Overseas Chinese, Coastal Smuggling, and Legal Pluralism in the People’s Republic of China

Our second blogger this Fall is Philip Thai, Assistant Professor of modern China in the Department of History at Northeastern University. He can be contacted at p.thai@neu.edu. His post provides a snapshot of coastal smuggling in the People’s Republic of China (PRC) (1949–present). Much of the discussion below comes from his forthcoming article, “Old Menace in New China: Coastal Smuggling, Illicit Markets, and Symbiotic Economies in the Early People’s Republic,” which will appear in an upcoming issue of Modern Asian Studies. Other details come from his manuscript-in-progress, The War on Smuggling: Law, Illicit Markets, and State Power on the China Coast.

Overseas Chinese, Coastal Smuggling, and Legal Pluralism in the People’s Republic of China

After the PRC was established in October 1949, China’s new leaders embarked on an ambitious program to remake society and economy. One possible obstacle to realizing the “socialist transformation” of China was smuggling. In the official imagination, illicit trade deprived the state of critical revenues, brought undesirable goods into the country, and undermined the nascent command economy. Coastal smuggling had long bedeviled authorities even under communist rule. As China transitioned to a command economy focused on nurturing heavy industries, consumer goods were chronically in short supply despite strong demand. Furthermore, Communist China inherited—and expanded—Nationalist China’s developmental agenda with bold economic interventions. It maintained high tariffs on imports and erected an elaborate trade system with license requirements. Despite harsh crackdowns, illicit trade flourished because it was profitable.

At the same time, Communist China sought to break the Cold War economic cordon by maintaining some commercial links outside the Soviet bloc. Key to this policy was cultivating the support of so-called Overseas Chinese (huaqiao), a wide category that encompassed ethnic Chinese travelers from Hong Kong and Macau or returnees (guiqiao) from Southeast Asia intending to resettle on the mainland. Overseas Chinese were accorded “special treatment” (youdai) by Communist China and received preferential access to jobs, housing, and social services. Besides appealing to nationalistic sentiments of the vast Overseas Chinese community, the youdai policy sought to encourage remittances and solicit contributions and thereby modernize the People’s Republic.[1]

The youdai policy, however, had many unintended consequences, one of which was creating liminal opportunities for Overseas Chinese to profit from smuggling by circumventing trade restrictions. Overseas Chinese returnees, for instance, were permitted to enter China with some personal effects duty-free. Yet some returnees arrived with “personal effects” that far exceeded the duty-free limit: stockpiles of pens, lighter flints, knives, razor blades, bicycles, and other consumer goods from the West. Travelers from Hong Kong and Macau, for their part, exploited similar loopholes and duty-free limits on personal effects, hiding caches of wristwatches, sugar, and other goods in their luggage. One 1957 Chinese customs report reckoned that almost two-thirds of Overseas Chinese visitors from Hong Kong and Macau were engaged in one kind of smuggling or another. Whatever the veracity of such estimates, it is clear that communist authorities viewed Overseas Chinese travelers and returnees as important vectors of trafficking due to the mobility and favorable legal privileges they enjoyed.

Once in China, smuggled goods were funneled through sophisticated underground networks and found eager customers. Hotels and guesthouses, in particular, were notorious hotbeds of trafficking, teeming with middlemen buying up pens, wristwatches, and other luxury goods from Overseas Chinese travelers. Chinese consumers, facing unpalatable retail options at state-run stores, snapped up assorted smuggled goods from the many black markets in coastal cities. Even foreign visitors were enthusiastic customers. Soviet technical advisors and their families stationed in China during the 1950s, for instance, purportedly stocked up on smuggled Western goods unavailable back home. Even some state-owned businesses relied on smuggled hardware for their operations to meet ambitious production targets. Thus, in its own way, coastal smuggling ameliorated chronic shortages in the Chinese economy by skirting strict regulations and protective tariffs intended to discipline individual consumption for national aims.

Political and social upheaval during the Cultural Revolution (1966–76) plunged China into chaos and dismantled major elements of the youdai policy. Coastal smuggling remained active throughout this period, but it became especially so after 1978 when China adopted its “Open Door” policy of attracting foreign investment. The introduction of new Special Economic Zones (SEZs) spearheaded China’s export drive by creating enclaves that offered business-friendly rules and looser restrictions on imports, exports, and taxes for foreign firms. Once again, Overseas Chinese investors, businessmen, and travelers were welcomed back to the mainland and accorded certain legal privileges. And once again, many took advantage of regulations permitting the duty-free import of clothes, televisions, stereos, VCRs, and even automobiles as “gifts” for relatives, “contributions” to native villages, or “raw materials” for production. The trafficking became routinized in different ways. Overseas Chinese businesses colluded with state-owned Chinese enterprises to abuse SEZ regulations by importing assorted goods duty-free and well above proscribed quotas before reselling the “surplus” on black markets throughout the country. Fishermen on both sides of the Taiwan Straits exploited ambiguous relations between Communist China and Nationalist China.[2] Overseas Chinese travelers—particularly housewives and unemployed youths from Hong Kong—made trafficking almost a fulltime job, continuously bringing caches of ordinary consumer goods into China for resale. Companies also sprung up to handle the logistics and paperwork concerned with shipping “donated” vehicles from Japan, clearing customs in Hong Kong, and delivering them to villages in China. The villages, in turn, made tidy profits reselling the vehicles to other parts of China where foreign automobiles were completely unavailable or prohibitively expensive. Such blatant cross-border arbitrage was eventually driven further underground by the late 1980s as China tightened restrictions, intensified enforcement, and produced cheaper domestic substitutes for foreign goods.

The youdai policy, in a certain sense, was a form of legal pluralism that singled out a specified social group for preferential legal treatment. Legal pluralism in one form or another had been an important feature of Chinese law. The Qing dynasty (1644–1911), for instance, maintained a legally pluralistic order that subjected different ethnic, social, and professional groups to different laws and courts. The system of “unequal treaties” imposed after the disastrous Opium War (1839–42) introduced extraterritoriality, which placed foreigners in China under the jurisdiction of their own consuls rather than that of domestic authorities. While sharing some features with existing legal traditions, extraterritoriality soon became notorious for granting foreign sojourners virtual immunity from Chinese law on Chinese soil.[3] Indefatigable attempts by successive Chinese regimes to abolish extraterritoriality only bore fruit in 1943 when foreign powers relinquished their treaty privileges. The Communists, who denounced the period of extraterritoriality as the “century of humiliation,” essentially reintroduced legal pluralism in China that fostered both legal and illegal commerce. Illicit trade, as this post illustrated, was an unintended consequence of state policies trying to balance competing imperatives, just as it was an outcome of systematic exploitation of legal loopholes.