SCANDAL-RIDDEN WENZHOU DEALT ANOTHER BLOW

UNCLAS SECTION 01 OF 03 SHANGHAI 000193

SENSITIVE
SIPDIS

DEPT FOR EAP/CM, DRL, INR
NSC FOR KUCHTA-HELBLING

E.O. 12958: N/A
TAGS: PGOV PHUM ECON EINV CH
SUBJECT: SCANDAL-RIDDEN WENZHOU DEALT ANOTHER BLOW

REF: A. (A) 08 SHANGHAI 505

B. (B) 08 SHANGHAI 540

C. (C) SHANGHAI 168

(U) Sensitive but unclassified. Not for dissemination outside
USG channels; not for Internet distribution.

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


1. (SBU) Scandal-ridden Wenzhou in Zhejiang Province was dealt
another blow on April 1 when a document was posted on the
internet that identified local officials who illegally bought
houses at below market prices. The case reportedly is related
to the mysterious disappearance last fall of Yang Xianghong, a
Wenzhou Communist Party official who absconded to France (Ref
A). Media reports indicated that Wenzhou residents were
"outraged" by the housing scandal, especially as it comes on the
heels of other scandals involving local government officials
(Ref B). Separately, a Zhejiang Provincial Disciplinary
Inspection Commission officer was arrested on April 14,
reportedly for his involvement in the bribery case of Gome CEO
Huang Guangyu. End Summary.

Scandal Strikes Again in Wenzhou
--------------


2. (SBU) A four-page document entitled, "Name List of External
Buyers of Extra Relocation Housing at a Temporary Price," which
indicated that local officials in Wenzhou, Zhejiang Province
were able to buy houses at far below market prices, captured
netizens' attention after it was posted on the internet on April

1. The list clearly showed the buyers' names and positions, as
well as exact locations, area and room numbers of the houses.
The listed officials included: Wenzhou Vice Mayor Chen Zuorong,
the Vice President of the Wenzhou Committee of the Chinese
People's Political Consultative Conference (CPPCC),the Deputy
Director of the Wenzhou Public Security Bureau, Deputy Chief
Prosecutor of the Wenzhou People's Procuratorate, Office
Director of Wenzhou's CPC Standing Committee, President of the
Wenzhou Trade Union General, Director of the Wenzhou Industry
and Commerce Bureau, and the Director of the Wenzhou Development
and Reform Commission.


3. (SBU) Jin Peijing, Chief of the State Assets Management
Division of the Wenzhou Old City Reconstruction Headquarters,
reportedly said in a press interview on April 9 that the list
was accurate. Denying her involvement in the scandal, Jin
called the incident a "historic problem" that occurred in 2004
and 2005 and refused to comment on details of the case because
it occurred before she assumed her current post in September

2008.

New Revelations Add Flavor to Previous Case
--------------


4. (SBU) According to various news reports related to the
housing scandal, the Wenzhou Old City Reconstruction
Headquarters was the work unit of You Jie, the wife of former
Wenzhou official Yang Xianghong, who absconded to France in
October 2008 (Ref A). You Jie was arrested for a "job-related
crime" on March 31 just prior to the April 1 release on the
internet of the name list. (You reportedly was charged by the
People's Bank of China's Anti-Money Laundering Section for
remitting RMB 20 million to the bank account of Yang Xianghong's
daughter in France less than one month before Yang departed for
France.)


5. (SBU) While the name list was not confidential according to
Jin, it is not clear who posted the list on the internet. Yang
Xianghong's sister, Yang Xiaohong, also was named on the list,
and she reportedly took annual leave right after the list was
posted online.

Development Zone Official Next Domino to Fall
--------------


6. (SBU) In addition, according to Sina.com, Dai Guosen,
Director of the Wenzhou Economic and Technology Development Zone
and a former associate of Yang Xianghong, was under "double
regulations" by the local disciplinary inspection commission.
Dai, considered an up-and-coming political figure in Wenzhou who
was selected as an alternate member of the 9th CPC Wenzhou Party
Committee in 2003, was accused of an "economic crime" after

SHANGHAI 00000193 002 OF 003


disciplinary inspection commission officers reportedly found 10
Louis Vuitton bags, housing property certificates, and expensive
Chinese herbs at Dai's house. Ironically, the 53-year-old Dai
was the first official in Wenzhou who openly made an
anti-corruption promise to the public when he was director of
Wenzhou Economic and Technology Development Zone. Dai's arrest
was believed to be somehow related to Yang Xianghong's case.

Wenzhou Citizens Outraged
--------------


7. (SBU) Media reports indicated that Wenzhou residents were
"outraged" by the housing scandal, especially as it comes on the
heels of other scandals involving local government officials
(Ref B). On April 10, homeowners who have not yet been
compensated for their houses, which originally had been
demolished to pave the way for the now tainted development,
protested outside Wenzhou's Lucheng District Government
headquarters. According to media reports, when redeveloping
housing areas, Wenzhou Old City Reconstruction Headquarters
officials would "pick up several good houses" to sell to staff
members at below market prices or give to local government
officials to build relations.

Provincial Inspector Also Dirty
--------------


8. (SBU) Separately from the Wenzhou scandal, the Hong
Kong-based Ming Pao newspaper reported on April 16 that Wang
Yuanhua, Party Secretary of Zhejiang's Provincial Disciplinary
Inspection Commission and a CPC Zhejiang Standing Committee
member, was arrested in Hangzhou by CPC Central Disciplinary
Inspection Commission (CDIC) officers on April 14 and was
transferred to Beijing for an investigation into Wang's role in
the bribery scandal of former Gome CEO Huang Guangyu. According
to the report, Wang was transferred to Zhejiang from Guangdong
Province in 2006 after rumors surfaced of his involvement with
Huang when Wang was a Deputy Party Secretary of the CPC
Guangdong Standing Committee and Party Secretary of the
Guangdong Provincial Disciplinary Inspection Commission. Wang,
along with Chen Shaoji, a former colleague as a Deputy Party
Secretary of the CPC Guangdong Standing Committee, reportedly
was charged with having a "corrupt lifestyle."

Appendix: Chronology of a Scandal
--------------


9. (SBU) The Wenzhou Housing Scandal's timeline is as follows:

--September 19, 2008: Yang Xianghong, Party Secretary of CPC
Wenzhou Lucheng Standing Committee, led a delegation to France,
Sweden and Austria for a work inspection tour.

--September 26, 2008: Yang did not attend an official event in
Vienna, claiming that a preexisting back ailment reoccurred.

--September 27, 2008: Yang and the delegation departed for Paris.

--September 28, 2008: Yang failed to appear at a meeting and
reception at the Chinese Embassy in Paris, telling delegation
members that he had a medical appointment.

--September 29, 2008: The delegation departed Paris for China as
scheduled, but Yang said his illness was quite serious and
needed to rest in bed.

--October 2008: The Wenzhou Municipal Government dispatched two
officials to Paris to convince Yang to return to China, but they
were unsuccessful.

--November 12, 2008: Approved by CPC Zhejiang Standing
Committee, the Zhejiang Provincial Disciplinary Inspection
Commission decided to expel Yang from the Party and the
Government.

--March 31, 2009: Yang Xianghong's wife, You Jie, who was an
officer in Division of Development of Wenzhou Old City
Reconstruction Headquarter, was arrested for a "job-related
crime."

--April 1, 2009: "Name list of external buyers of extra
relocation housing at a temporary price" appeared online.


SHANGHAI 00000193 003 OF 003


--April 13, 2009: The Wenzhou Disciplinary Inspection Commission
confirmed that Dai Guosen, Director of Wenzhou Economic and
Technology Development Zone, was involved in You Jie's case.
Dai was under "double regulations" for economic problems.
CAMP