The Chinese government is cracking down on predatory law enforcement
Extortion by local officials causes a lot of anger
March 27th 2025
To rescue china’s lacklustre economy, the ruling Communist Party is trying to revive the animal spirits of entrepreneurs and rehabilitate the profit motive. Xi Jinping, China’s leader, has welcomed Jack Ma, a leading tech boss, back in from the cold, and basked in the reflected glory of DeepSeek, a private AI firm. The government has also recently released five employees of Mintz, an American due-diligence firm, detained in 2023. To get rich is, if not glorious, at least less dangerous than it seemed a few years ago.
But there is one kind of buck-chasing the party is determined to quash: profit-driven law enforcement. This is the over-zealous collection of fees, fines and back-taxes by cash-strapped local governments eager to refill their coffers. In his report to China’s legislature this month, Li Qiang, the prime minister, vowed “resolute steps to prevent unauthorised cross-jurisdictional and profit-driven law enforcement”. On March 24th the Ministry of Finance said it will “resolutely prevent and correct” random charges, fines and levies.
Such money-grubbing has mushroomed since the pandemic, as conventional sources of revenue have fallen. Last year China’s tax collection fell by 3.4%, and revenues from land sales by 16%. The money raised from fines and confiscations, by contrast, increased by 14.8%.
Desperate local governments have resorted to new and crude tactics to raise money. Last year a mining company in western China was hit with a demand for 668m yuan ($92m) for alleged tax obligations going back 20 years. In dozens of reported cases executives have been detained on frivolous charges and obliged to bribe their way out of custody.
Distance is no barrier. Officials have crossed jurisdictional lines to hit up companies or individuals in other provinces, a practice known as “fishing in distant seas”. Foreigners are not exempt. Last year a foreign investment manager based in Beijing discovered that his local business partner had been arrested. Even though the charges came from a lowly sub-provincial jurisdiction, his lawyers advised him to leave the country immediately with his family, which he duly did.
Scholars have warned of grave damage to China’s private sector. Zhao Hong of Beijing University wrote in December that fishing in distant seas and other abuses “are tantamount to draining the pond to catch the fish”. Zhou Tianyong, a senior official at the Central Party School, a training institute for cadres, wrote of the profiteering last September in existential terms. In an online post that was quickly scrubbed from social-media sites he wrote that if local officials keep using the detention of entrepreneurs to boost revenue, it would lead to a “national economic disaster”. Enterprises across the country would collapse, he warned, together with hopes of reviving the economy.
Leaders have woken up to the damage the shakedowns are doing to private business. China’s highest prosecutorial body, the Supreme People’s Procuratorate, has started to crack down. It reviewed 1,500 cases last year and has blocked improper attempts to grab 570m yuan in assets.
As well as legal remedies, some experts propose preventive measures. One idea is that all seized assets should be handed over to the central authorities. That would reduce the incentive for local officials to overreach. The central government is also trying to find less painful ways to fill local coffers. In November it said it would let provinces issue extra bonds worth 6trn yuan over the next three years to replace more expensive, “hidden” debts. This should give local governments more financial breathing room and a less compelling need to gouge their constituents.
Extortion by local officials causes a lot of anger
March 27th 2025
To rescue china’s lacklustre economy, the ruling Communist Party is trying to revive the animal spirits of entrepreneurs and rehabilitate the profit motive. Xi Jinping, China’s leader, has welcomed Jack Ma, a leading tech boss, back in from the cold, and basked in the reflected glory of DeepSeek, a private AI firm. The government has also recently released five employees of Mintz, an American due-diligence firm, detained in 2023. To get rich is, if not glorious, at least less dangerous than it seemed a few years ago.
But there is one kind of buck-chasing the party is determined to quash: profit-driven law enforcement. This is the over-zealous collection of fees, fines and back-taxes by cash-strapped local governments eager to refill their coffers. In his report to China’s legislature this month, Li Qiang, the prime minister, vowed “resolute steps to prevent unauthorised cross-jurisdictional and profit-driven law enforcement”. On March 24th the Ministry of Finance said it will “resolutely prevent and correct” random charges, fines and levies.
Such money-grubbing has mushroomed since the pandemic, as conventional sources of revenue have fallen. Last year China’s tax collection fell by 3.4%, and revenues from land sales by 16%. The money raised from fines and confiscations, by contrast, increased by 14.8%.
Desperate local governments have resorted to new and crude tactics to raise money. Last year a mining company in western China was hit with a demand for 668m yuan ($92m) for alleged tax obligations going back 20 years. In dozens of reported cases executives have been detained on frivolous charges and obliged to bribe their way out of custody.
Distance is no barrier. Officials have crossed jurisdictional lines to hit up companies or individuals in other provinces, a practice known as “fishing in distant seas”. Foreigners are not exempt. Last year a foreign investment manager based in Beijing discovered that his local business partner had been arrested. Even though the charges came from a lowly sub-provincial jurisdiction, his lawyers advised him to leave the country immediately with his family, which he duly did.
Scholars have warned of grave damage to China’s private sector. Zhao Hong of Beijing University wrote in December that fishing in distant seas and other abuses “are tantamount to draining the pond to catch the fish”. Zhou Tianyong, a senior official at the Central Party School, a training institute for cadres, wrote of the profiteering last September in existential terms. In an online post that was quickly scrubbed from social-media sites he wrote that if local officials keep using the detention of entrepreneurs to boost revenue, it would lead to a “national economic disaster”. Enterprises across the country would collapse, he warned, together with hopes of reviving the economy.
Leaders have woken up to the damage the shakedowns are doing to private business. China’s highest prosecutorial body, the Supreme People’s Procuratorate, has started to crack down. It reviewed 1,500 cases last year and has blocked improper attempts to grab 570m yuan in assets.
As well as legal remedies, some experts propose preventive measures. One idea is that all seized assets should be handed over to the central authorities. That would reduce the incentive for local officials to overreach. The central government is also trying to find less painful ways to fill local coffers. In November it said it would let provinces issue extra bonds worth 6trn yuan over the next three years to replace more expensive, “hidden” debts. This should give local governments more financial breathing room and a less compelling need to gouge their constituents.
