Where ‘Guanxi’ Rules

Chinese politics are often not what they seem, and a recent coup by citizens in the seaport of Xiamen is a case in point. In late May, Prime Minister Wen Jiabao ordered city leaders to freeze construction of a plant slated to produce PX, a toxic chemical used in plastic and polyester, after academics and journalists raised safety concerns. Then came massive street marches. Last week a long-awaited "independent" scientific review suggested building should resume only if the city limited pollution and residential building in the area.

It may have looked like folks were being heard. In fact, according to official media sources, orders to proceed with the plant had come two months earlier from none other than Communist Party boss Hu Jintao himself. Environmental issues didn't factor in his decree. Instead, the key issue was the plant's owner, Taiwan's Xianglu & Dragon Group, whose boss is a rival to (and fugitive from) the independence-minded regime in Taipei. Beijing, which still considers Taiwan a wayward province, sees any foe of Taiwan President Chen Shui-bian as a friend. Hu made the call in order to buttress "cross-Strait relations" and "Taiwanese business interests," say the sources, citing official written instructions.

The case underscores an increasingly common clash in China these days. On one side stand newly networked intellectuals, media activists and citizens; on the other, the traditional closed-door world of party-investor relations. Despite all the talk about the empowerment of ordinary Chinese, it is still guanxi—old boys' networks—and the party's private interests that generally carry the day.

That's particularly true for companies like Xianglu & Dragon Group, whose boss is an enemy of Taiwan's leader. In such cases, China is happy to help defuse criticism over environmental and other abuses. "National leaders are very tuned in to what people here are saying," says one state journalist in Xiamen. "But the Taiwan business backdrop [is] a big factor."

Big enough to trump the fact that Dragon's boss, Chen Yu-hao, is a fugitive from justice. He began building his first factory in China in 1992. As his mainland business prospered, his Taiwanese holdings collapsed, and in 2003 Taipei charged him with breach of trust for embezzling $126 million in assets from his Taiwanese companies. Taiwan put him on its most-wanted list; Beijing responded by granting him a passport. Chen denies the charges but now lives in China and Los Angeles.

The acrimony grew during Taiwan's 2004 presidential race, when Chen publicly accused Chen Shui-bian and his wife and aides of taking bribes during past campaigns—bribes the businessman says he himself had paid (party records list him as a legitimate donor). The office of the president, who was narrowly re-elected, blamed Beijing for the charges. That same month Chen Yu-hao got his license to produce PX in Xiamen—a first for a fully foreign-invested concern.