China’s Princelings Build the Wrong Kind of Capitalism

(Dec) Over the last three decades, Communist China’s leaders have lifted more than 600 million of their citizens out of poverty -- and built one of the world’s most unequal societies.

Those two outcomes didn’t have to go hand in hand. They are the result of a conscious decision by the former paramount leader Deng Xiaoping and some of his closest associates -- the so-called Eight Immortals -- to safeguard the primacy of the Communist Party by putting their families in charge of opening up China’s economy.

As Bloomberg News documents, what resulted was an enormous concentration of wealth and power in the hands of a few. Examining thousands of pages of documents and conducting dozens of interviews, Bloomberg traced the holdings of the Immortals’ 103 direct descendants and their spouses.

Three children alone -- including Deng’s son-in-law He Ping and Chen Yuan, the son of Mao Zedong’s economic czar Chen Yun -- led or still run state-owned companies that had combined assets of about $1.6 trillion in 2011, or the equivalent of more than a fifth of China’s annual economic output.

During the 1980s, many were chosen to run the new state conglomerates. A decade later, many moved into real estate, coal, steel and even golf, which owes much of its spread in China to Wang Jun, the son of a famous general. Now, the Immortals’ third generation has moved into investment banks, private-equity firms or international law practices.

An earlier, separate investigation by Bloomberg revealed the vast fortune amassed by the family of Xi Jinping, the newly installed Communist Party leader and himself a princeling descended from a revolutionary fighter and vice premier.

Unhealthy Inequality

Robber barons and power elites are nothing new. Nor are they necessarily unhealthy -- unless, that is, your society professes to be egalitarian. And notwithstanding the Communist Party’s protestations, China increasingly isn’t.

The government hasn’t officially issued a Gini coefficient, an index measuring income inequality, since 2000. Yet one just- published study put it at 0.61, much higher than previous estimates ranging from 0.41 to 0.48. Social scientists consider a reading above 0.4 as a warning sign of potential unrest.

Equally disturbing, inequality of opportunity -- not just income -- is also on the rise in China: One study found that richer parents helped ensure higher income for their offspring; parents employed by the state bestowed even greater advantages.

This year, a scandal that felled Bo Xilai, the son of another revolutionary hero and a member of the Politburo, uncorked widespread public disgust over the corruption of China’s ruling class. Since taking office in November, Xi has come down hard on graft, ostentatious displays of wealth and abuses of power by officials. At least 10 local officials have been dismissed in response to corruption or sex scandals.

Yet as the Bloomberg investigation demonstrates, the crackdown has only touched the periphery. Not only has the current generation of princelings run amok, but there is no one with the revolutionary legitimacy of Deng (who was purged by Mao three times) to command public trust.

Even if Xi lacks the will or political power to curb the economic power of the Immortals, he can still pursue policies that will reduce inequality and improve the lot of China’s poorest. During its high-growth years, Japan reduced its Gini coefficient from 0.45 in the 1960s to 0.34 in 1982.

Welfare Policies

And as researchers such as Yasheng Huang of the Massachusetts Institute of Technology have shown, China’s rural- focused policies during the 1980s reduced poverty and inequality much more than the urban- and state-focused policies in the decades that followed. As Huang has argued, private ownership, property rights, financial liberalization and deregulation are critical to ensuring that the welfare of China’s population improves as its gross domestic product grows.

A good place to start would be to accelerate the dismantling of China’s infamous system of residency permits, which hold back the almost 160 million migrants who have left their homes to take jobs in cities by impeding their access to health care, education and pensions.

With low public debt and more than $3 trillion in foreign reserves, China is in a good position to spend more on social services for its poorest. Most Chinese, for example, cannot afford to go overseas for schooling, as did many of the Immortals’ descendants (including the 23 who studied in the U.S. at Stanford and Harvard universities, among other places).

Mere mortal Chinese savers don’t have the investment options of the Chen family, whose members run the $1 trillion- plus China Development Bank Corp. and have worked for Morgan Stanley and Citigroup Inc. Simple changes in financial regulations, however, could at least give ordinary Chinese access to investments other than low-paying bank deposits.

China has tried to keep a lid on popular discontent over corruption and privilege by controlling its media. has been blocked in China since it published its story on Xi in June. But the best way to curb corruption is public accountability, and as we have argued, outsiders can help by supporting efforts to punch more holes in China’s Great Firewall.

They can also shine more light on the country’s convoluted corporate ownership structures, as the U.S. Securities and Exchange Commission has tried to do. At least 18 of the Immortals’ descendants own or run entities linked to companies registered offshore, many in jurisdictions that offer secrecy.

Deng was no democrat, but he wasn’t corrupt, either. As he said in 1980, “As far as the leadership and cadre systems of our party and state are concerned, the major problems are bureaucracy, overconcentration of power, patriarchal methods, life tenure in leading posts and privileges of various kinds.” More than three decades later, China should rediscover that reformist spirit.

To contact the Bloomberg View editorial board:


Laogai Research Foundation
The Laogai Research Foundation (LRF) was established in 1992 by Laogai survivor, Harry Wu, to gather information on and raise public awareness of the Laogai—China's extensive system of forced-labor prison camps. LRF also works to document and publicize other systemic human rights violations in China, including executions and the harvesting of organs from executed prisoners, the coercive enforcement of China's "one-child" population control policy, and Internet censorship and surveillance. LRF serves as an authoritative source for journalists, researchers, politicians, and other human rights organizations on human rights in China generally and the Laogai and forced labor in China specifically.
Harry Wu, Founder
Laogai Museum Front Desk

Harry Wu knows firsthand the atrocious conditions of the Laogai. In 1960, Wu was imprisoned at the age of 23 for criticizing the Communist Party, and subsequently spent 19 years toiling in the factories, mines, and fields of the Laogai.

He was released in 1979 and came to the US in 1985 with just $40 in his pocket. Since then, he has traveled back to China multiple times to further invesitgate Laogai camps and continue his call for human rights in China.

Wu founded the Laogai Research Foundation in 1992 to gather information on and raise public awareness of the Chinese Laogai.

LRF's mission is to document and expose the Laogai, China's vast and brutal system of forced labor prison camps, and to promote education, advocacy, and dialogue about China's human rights issues.
"Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum."
Laogai Museum Front Desk

The Laogai Museum is the first museum in the U.S. to directly address human rights in China. It is the hope of the Laogai Research Foundation that the Laogai Museum will preserve the memory of the Laogai's countless victims and serve to educate the public about the atrocities committed by China's Communist regime. First founded in 2008 with the support of the Yahoo! Human rights Fund, the museum reopened in its present location in 2011, becoming a place for human rights victims and advocates to reach out to a larger audience.

The Laogai Research Foundation
1734 20th Street, Northwest
Washington, DC 20009

We are two blocks north of Dupont Circle Metro's North Exit on the Red Line (corner of 20th and S Streets).

Free 2-hour and metered street parking is available throughout the neighborhood.

Hours of Operation

Monday – Friday 10:00 AM – 06:00 PM
Saturday 10:00 AM – 05:00 PM

(202) 730-9308


The Laogai Archives are in the offices of the Laogai Research Foundation in Washington, DC.

Due to the suppression of free speech within China, much of the material housed within the Laogai Archives is not available to researchers in mainland China. Thus, the Laogai Archives are in a unique position to support academics, journalists, students, and activists in freely conducting research on human rights in China.

  1. What is the Laogai?
    The Laogai is the People’s Republic of China’s prison system. The name of the system is derived from the Chinese expression, laodong gaizao (勞動改造) meaning “reform through labor”. Generally referred to as labor reform camps (勞改隊), the prison system’s structure was developed by the Chinese Communist Party under Mao Zedong. Modeled on the Soviet Gulag, the prison forces prisoners to do hard labor and gives them “political reeducation” to reform their thoughts and behaviors. The PRC also uses the Laogai as a source of free labor for various work, from infrastructure construction and mining, to farming and manufacturing. Through a variety of prison enterprises, the Chinese government earns income off the backs of Laogai prisoners.
    The Chinese definition of the Laogai entails six components.
      “Reform through labor camps or brigades” house officially convicted and sentenced criminals.

      In 1994, the Chinese government stopped using the word of “laogai,” instead it restored the traditional name of jianyu (prison). But the nature of the laogai system as a tool of rerpression remains the same.

      “Reeducation through labor facilities” house prisoners under “administrative discipline,” meaning that they may be sentenced to up to three years of forced labor without ever having been charged or tried.

      Detention centers house prisoners who are awaiting trial or have gone through a trial but the sentenced prison term is less than one year. They too can be forced to labor.

      Juvenile offender facilities house adolescent convicts or reeducation through labor detainees. In 1983, a regulation was issued that decreased the age from 16 to 14 years old at which children can be sent to reeducation through labor camps.

      These facilities were for prisoners who had served out their sentences but were deemed “not completely reformed.” Such prisoners had to stay in the same prison facility, facing the same conditions, and performing the same work just as when they were formal prisoners. The CCP ceased the forced job placement system in the early 1980s.
  2. How is the Laogai different from other prison systems?

    Because of international attention to human rights violations in the Laogai in the early 1990s, the Chinese Communist Party has attempted to create the impression that the Laogai is only a prison system for detaining, punishing, and reforming criminals. It was for this reason that in 1994, the CCP ordered that Laogai, meaning “reform through labor,” no longer be used in government documents. Instead, the system’s institutions were to be called jianyu, “prison.” However, contrary to CCP propaganda, the Laogai is different from prison systems in other countries. Laogai inmates are forced to labor and forced to do brain wash. What is more, they are unprotected by law, including laws against torture and abuse, as can be seen in the following section “Difference in Conditions.” The Laogai system also strengthens the CCP’S control by suppressing dissent among the Chinese people. The Laogai is an integral part of China’s economy, providing an abundance of free labor for manufacturing goods sold in both domestic and international markets.
    The conditions that persist in the Laogai constitute an additional distinction between it and other prison systems, with the Laogai perpetuating many of China’s most serious human rights abuses.

  3. Who has suffered in the Laogai?
  4. What is the political function of the Laogai system?
    Besides punishing criminals, the Laogai serves as a tool of political repression. China sentences outspoken critics of CCP policy to imprisonment in the Laogai to quell dissent. Suspects punishable by means of laogai or prison terms include the previous “anti-revolutionaries” and present-day “endangering state security” according to the Criminal Law. Suspects punishable by means of Re-education Through Labor according to the CCP’S “Measures for Reeducation through Labor (1957)” include, “counterrevolutionary and anti-socialist reactionaries, whose crimes are minor and not subject to criminal prosecution, and who have been dismissed by government offices, organizations, and enterprises, educational institutions or other units and have no way to make a living.”
    Fear and submission to CCP rule are also perpetuated by recurring “strike hard” campaigns. During these campaigns Chinese authorities implement various penalties, public trials, and previously, public executions, to intimidate its citizens and clamp down on political “crimes”. Trials and sentencing occur rapidly, and those accused of a crime are deemed guilty even before trial. It is under these circumstances that the CCP has continually silenced dissidents.
  5. What is the economic significance of the Laogai?
    Besides being important to China’s communist regime as a tool of repression, the Laogai is also an integral part of China’s economy. Chinese authorities use the millions locked in the Laogai as free labor. Totaling an estimated three to five million, they make up the world’s largest forced labor population. The CCP seeks to use the Laogai for profit.
    Forced labor is seen as another input for economic output. The deliberate application of forced labor by the Chinese government is codified in the Ministry of Justice Criminal Reform Handbook: “Laogai facilities…organize criminals in labor and production, thus creating wealth for society. Our Laogai units are both facilities of dictatorship and special enterprise.” The CCP hopes that by being forced to labor in the Laogai, prisoners will be molded into “new socialist persons.”
  6. Are Laogai goods exported?
    While much of what is produced in the Laogai is consumed domestically, Laogai-made goods also filter into foreign markets by way of third-party trading companies. Recently, rather than attempting to do business directly with foreign companies, Laogai prisons will find a government-owned trading company to act as a middleman and conceal the forced-labor origins of products from importers. Many Laogai prisons also have a second enterprise name; for example, Jinzhou Prison, where Nobel Laureate and democracy activist Liu Xiaobo is believed to be held, also operates under the name “Jinzhou Xinsheng Switch, Co.”, which it uses to market its products to foreign companies over the internet. LRF has evidence that shows Laogai goods repeatedly find their way onto American shelves, despite laws forbidding their importation. Notwithstanding the Chinese government’s claims to the contrary, the CCP encourages exporting Laogai goods.
  7. What is existing U.S. law regarding the importation of Laogai goods?
    Importing forced-labor goods to the U.S. is illegal according to section 1307 of the Tariff Act of 1930. In 1992, the need to confront China about this problem led to the signing of the “Memorandum of Understanding (MOU) Between the United States of America and the People’s Republic of China on Prohibiting Import and Export Trade in Prison Labor Products.” However, China still exports prison labor goods to the U.S. To promote compliance with MOU’s terms, in 1994, the U.S. and China negotiated another agreement: the “Statement of Cooperation on the 1992 MOU between the U.S. and the PRC on Prohibiting Import and Export Trade in Prison Labor Products” (SOC). The SOC defines a mechanism to ensure that China promptly cooperates with U.S. Customs on forced labor inquiries. However, China has done nothing to ensure compliance, and the U.S. never committed resources to enforce the agreement. According to the 1997 “State Department Country Reports on Human Rights,” U.S. Customs unsuccessfully pursued eight standing visitation requests, seven of which dated back to 1995. In all cases, visitation requests were refused or ignored, and allegations were denied without explanation. Cooperation was judged as “inadequate.” In State Department reports from 1999, authorities admit that the MOU has been “nearly impossible” to enforce because China has been “uncooperative.” Throughout the 1990s, only around 20 cases of forced-labor product importation were pursued under the U.S. customs ban. Since 2000, the U.S. government has not attempted to restrict the flow of Laogai goods into the country.
  8. How can I avoid buying products made in the laogai?
    Identifying goods that are made entirely or in part in the Laogai is increasingly difficult. Sub-contracting and complicated global supply chains make discerning the origins of a product daunting. For example, a U.S. clothing maker may contact a Chinese import-export company to find a Chinese plant to cheaply make its clothing. That company may then contract the account to a legitimate Chinese textile firm, which will further sub-contract a portion of the production process to a Laogai camp, where prisoners must fill quotas to earn their food rations, rather than money. Laogai prisoners, toiling in horrible conditions, may also have grown the cotton the clothes are made from. If a product is “made in China” then it is possible it could have been produced in a Laogai.
  9. Should consumers boycott goods made in China?
  10. Are organs harvested from executed prisoners in the Laogai?
  11. What is the "One Child Policy"?
  12. Why do so few know about the Laogai?
  13. What does international law say about the Laogai?
  14. Who is Harry Wu?
  15. What is the Laogai Research Foundation?