HIGH-PROFILE NGO CLOSED, PRE-60TH ANNIVERSARY

C O N F I D E N T I A L SECTION 01 OF 04 BEIJING 002123

SIPDIS

E.O. 12958: DECL: 07/24/2039
TAGS: PHUM PGOV PROP SOCI CH
SUBJECT: HIGH-PROFILE NGO CLOSED, PRE-60TH ANNIVERSARY
CRACKDOWN UNDERWAY, CONTACTS SAY

REF: BEIJING 303

Classified By: Political Internal Unit Chief
Graham Mayer. Reasons 1.4 (b) and (d).

Summary
--------------


1. (C) On July 17 the Beijing Civil Affairs Bureau
raided the offices of the Open Constitution
Initiative (aka "Gongmeng"),an NGO promoting
democracy and rule-of-law, and declared the group an
"illegal organization." Days earlier, Beijing tax
officials had slapped OCI with a large fine for
alleged tax evasion. OCI supporters viewed the
closure as politically motivated, the result of
OCI's political activism, the connection of several
OCI activists to Charter 08, its acceptance of
foreign funding and the Communist Party's
determination to maintain stability as the 60th
anniversary of the founding of the PRC approaches.
An OCI member expressed concern that the NGO's
leaders may face criminal charges, though other
contacts said the Communist Party was unlikely to go
beyond shutting the group down. Not all NGOs are
feeling political pressure. The founder of an NGO
that provides legal services to migrant workers told
us the government remained supportive, mainly because
his group was careful to steer clear of politically
sensitive issues. Contacts disagreed on whether the
USG should raise the OCI closure with Chinese
officials: some believed the Party would back off in
the face of international pressure while others
argued that USG advocacy would make things worse for
OCI. Post has already expressed concern to the
Chinese government about the OCI crackdown at the
working level. End Summary.

Background on OCI
--------------


2. (SBU) The Open Constitution Initiative ("Gongmeng"
in Chinese) was founded in 2003 by a group of
Beijing University law students. Unable to obtain
legal status as an NGO, OCI registered as a company
in 2005. OCI essentially functions as a public
advocacy law firm, providing legal assistance in
precedent-setting cases. OCI lawyers assisted in
the defense of legal activist Chen Guangcheng, who
was jailed in 2006 after revealing family planning
abuses in Shandong Province. More recently, OCI
members provided legal advice for parents of
children harmed in the 2008 milk tainting scandal.
OCI also conducts research on social and public
policy issues. In May, the organization released a
report on the root causes of the March 2008 unrest
in Tibet, which included pointed criticism of
China's policies in the region. OCI received an
Embassy small grant in 2004.

OCI Shuttered as "Illegal Organization"
--------------


3. (SBU) On July 14, according to documents on the
OCI website (www.gongmeng.cn),the Beijing Taxation
Bureau issued a notice to OCI that it had failed to
pay RMB 60,995 (USD 9,000) in transaction, urban
planning, and stamp taxes and RMB 187,424 (USD
27,500) in income tax on donations made by Yale Law
School. Tax authorities fined OCI an amount equal
to five times the tax owed, the maximum fine allowed
by law. In total, tax officials ordered OCI to pay
RMB 1.4 million (USD 206,000) in back taxes and
fines. In an eight-page rebuttal printed on the OCI
website, OCI founder Xu Zhiyong argued that the
group did not purposely evade tax and donations
should only be treated as income after deducting OCI
project operating costs. On July 17, officials from
the Beijing Civil Affairs Bureau entered OCI's
Beijing office and confiscated computers, printers,
fax machines, office furniture, files, and
publications. The officials issued a notice that
the "OCI Legal Research Center," which is a research
organization subsidiary to the OCI corporation, was
an "illegal organization." In a second rebuttal
published on the website, Xu argued that the OCI's
structure is legal and that its business license
does not preclude it from engaging in research and
public interest activities.


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4. (SBU) Note: Though theoretically China allows
NGOs to obtain legal status, most "real" NGOs (i.e.
organizations that are not connected to Party or
government agencies) find it impossible to
register and thus can only obtain legal status as
companies. Such "company NGOs" generally must pay
transaction tax ("yingye shui", which amounts to 5
percent of revenue/donations) but report no profits
and thus do not pay corporate income tax. After
establishing a corporate entity, these NGOs can then
establish subsidiary research institutes funded by
the company (somewhat analogous to research centers
run by major securities companies or banks). In
OCI's case, it is the subsidiary research
department, rather than the company itself, that
Civil Affairs authorities have declared an "illegal
organization." End Note.

OCI Made Tax Mistakes, But Closure is Political
-------------- --


5. (C) Xu Zhiyong (protect),OCI director and close
Embassy contact, told PolOff July 22 that, in the
current environment, he would be unable to meet with
EmbOffs for several weeks. Guo Yushan (protect),
another OCI founder, told PolOff July 22 that he
viewed the OCI closure as the first step in a
crackdown against other politically sensitive NGOs
that, like OCI, are registered as companies. Guo
expressed concern that his own NGO, the Transition
Institute (TI),a policy think tank with an
orientation similar to OCI, will also be shut down.
Guo told PolOff that both OCI and TI use the same
accounting firm and the accountant did, in fact,
make mistakes in handling the books of the two
"companies." The accountant's mistakes made OCI
and TI vulnerable to charges of tax irregularities.
Beijing tax authorities, Guo said, began
investigating both organizations in May. Guo,
however, said the alleged tax violations were minor
and did not impact the amount of tax actually owed.
The crackdown by the Beijing Civil Affairs
Bureau, he said, indicated the Chinese Communist
Party had made a political decision to close OCI and
possibly other NGOs. Guo believed the Party had
decided to shut OCI first for a combination of
reasons including OCI's legal activism in sensitive
human rights cases, the fact that many OCI members
(including Guo, but not Xu Zhiyong) had signed
Charter 08 (see reftel),and the CCP's general
nervousness over the upcoming 60th anniversary of
the founding of the PRC. Guo said that Aizhi
(www.aizhi.org),an AIDS NGO registered as a
commercial enterprise, was also under political
pressure.

Concern over Possible Criminal Charges
--------------


6. (C) Guo said OCI had recruited about 100
"members" from across China and had even issued them
identification cards. The membership list was among
the items seized by Beijing Civil Affairs officials
July 17, according to Guo, who said the list might
be used for pursuing criminal charges of "inciting
subversion of state power" against Xu and other OCI
leaders. Guo added that OCI would also be
vulnerable to illegal publication charges since the
books seized by the Civil Affairs Bureau lacked the
required publication numbers (kan hao) and were thus
technically illegal.

Little Media Attention to OCI Closure
--------------


7. (SBU) China's domestic media have given scant
attention to the story of OCI's recent troubles.
The July 23 edition of Southern Weekend (Nanfang
Zhoumo) includes a story about the OCI
crackdown. The Nongmin Ribao (Farmers Daily)
website also ran a column by prominent Chinese
Academy of Social Sciences rural development expert
Yu Jianrong that criticizes the closure of OCI.
OCI's website (www.gongmeng.cn),including documents
related to the July 17 raid, was still accessible to
Chinese Internet users July 23. However, several
blog entries about OCI on websites such as sina.com
and tianya appeared to have been removed by censors.

Stability Concerns Surrounding 60th Anniversary

BEIJING 00002123 003 OF 004


-------------- --


8. (C) Tsinghua University communications professor
Zhou Qing'an (protect),told PolOff July 24 that it
was "very clear" authorities had clamped down on OCI
because of its political activism. Zhou believed
the crackdown on OCI reflected the Party's concerns
about maintaining social stability in the period
leading up to the October 1 celebrations of the 60th
anniversary of the founding of the PRC. Zhou
speculated that OCI might be allowed to return as a
new company after the sensitive 60th anniversary
passed. Unlike Guo, Zhou felt there was little
chance authorities would try to pursue criminal
cases against Xu Zhiyong and other OCI figures.

Security Services Act Before NGO Liberalization
-------------- --


9. (C) Beijing University School of International
Studies Assistant Professor Yu Wanli (protect) told
PolOff July 23 that a significant revision of the
NGO law that will liberalize the registration
requirements for NGOs was in the works and could come
into force "very soon." With this in mind, security
services were moving against sensitive NGOs, "dealing
with them while they still can." Yu said that
security services were most concerned about NGOs
that involve lawyers and journalists and those that
receive international funds. OCI, he said, was in
"the worst situation of all": lawyers who are
connected with Charter 08 who had started a
"politically dangerous" and unregistered NGO using
foreign money. Asked whether authorities might
allow OCI to reopen, Yu responded "no way, this
organization is completely finished." Most of the
individual lawyers, Yu predicted, would have no
problems but the organization's leaders could face
harsher punishment.

Non-Threatening NGOs Get a Pass on Taxes
--------------


10. (C) Wei Wei (protect),the founder of Little
Bird, an NGO that provides legal counseling to
migrant workers, told PolOff July 24 that he did not
believe that authorities intended to crack down on
NGOs in general. Wei Wei, who was unfamiliar with
the OCI shutdown until briefed by PolOff, said
officials continued to tolerate NGOs that are not
perceived as a political threat, even to the point
of ignoring obvious tax violations. Like OCI,
Little Bird is registered as a commercial company.
Wei Wei told PolOff that Beijing officials realize
that his NGO, which has been operating for ten
years, provides essential services to migrants and
helps mediate labor disputes that might otherwise
escalate into destabilizing incidents. As a result,
Beijing authorities have told Wei Wei that they will
not audit his organizations' tax records. Though
Little Bird receives donations from several American
and European foundations (in addition to foreign
embassies) and, as a commercial company, is
obligated to pay taxes on this revenue, each year
the group reports zero income and thus enjoys de-
facto tax-free status. Wei Wei speculated that the
tax issues were thus just an excuse and that OCI's
real trouble came from its work in politically
sensitive areas.

USG Role
--------------


11. (C) Post registered USG concern at the working
level with officials in the MFA's Human Rights
Division. Contacts had mixed views on whether the
USG should elevate the OCI closure in official
channels. Yu Wanli, of Beijing University, said
that international pressure on OCI's behalf will
actually reinforce the government's decision to
crack down since security services targeted OCI
because of its foreign contacts and financial
support. Tsinghua University's Zhou Qing'an had a
similar assessment, saying that direct USG
intervention will only confirm authorities'
suspicions about OCI. Zhou suggested that OCI donor
Yale University could send a letter to Chinese
leaders via the U.S. Embassy. OCI member Guo
Yushan, however, had an opposite view, saying
international pressure was very important.

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Authorities had closed OCI, Guo said, and were now
waiting to gauge the domestic and international
reaction. A strong show of concern by the United
States and other countries may help, if not to save
OCI, then to prevent further crackdowns on the
Transition Institute and similar NGOs.
GOLDBERG