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The Probe of Three Gorges Officials Is Getting Too Close for Communist Party Leaders

04/18/2014 12:01 EDT | Updated 06/18/2014 05:59 EDT

Chinese President Xi Jinping's sweeping campaign to root out graft and curb abuse of power is now trained on the Three Gorges Corporation, the state-owned enterprise that built and operates the world's largest dam.

In a bold move earlier this year, the Central Commission for Discipline Inspection (CCDI), an internal communist party watchdog, announced it had found officials at the corporation guilty of nepotism, shady property deals, and dodgy bidding practices.

Inspection team head Hou Kai said company officials were involved in secretly bidding for the company's projects; kept multiple properties illicitly; drove overly pricey cars and occupied excessively large offices, all of which constituted "violations of discipline." Hou also said decision-making at the corporation was improper and opaque, with critical matters not brought up in meetings and decisions hastily made without preparation.

While the report mentioned no names, it is widely believed to be targeting its charges at the offspring of former Premier Li Peng, the man who masterminded approval of the dam in 1992.

Li Xiaolin and Li Xiaopeng, the daughter and son of Li Peng, became formidable players in China's power sector when the national state-owned monopoly was broken into regional monopolies in 2002: Li Xiaolin became the head of China Power International Development (CPI), while her brother, Li Xiaopeng was the Chairman of Huaneng Power International.

According to a report in the Hong Kong-based Open Magazine, Li Xiaolin convinced her father to use Three Gorges funds to purchase Hong Kong Power New Energy Company, a Hong Kong shell company owned by her romantic interest, Li Liang, at a price of 2 billion yuan (US$322 million).

The chairman of Three Gorges Corporation, Cao Guangjing, was apparently unable to explain to the CCDI inspectors why the Three Gorges Corporation had purchased the Hong Kong company. Mr. Cao has since been replaced, as has his general manager, Chen Fei.

The transition from China's communist command and control economy to a quasi-market has given the children of higher-level officials leverage to exploit the conversion of public into private assets. In 2002, after Three Gorges' turbines and generators −- financed with a special charge on every electricity consumer in the country -− were designated for sale to the newly created company, Yangtze Power, Li Xiaopeng purchased 100 million yuan worth of shares. By 2009, those shares had grown in value by 20 times to be worth 2 billion.

Southern Metropolitan Daily, China's path-breaking newspaper known for its investigative reporting, was indignant. "The entire strength of China converged on building this one massive project," it wrote. "Enormous sums went into it, great powers were bestowed. But the oversight over these powers which should have been there, was not."

On Weibo, China's free-wheeling micro-blogging Internet site, one user asked, "Did the Three Gorges fund paid by us all on every electricity bill actually go to feed dogs?"

None of these revelations surprise Dai Qing, China's foremost environmental journalist, who has for years denounced Three Gorges Dam as a "black hole" of corruption and "a goldmine for corrupt officials."

Originally estimated to cost US$9 billion, by last count, the hydroelectric power plant has cost six-and-a-half times that at US$60 billion.

Although the recent graft probe itself is not unusual -- a 2011 audit uncovered missing resettlement funds and evidence of contractors overcharging −- disclosure of its findings are considered very unusual given the project's special protection as a sacred state cow.

Given unlimited powers to expropriate land (from 1.4 million) and levy fees on all electricity consumers to pay for the dam, along with protection from bad press, The Three Gorges Corporation has for 20 years operated "practically free of supervision and regulations" said Guangzhou city's Time-Weekly.

Some say the recent disclosure of the corporations' violations - not to mention the departure of the state-owned enterprise's two top executives on the same day − signals President Xi Jinping's administration is not done with its investigation of Three Gorges Corp. or its top officials. Xi has been very vocal in his pledge to crack down on both "tigers" and "flies" -- powerful leaders and lowly bureaucrats -- in his campaign against corruption and petty officialdom.

Indeed, some suggest that President Xi is using Three Gorges as a way to finger two of the largest electric tigers of all, Li Peng and ex-President Jiang Zemin, the power duo behind the Three Gorges Dam. Both are within the sights of President Xi's faction, which is thought to be consolidating its power base through its anti-corruption investigations.

According to a recent report in the Financial Times, Mr. Jiang urged the current leadership to rein in what is being called China's toughest anti-corruption campaign in decades. "The footprint of this anti-corruption campaign cannot get too big" Mr. Jiang said in a message warning Mr. Xi not to take on too many of the powerful families or patronage networks at the top of the party hierarchy.

For her part, Li Peng's daughter, famed for her braggart and bossy manner and for wearing expensive designer clothes, appeared at last month's National People's Congress meetings wearing no-name clothes and carrying an environmentally friendly canvas grocery tote, all the better to keep below the radar.

Patricia Adams is executive director of Probe International. Lisa Peryman is a writer with Probe International.