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The revelation that his brother-in-law used offshore tax havens to hide his wealth is more than an embarrassment for China’s president Xi Jinping. His anti-corruption campaign will only have domestic credibility once family members of the party leaders can be subjected to investigations.

Financial district in Panama City.

China’s president would like to be seen as the boss who cleans up in his own shop by weeding out corruption among the country’s elites. But Mr. Clean now has a serious problem. The Panama Papers, published by Süddeutsche Zeitung along with the International Consortium of Investigative Journalists exposed the shady financial dealings of at least eight family members of China’s ruling class who set up shell companies in tax havens to hide their wealth. Among those implicated is Xi’s brother-in-law Deng Jiagui.

Deng will have a lot of questions to answer – to Xi, to other party officials and potentially even to a sceptical Chinese public. But will there be a public investigation into the provenance of his wealth, and will Chinese authorities go after him for allegations of potential money laundering and tax evasion? Judging from past evidence of how similarly sensitive issues involving members of the elite and their families were handled in China, this is highly unlikely. But it would be the only way for Xi to set an example and prove to a sceptical population that his is a serious – and unbiased – effort to end the abuse of political power for personal monetary enrichment.

Princelings benefitted from privatisations

The phenomenon the Xi administration is dealing with traces its roots back to the beginning of China’s era of reform and opening in the 1980s. The country’s politically well-connected families were the disproportionate beneficiaries of the partial privatisation of China’s state-owned assets. Those profits have risen substantially over the last 15 years due to a wave of IPOs of large state-run companies. Many relatives of political elites used their connections to raise capital for the businesses in which either they or trusted friends had stakes.

The ability of the princelings, as the children of China’s political elites are often called, to amass massive personal wealth, as well as the social and political culture that encouraged their behaviour, came with a price: it soon began to erode the Communist party’s legitimacy among ordinary citizens. Xi’s anti-corruption campaign is an attempt to improve the government’s effectiveness and the party’s moral standing, but no Chinese administration has gone so far as to implicate the families of the party general secretary or prime minister in investigations for financial fraud.

The website of the New York Times in China has been blocked ever since the paper revealed an insider trading scheme involving family members of former Prime Minister Wen Jiabao who had acquired shares of a big insurance company right before the business went public. It is therefore safe to assume that China will follow the same pattern in the case of the Panama Papers and try to suppress any attempts to cover the story.

Families of revolutionary veterans enjoy special status

A formal investigation into a family member of Xi Jinping would seem like an ultimate taboo since the family belongs to the generation of first-class revolutionary veterans.  Xi’s father Xi Zhongxun was a guerrilla fighter in Mao Zedong’s revolutionary war and went on to become a member of the People’s Republic of China’s first leadership generation. The descendants of this generation – about 20 to 25 families overall - enjoy a special status even in today’s China. The children of the revolutionary veterans all went to special schools in the 1950s and 1960s. Even their grandchildren continue to view themselves as China’s political aristocracy and use their closely-knit networks to their personal advantage.

Any Chinese party leader who sets out to clean up within this group will risk sharing the fate of Hu Yaobang. As the CCP General Secretary, he attempted to curtail the activities of the children of China’s top cadres as part of his effort to fight nepotism and corruption. Under attack, these elites fought back and pushed Hu out of office.

Given this precedent as well as Xi’s own political lineage, there is little reason to expect that he of all people will try to constitute an example. But news about the Panama Papers are just as likely to make their way past the censors into Chinese social media and middle class living rooms as the revelations about Wen Jiabao and his family back in 2012 – with potentially damaging consequences for the credibility of Xi’s anti-corruption campaign.

Foto: Flickr/Marcelo Mejía