China export fraud exposed

The state is said to have been defrauded of $500m

By Duncan Hewitt in Shanghai

Chinese state media have given fresh details of the largest export tax fraud scandal ever uncovered by the authorities.

Four businessmen were executed and three other people sentenced to death on Friday for their role in the crime.

Press reports said a string of local officials in southern Guangdong province were also involved. They had issued fake tax receipts totalling almost $4bn.

More than a 100 criminal groups - their members including women and elderly people - are said to have defrauded the state of close to half a billion dollars.

China's official news agency said local mayors and communist party secretaries were also under investigation.

The official reports confirm rumours which have been swirling around southern China for months.

False address

The fraud was sparked by China's decision in 1998 to increase tax rebates to exporters in an attempt to boost exports during the Asian financial crisis.

In one township, the local government reportedly held a meeting and decided to make supporting the fake companies its official policy

State media said many people in Puning and Chaoyang cities in southern Guangdong province saw this as a golden opportunity.

Corrupt businessmen set up hundreds of fake companies which then claimed tax rebates for non-existent export goods.

Reports said investigators discovered dozens of companies registered at the same address.

Some of the registration addresses turned out to be public toilets.

'Official policy'

The scam was described as having been an open secret in the area, with people from all walks of life becoming involved and local officials reportedly seeing it as a way of boosting the region's economy.

In one township, the local government reportedly held a meeting and decided to make supporting the fake companies its official policy.

It even provided them with loans so that they would appear more convincing.

Chinese leaders are reported to have been shocked by the case and by the way in which local officials brazenly defied the law of the land.

One local leader is said to have bluntly asked the head of China state tax bureau to give export credits to a company he acknowledged was fake.

And one of the local businessmen now accused of massive tax fraud had received widespread praise as a model entrepreneur and had become a member of the Chinese parliament.