China Power

China Shows Signs of Cracking Down on ‘Silk Road’ Crime

Recent Features

China Power | Economy | East Asia | Southeast Asia

China Shows Signs of Cracking Down on ‘Silk Road’ Crime

The bizarre story of She Zhijiang, who ran a Southeast Asian casino empire while a fugitive from the law in China, demonstrates the limits of Chinese power.

China Shows Signs of Cracking Down on ‘Silk Road’ Crime

The Golden Sand Hotel and Casino in Sihanoukville, Cambodia.

Credit: Wikimedia Commons/Christophe95

On October 23, the Chinese media outlet Caixin published a long and detailed investigation into She Zhijiang, a Chinese expatriate businessman who has been linked to a raft of shady developments in Southeast Asia. The article helped flesh out the background of the obscure 38-year-old, who hails from China’s Hunan province but now possesses a Cambodian passport along with a page-consuming list of pseudonyms. Over the past year, She’s name has risen to public attention in connection with his Hong Kong-registered firm Yatai International Holdings Group, which has made gambling-related investments in Myanmar, Cambodia and the Philippines.

Caixin’s reporting revealed that She has been a fugitive from the Chinese law since 2012 and has earned hundreds of millions of dollars generated from illegal online casino operations in Southeast Asia. Given the documented involvement of Yatai in a host of gambling-related projects, this is an unsurprising revelation, but it does highlight the challenges that Chinese criminal activities poses to Beijing’s bid for influence in the region.

In particular, the Caixin report details She’s history of dubious dealings in the Philippines. In 2014, a court in Shandong convicted She for operating an illegal lottery business in the Philippines targeting Chinese web users, which allegedly landed him illegal gains of 2.2 billion yuan ($298 million). While She went on the lam, eight of his accomplices were sentenced to jail for 15 to 24 months, according to the court documents. He has been a fugitive from the law ever since.

She has since become involved in investments in Myanmar and Cambodia, where he soon established cozy ties to the ruling elite and was granted citizenship in 2017. His most prominent development is the $15 billion Yatai New City development, which has risen from the banks of the Moei River in Myanmar’s Kayin State, bordering Thailand. The project, which is being built by Yatai in partnership with an armed militia affiliated with the Myanmar military, broke ground in 2017, with ambitious plans to establish a hub of “science and technology, gambling and entertainment, tourism, culture and agriculture,” in addition to safari parks and shooting ranges.

In practice, much of Yatai’s activities have focused on online gambling, which is banned in China, but flourishes—to the tune of $24 billion per year—in the more relaxed jurisdictions of Southeast Asia. The Shwe Kokko complex also includes at least three casinos that serve local and overseas customers.

The Shwe Kokko project began attracting public attention in late 2019, following protests by civil society organizations in Kayin State and increasing coverage of the development by the local press.

A particular point of controversy was Yatai’s claim that the project was part of Belt and Road Initiative (BRI), President Xi Jinping globe-spanning infrastructure initiative. Eventually, the media scrutiny became such that the Chinese Embassy in Myanmar felt compelled to release a statement clarifying that Yatai New City “is a third-country investment and has nothing to do with the Belt and Road Initiative.”

Around the same time, the Myanmar government launched an investigation of the project for its involvement in crossborder gambling, which is illegal in Myanmar. China has since pledged its support of the investigation.

One of the most interesting revelations in the Caixin report is the claim that Yatai New City has specifically attempted to attract online gambling operators who were forced to shut down enterprises in Cambodia, due to the government’s imposition of a ban on online gambling in August 2019. (This, too, was done with the Chinese government’s support). The ban prompted a large number of gambling operators in the coastal city of Sihanoukville, which had grown into a veritable Las Vegas on the Gulf of Thailand, to vacate the country.

The fact that a figure like She Zhijiang could not only survive but thrive as a fugitive in countries like Cambodia and Myanmar, nations where China has considerable political influence, says something interesting about the limits of Chinese power in Southeast Asia.

As I mentioned in connection with the Shwe Kokko project back in September, the BRI scheme has largely been consistent with Beijing’s tendency to launch projects with great fanfare, and only later to fill them with content. This lag has allowed all manner of dubious interests to piggyback on the BRI in order to advance their own interests, something that the Chinese government has so far been either unwilling or unable to address.

But recent events – from the Chinese-instigated online gambling ban in Cambodia to Beijing’s strong support for Myanmar’s probe into Yatai New City project – suggest that Beijing may finally getting serious about cleaning up the BRI. This was the suggestion made this week in an article by Jason Tower and Jennifer Staats of the United States Institute of Peace (USIP), which in July published perhaps the definitive report on She’s operations in Myanmar. The authors noted that China has shown an increasing willingness to go after shady investors who claim the mantle of Xi’s headline foreign policy initiative, though there is still a ways to go.

As Tower and Staats note, China clearly recognizes the problem. In 2019, following pushback against certain BRI projects, Beijing warned Chinese firms not to misuse the BRI label and pledged a new focus on “quality over quantity” in BRI projects.

As always, however, this is easier said than done. While China’s State Council promulgated in 2017 a list of new regulations on Chinese investments abroad, the authors note that these have yet to be officially extended to BRI projects. They also noted that the Chinese regulations and the process through which they are implemented is not clear to host countries, and “may not even be clear to Chinese investors.” Tower and Staats conclude that “continued failure to address these issues around BRI governance and oversight increasingly threatens peace and stability in fragile states around the globe.” It will also likely tarnish China’s reputation in BRI target countries.

Whether or not Beijing is successful in scrubbing the BRI clean, the strange career of She Zhijiang (aka Dylan She, aka She Lunkai, aka Tang Kriang Kai) offers a reminder of the sheer messy multiplicity of China’s economic engagements with the region and the world. It also demonstrates the difficulty in making them serve Beijing’s wider strategic interests.