A recently disclosed profiteering scandal on China's southern island of Hainan has dramatized the potential for corruption, and possibly political infighting in high places, as Peking pursues its ambitious modernization program.
The scandal has led to the dismissal of three high-ranking Communist Party and government officials on the island, according to the lead article in today's People's Daily, the party organ, and is being viewed here by some observers as the biggest scandal since China began its open-door policy toward foreign trade and investment six years ago.
The official New China News Agency reported earlier that Hainan officials took advantage of the island's "open port" status and that more than $1.6 billion in illicit loans were issued.
Many loans were then used to import foreign goods into Hainan, including tens of thousands of foreign autos, television sets and video recorders, which were resold elsewhere in China at double or triple their original price.
Many questions remain unanswered, including the length of time it took for the central government to bring the situation under control.
But what seems clear at this stage is that the manipulation of foreign exchange on Hainan was one of the reasons for the sharp drop in China's foreign exchange reserves during a six-month period beginning last September.
That plunge, in turn, was one reason the goverment recently imposed stricter controls over foreign imports and investment in 10 coastal cities.
The Hainan case also seems to demonstrate how provincial officials can use their recently granted economic autonomy to make profits benefiting their own localities but not the nation as a whole.
Hainan is a resource-rich but relatively primitive and undeveloped tropical island off the southern China coast. It has a long history of isolation and independence from central authority.
Some Chinese also are suggesting that the affair is more complicated than mere profiteering and that it involves an attempt by conservatives within the Chinese leadership to crack down on wheeling and dealing free-market advocates.
According to a Hong Kong magazine report published at the end of last year, which some Chinese here consider to be reliable, a factional dispute was also involved. The magazine Zheng Ming said some sources in Hainan accused authorities in Guangdong Province, of which Hainan is a part, of becoming jealous of the autonomy that had been granted to Hainan by the central government authorities.
The scandal appears to have ended the career of an active and relatively young official, Lei Yu, the top government official on Hainan.
According to an investigation report published in today's People's Daily, Hainan, although never formally designated for rapid development as a special economic zone, seemed to enjoy some import privileges that were denied even to such economic zones, thanks in part to the lobbying and connections in Peking of Lei.
Some international press reports from the island earlier this summer said Lei and some other leading officials on the island were extremely popular there, in part because profits from auto sales had contributed to expansion of roads, housing, shops and the seaport and airport.
A Hong Kong newspaper last year described Lei as an "abrasive but effective" leader of a team of pragmatists, struggling with the help of top-level backing from Peking to overcome a legacy of economic neglect and indifference to progress in Hainan.
But today's People's Daily article accused Lei and his team of "creating tremendous damage to the state and also increasing the difficulties of developing Hainan."
Neither the commentary nor the front-page article on the scandal, however, accused Lei and his colleagues of working for their personal profit.
While the paper did say that Hainan officials put local interests ahead of the overall interests of the nation, The People's Daily continued to refer to Lei as "Comrade Lei," indicating that he has not been dismissed from the Communist Party.
Jeremy Paltiel, a visiting Canadian political scientist who has studied the Chinese economy, pointed out that the country's four special economic zones, 14 open coastal cities, and Hainan Island were supposed to attract foreign technology and investment as well as develop overseas markets for their products.
But instead, he said in an interview, "it has unfortunately been easier for some Chinese to see opportunities in terms of the domestic market rather than the overseas market . . . . In Hainan, they produced the opposite of what was intended."
Hainan under Lei's leadership resold imported foreign goods at inflated prices through a "web of corruption spreading across China" to 27 provinces, cities and autonomous regions, according to the Chinese news agency.
The official report said "some central units" of the government were involved in the trafficking in autos and foreign currency, suggesting that even higher level officials could be implicated.
There are 143 cases of criminal practice now under investigation in connection with the case following a two-month investigation by six central government ministries and departments as well as two provincial bodies.
Hainan officials were reported to have approved the import of 85,000 motor vehicles, 2.8 million television sets, 250,000 video recorders and 122,000 motorcycles from January of 1984 to March 5 of this year, according to the Chinese press.
As many as 872 companies reportedly engaged in profiteering from reselling imported motor vehicles and other goods, with 88 out of 94 departments in the Hainan administration involved.