At least 31 local governments in Huaian, Jiangsu province, cooked the books on foreign investment inflow levels to meet unrealistic targets set by higher-level governments, according to reports from mainland media.
The fraud underlines the mindset still prevalent among lower officials that GDP growth must be achieved at all costs.
Making matters worse, Jiangsu officials were found to have used taxpayer money to bribe “fake foreign investors” and middlemen to inflate foreign direct investment inflows, according to reports by Thepaper.cn and the Southern Metropolis News.
In a typical manoeuvre, “foreign funded” shell companies were established with identification cards from Hong Kong or Macau residents and funds were channelled into designated bank accounts as “foreign investments”. The funds were then remitted in one to three days as soon as the “foreign investments” were recorded.
Through colluding with money sharks and grey area agencies, many township and county-level governments were able to boast about strong FDI inflows, when in reality the amount was much less.
The misconduct and forgery came to light amid a Chinese central bank campaign to crack down on money laundering, Thepaper.cn reported.
FDI inflow, along with GDP growth rate, industrial output and fixed-asset investment, is a key indicator in measuring the performance of local officials, which could have a bearing on their political careers.
The mainland as a whole is becoming less attractive to foreign direct investors, with FDI inflows increasing only 5 per cent in the first six months of the year, compared to an 8 per cent rise during the same period last year. Foreign capital interested in less developed cities like Huaian is particularly scarce.
Huaian, with a population of nearly 5 million, has the third-lowest gross domestic product of Jiangsu’s 13 prefecture-level cities. Yet, in the three years from 2009, it saw some of the greatest growth in foreign investment in the province.
In 2010, Huaian set an ambitious target to woo US$1 billion in FDI – almost double the amount for 2009. To meet the goal, local county and district governments faked the numbers, transferring more than 85 million yuan in public funds to intermediaries, according to the reports.
Seven suspects were convicted and sentenced to jail time in December 2015, and at least five have appealed, Thepaper.cn and the Southern Metropolis News reported.
One of the convicted intermediaries, Huang Lanying, borrowed dozens of ID cards from her friends and relatives to receive and transfer foreign exchange in an attempt to bypass the regulation capping personal yuan currency conversions at US$50,000 per year.
For every US$1 million transferred, each intermediary received a 2.7 per cent commission, the reports said.
Local governments issued formal letters to facilitate the money-laundering and even guaranteed to those involved that their commissions would be paid.
Officials even promised to take responsibility if irregularities were exposed – a promise they apparently couldn’t honour.
The Huaian government said on Thursday it had addressed the problem and punished officials involved beginning as early as 2013.
In the same year, the local foreign exchange regulator cracked down on 23 foreign investment projects worth US$158 million that involved illegal transactions, Xinhua reported.