China's crashing the party as police put expats in their sights

It was a Thursday, 11pm, and the parties were getting started at the nightspots popular with expatriates on Yongfu Road, in Shanghai's trendy former French Concession. Then, at upmarket bar The Apartment, the police arrived, about 50 of them. The party stalled. They blocked the exits to the four-storey colonial era building, cut the music and ordered the lights be switched on.

The raid was part of a 100-day crackdown, purportedly on foreigner visa violations, launched weeks earlier in Beijing that has left a bitter taste among many young foreigners here, and raised questions about possible political motives behind it.

A Dutch resident who witnessed the raid on The Apartment said police demanded passports from all patrons and recorded passport and visa numbers.

Those without passports or copies of identity documents or who had invalid visas were detained.

The Dutch patron, an employee of a multinational company in Shanghai who asked not to be named, says he avoided detention with a discreet bribe, the equivalent of about $47.

Others were not so lucky. "I saw at least 12 foreigners in the back of a police van,'' he said. "The door was closed and the van drove away."

Neighbouring nightclubs were also raided that night two weeks ago, but within an hour The Apartment was open again. This weekend it is advertising four nights of parties to celebrate its second anniversary.

Bar owners interviewed by The Sunday Age were reluctant to be identified, not wanting to draw attention to themselves. But one said the incident was unprecedented in his more than a decade in Shanghai's entertainment industry. Business was down on subsequent nights.

Some linked the raid to a viral video of a British man apparently committing a sexual assault on a Chinese woman in Beijing. Within 24 hours of being posted last month, the video had been viewed more than 3 million times on China's equivalent of Twitter, Sina Weibo. It attracted more than 50,000 comments, many of them distinctly anti-foreigner.

"Suddenly the government launches a crackdown on all laowai [foreigners] like we are some sort of plague," said one online post by an expatriate in Shanghai.

The crackdown, which was announced in China's state-controlled media on May 15, officially targets foreigners living or working in China illegally.

Expat unease worsened after a xenophobic online rant by Yang Rui, a prominent TV host on CCTV 9.

Rui lauded the campaign to protect "innocent girls" from "foreign trash", "thugs" and "spies", and described recently expelled al-Jazeera English correspondent Melissa Chan as a "foreign bitch".

Rui received no official reprimand for the post, which was also published on CCTV's website.

The crackdown started in Beijing, prompting a bitter reaction from some foreigners who have lived in the city for years and see it as home.

American media worker Jacob Trent told CNN he was pulled off his bike by police who demanded his papers.

''I have been living here for a decade and yet I still get treated like - and sometimes called - a foreign barbarian,'' Trent said.

British expat David Park told CNN: ''I have noticed a change in how I am treated. It has gone from curiosity to hostility.''

The Shanghai raids were played down in the local media.

The Global Times reported a police denial of any raid and quoted a manager from The Apartment stating the club was merely visited by four officers who asked them to keep the noise down.

But The Sunday Age has established that exclusive Shanghai nightclub and restaurant M1NT, whose founder and CEO Alistair Paton is Australian, was raided two weeks before The Apartment raid. Four foreign staff and four patrons were found without documents, detained and later released once valid papers were provided.

The crackdown is taking place against a backdrop of political uncertainty.

The scandal involving the downfall of Chongqing Communist Party chief Bo Xilai, a slowing economy, rampant corruption, domestic food safety concerns and the widening gulf between rich and poor is causing unease within party ranks and the general populace.

There is a feeling among some foreigners that the visa campaign serves not only to whip up nationalist fervour, but to distract from more pressing problems.

Unlike some other Asian nations, foreign residents in China mostly apply for yearly visa extensions. Many expatriates in Shanghai consider it their home, but live under a cloud of uncertainty.

For this reason, there is reluctance among foreigners to openly discuss sensitive issues. The Australian owner of a successful Shanghai company said: "We run a legitimate business and follow the system, but things can change in an instant here."

China seeks runaway factory bosses, wants to sign more extradition treaties

China is seeking the extradition of private entrepreneurs who have fled abroad after defaulting on billions of yuan owed to state banks and loan sharks, two independent sources said, a rare move underlining Beijing’s concern over the scale of losses.

Airports and other border crossings have received lists containing the names of heavily indebted small and medium enterprise (SME) bosses who are not permitted to leave the country, said the sources, who have direct knowledge of the situation and requested anonymity because of political sensitivities.

“Foreign governments have been asked to repatriate [fugitive] SME bosses and help recover their overseas assets,” said the first source with knowledge of the negotiations.

Many of the managers are suspected to have fled to countries such as the US, Canada, Australia and Singapore, according to Chinese media reports.

The problems began with private companies in the eastern city of Wenzhou — famous for its entrepreneurs and speculators — turning to the underground lending market after Beijing clamped down on credit as part of a campaign against inflation.

Squeezed by falling export orders and rising raw material, land and labor costs — and in some cases suffering losses on their own property investments — many found themselves unable to repay, leading some SME bosses to abandon their debts, factories and workers.

The troubles are now spreading to other areas, including several cities in Zhejiang Province and Erdos in the northern region of Inner Mongolia, according to local media.

“SME bosses who owe banks a lot of money are under ‘border control,’” the second source said, referring to government monitoring and curbs on their overseas travel.

Heads of at least 80 companies in Wenzhou have gone into hiding because they could not repay loan sharks, leaving behind debts, unpaid wages and thousands out of a job, according to the online edition of Xinhua news agency.

The Foreign and Public Security ministries declined immediate comment when reached by telephone.

Beijing is also seeking to sign extradition treaties with more countries in its effort to bring home runaway officials and recover their overseas assets, the sources said.

China has such treaties with at least 33 countries since 1993, according to the Ministry of Foreign Affairs Web site.

China and the US have no extradition treaty, although the countries have cooperated on corruption cases before, including in 2004, when a former Bank of China manager was deported to face charges at home.

More than 10,000 Chinese Communist Party and government officials fled to the US or Europe with 650 billion yuan (US$102 billion) in bribes or embezzled state funds between 1999 and 2009, according to a Peking University study.

Offshore yuan market may evolve like Eurodollar market

The emerging offshore yuan--or reniminbi--market could be mostly used in the future to channel renminbi-denominated funds between borrowers and lenders not resident in mainland China, the Bank for International Settlements said in its quarterly review published Sunday.

Drawing on the experience of the market for Eurodollars, which are U.S. dollars deposited in banks outside the U.S, the BIS said it expects the offshore renminbi market to evolve much like other types of offshore markets and to behave over time as an intermediary between non-resident borrowers and lenders of renminbi.

Currently, the offshore renminbi market mainly serves as a conduit for funds from the rest of the world to mainland China. Its use as an intermediary between non-mainland borrowers and lenders or for mainland residents investing in offshore renminbi assets has been limited, the Basel-based BIS said.

The report, authored by Dong He of the Hong Kong Monetary Authority and Robert McCauley of the BIS, found that in the long run the Eurodollar market has primarily delivered pure offshore intermediation among non-residents. That is, it has permitted dollar-denominated transactions between non-U.S. residents outside of the U.S. and beyond U.S. jurisdiction.

"If the renminbi offshore market were to follow the Eurodollar market, this pure offshore intermediation would rise," they said.

The report added that the renminbi of late hasn't been appreciating consistently against the dollar. That might encourage non-resident borrowing in the currency, which in turn would also help the development of the market.

In the offshore yuan market in Hong Kong, where the Chinese currency floats freely, the dollar was at CNY6.3670 late Friday. The central parity rate for the onshore yuan was fixed by the People's Bank of China at CNY6.3308 Friday; the yuan can be traded in a band that is 1% above and below that level.