SinoInsight 1
Chinese film star Fan Bingbing and her companies were fined 884 million yuan in overdue taxes and fines, according to an Oct. 3 report by state mouthpiece Xinhua. Fan would face no criminal charges if she paid the fine by an unspecified deadline. Meanwhile, companies and individuals in China’s film industry would be exempt from administrative punishment and fines if they pay back taxes evaded prior to Dec. 31, 2018.
Other state media outlets like People’s Daily and CCTV, as well as the Central Political and Legal Commission (PLAC), also commented on Fan’s tax evasion case. The PLAC’s commentary noted that the investigation into Fan was also aimed at the murky practices of the Chinese film industry, and stressed that ill-gotten wealth, once exposed, brings an end to brief enjoyment. CCTV noted that it will “wait for the next one,” hinting that more film stars could be investigated.
According to Forbes China Celebrity list, Fan’s revenue for the past 14 years until June 2017 totaled 1.2 billion yuan.
OUR TAKE
Per our analysis on June 8, the investigation of Fan Bingbing was likely inspired by Chinese Communist Party (CCP) factional struggle-related issues and an attempt to replenish the national coffers. The final verdict against Fan signals to China’s film industry that Beijing wants cash, not scalps.
We believe that Fan’s case serves to both “kill chickens to scare monkeys” and “kill chickens to take their eggs.” China’s economy has noticeably weakened this year, and the CCP needs to explore all ways to boost its fiscal revenue. Hence, the CCP is going after the Chinese film industry and its interest groups, who have long sided with and helped to glorify the Party.
Beijing’s blunt tactics, however, will likely cause celebrities and wealthy persons to panic. Heightening panic will in turn affect investments in the country and promote capital outflows, causing the economy to weaken further.
SinoInsight 2
According to an Oct. 1 article by Japanese media outlet Business Journal, the CCP had issued a “secret document” ordering the children of all high-ranking officials who are studying in the United States to return home within this year. The order also forbids high-ranking officials from sending their children abroad for studies.
Business Journal’s Chinese diplomatic source noted two reasons for the order: 1) A fear that the U.S. government would hold the children of high-ranking CCP officials as “hostages” on the grounds of “suspected espionage”; 2) College tuition fees paid by students from abroad benefit the U.S. economy.
OUR TAKE
While it is plausible that the CCP did issue an internal order such as the one described above, we do not believe that the reasons behind the recall are valid.
First, the U.S. is investigating for espionage in fields of study that affect national security, such as science and technology. It is unlikely that many of the children of high-ranking officials would be doing long-term studies in those research-intensive fields. Even if there are indeed such individuals, not many would wish to return to China afterward.
Second, there are only about 2,000 Chinese officials at the vice-ministerial level and above. Their children would make up only a tiny proportion of the over 350,000 Chinese students studying abroad in America. Also, the “travel services deficit” of study abroad students in the second quarter of 2018 was $57.1 billion, according to data from China’s State Administration of Foreign Exchange. In other words, even if all senior officials’ children were to return home, it would have a limited impact on the U.S. economy.
We believe that a more likely reason for the children recall is regime crisis considerations. Given current Sino-U.S. tensions, high-ranking officials with children studying in America could sell out the CCP in self-preservation at critical moments. But if their children return to China, they would become the CCP’s “hostages” to ensure regime survival.
