations.

Official Messaging vs. Reality

The Communist Party is actively attempting to signal support for the private sector and convey a sense of stability. However, the current reality suggests that private sector confidence is low and unlikely to improve in the near future without significant improvements in the aforementioned issues.

Potential Outcomes for Those Caught in the Campaign

While LEO detention is a severe measure, other outcomes are possible for individuals investigated by anti-corruption agencies:

• Referral to Police: Suspects may be referred to the police for further legal proceedings.
• Punishments: Last year, approximately 60,000 individuals in the pharmaceutical industry and 17,000 in the finance sector were punished by anti-corruption agencies. The exact nature of these punishments for all individuals is not fully known, and some may have received warnings.

Conclusion

The disappearance of Chinese bosses into the LEO system, coupled with an escalating anti-corruption drive and broader economic challenges, is creating a climate of significant stress and uncertainty for the Chinese business community. The lack of transparency in the LEO system and the wide-reaching nature of corruption investigations, alongside measures like the credit blacklist, are contributing to a severe decline in business sentiment, with tragic consequences for some. The Communist Party's efforts to reassure the private sector appear to be falling short of addressing the root causes of this widespread concern.