Cars, TVs, cigarettes, oil, beer, plastic, ships ... anything went for Chinese smugglers and their local government chums, who cost the Government up to $90 billion a year in unpaid duty. But no more. Now the PLA has been brought to heel and brought to bear on south China's black marketeers. RICHARD COOK investigates the fall-out of Premier Zhu Rongji's clean-up campaign.

LIANG USED TO be part of the huge and lucrative mainland car-smuggling trade. Not any more. Tonight, as he sits slouched on a plastic chair in a packed, swanky and noisy seafood restaurant in downtown Guangzhou, he's bitter and he's low. Southern China has changed beyond recognition since the early '90s, from paddy fields to fertile, free-wheeling industrial wonderland. Liang was one of the rich and rampant young men who helped drive this transformation. He is a loud, gregarious, fiercely independent and promiscuous self-made millionaire. And there are many like him. Tonight, though, he's neither loud nor gregarious. Tonight, Liang says, some of his former business associates are facing execution.

Liang has long been a heavy drinker, but alcohol usually makes him happy. Tonight, he seems drunk, bored and depressed. He mostly ignores the three hangers-on who sit at his table, as he does the mountain of food that he will unquestionably pay for. Instead, he swigs Heineken, toys with a lit 555 cigarette and gazes lazily at a blaring TV mounted on a wall behind him.

Occasionally he spits on the floor.

For the past five years or so, Liang has had a steady flow of cash. When I first met him in 1995, he had bragged with macho bravado that he had five million yuan (HK$4.5 million) stashed away in the bank. He was probably lying. Either way, a few weeks ago the cash-flow stopped. Since mid-July, there has been a much-publicised smuggling clampdown in China. There have been many other anti-graft campaigns, of course, but this one seems to be working on an unprecedented scale. The key to its success has been the army's co-operation. President Jiang Zemin has seemingly achieved what was once thought impossible: a promise from the PLA to cease its business activities. Which means, in simple terms, that instead of helping the smugglers, the PLA will now be trying to catch them.

Right now, says Liang, that means nearly all those who once worked in southern China's huge and lucrative car smuggling industry are unemployed. Or in jail. Or dead.

THERE'S AN OLD Cantonese expression that, roughly translated, means "China is very big and the emperor is far away". China's size has meant that all who have tried to run it have found it both difficult to control and difficult to keep unified. The Communists have been no exception. Deng Xiaoping tried. When he took power in 1978, he declared "to be rich is to be glorious" and, starting with Shenzhen, opened up the south to foreign trade.

Southern China relished the opportunity and, ever since, many in Beijing have been claiming that the south is morally and economically out of control. To a large extent, they are right.

From the Vietnamese border, through Guangxi, Guangdong, Fujian and Shanghai, the coast became a lawless, 2,000 kilometre, Wild West wonderland. Combine a massive, untapped and rapidly growing market eager for quality foreign products with steep import tariffs (duty on imported cars is normally from 80 to 110 per cent) and badly paid, and therefore easily bribed, government workers with this huge, poorly policed coastline and you have a smuggler's paradise. Guangdong and its surrounds became an anything-goes consumer society where cash was king and smuggled goods became the rule rather than the exception. Its motto seemed to be "don't worry, we can handle that". A place where almost anything and anyone - including customs, police and local government - could be bought. As a July People's Daily editorial put it: "[smuggling] involves the participation of some party, government and army organisations, as well as judicial and law-enforcement departments".

The 555 cigarettes Liang smokes are stamped with Vietnamese health warnings. One of his friends smokes Marlboro Lights with US Government health warnings. Such markings mean that both packets, like the majority of foreign cigarettes in China, were smuggled (the state-owned China National Tobacco Corporation estimated in 1996 that 99 per cent of foreign cigarettes sold in the country were contraband. The labels of the Heineken bottles littering the table are marked "made in Guangdong", but they are also stamped with the tell-tale HKDNP - Hong Kong Duty Not Paid - which means the beer has passed through a bonded Hong Kong warehouse for storage, and was destined for re-exportation within the region. It may have said Thailand or Taiwan on the customs declaration, but the beer was destined to he smuggled back into a Guangdong port, avoiding China's hefty duty.

The method is a common one: a product is manufactured in China for export, sold for export with no duty paid and, with the shuffling of a shipping agents' papers, the goods are smuggled back onto the market in Guangdong. No duty paid. International products - cigarettes from Britain, cars from Japan - are also diverted from bonded warehouses. Sometimes cigarettes move half a dozen times, creating a complex paper chase that is impossible to trace.

There is a good chance the restaurant's blaring Toshiba TV was smuggled in, as well as the Mitsubishi air-conditioners and the plastic used to make the chairs and tables. Liang's four-wheel drive Mitsubishi V6 Pajero is certainly smuggled. After all, Liang is a car-smuggler.

PRESIDENT JIANG Zemin and Premier Zhu Rongji are trying to convince the mainland population to support the biggest clean-up campaign China has seen since Deng took power. Jiang Zemin said he liked what he saw when he visited the Hong Kong Garrison in June - a professional, fighting-fit body of men free from business entanglements - and wanted the PLA as a whole to follow the SAR's example. Attempts made in the early '90s to separate the army and business were unsuccessful: the PLA was powerful enough to resist the politicians. But at the end of July, shortly after Jiang Zemin's decree, General Fu Quanyou, the PLA's chief of General Staff, ordered "every unit and every cadre" to implement Jiang's wishes "without conditions" and the army was pulled in for the fight: everyone from murderers to militants has been targeted in what has become a full-on moral crusade.

At the heart of it is the modernisation of the economy. And that means an end to smuggling. China's economic saviour, Zhu Rongji, called a high-level anti-smuggling conference in Beijing in mid-July - attended by army, police and customs chiefs, provincial leaders and central committee bigwigs - during which he said the estimated value of goods smuggled into China each year exceeded 100 billion yuan. Liang's dinner table is testament to the fact that this figure could, in reality, be far bigger.

"The anti-smuggling campaign is not only a major economic struggle, but also a harsh political struggle," Zhu told the conference. Smuggling causes extensive tax losses, hinders the growth of local industries, has corrupted party and government officials, "poisoned social morals" and led to a surge in criminal activities, he said.

Zhu identified two types of smugglers: Sino-foreign joint ventures, which engage in smuggling under the cover of legal business; and companies operated by certain party and government organisations, the armed forces and even public security departments. He called for relentless punishment of the leaders of major smuggling rings, including "execution of notorious smugglers in accordance with the law".

But this political and economic war is not being fought only with the bullet. Beijing has added a more modern weapon to its arsenal, and done so quite brilliantly: television.

MOST TELEVISIONS in Guangzhou - like everything else in the forbidden-fruit-loving south - are tuned in to Hong Kong stations. But the one Liang watches with lazy derision is, for once, switched to China's flagship channel, CCTV1, where an exciting new show is about to start. China's Shield is a fly-on-the-wall documentary, a revolutionary concept in mainland broadcasting. On one level, it's a dramatic programme complete with shaky, camera-on-the-shoulder footage - about Chinese customs' fight against smuggling. On another, it's a superbly executed piece of political propaganda, combining slick Western documentary techniques with an in-your-face political and economic message: smuggling is bad. The results are spectacular.

The series shows customs officers in daring, often violent, land and sea raids, displays the smugglers' ill-gotten gains and, best of all for the audience, exposes and embarrasses people with considerable power. For most viewers this is unique and remarkable, and has turned the show into a talking point across China. Two years in the making, and shown at prime-time for five consecutive nights (tonight's programme is the last), China's Shield was credited to Beijing's Central Customs. judging by the finished product, there's little doubt some of the best television talent in China worked on it and had been given a powerful mandate. Since the anti-smuggling drive started, China's state-run printed media have been saturated with stories about the clampdown. But this is different. This is real TV, the like of which has never been seen in China before. And the public loves it.

The previous night's episode had been exciting. Real-life, high speed dai fei races and midnight dockside fights filled mainland TV screens. The images were dramatic and the message simple: 800 law enforcers had been killed fighting smugglers in 1997. "They are the heroes, not the smugglers," said the narrator.

Liang fidgets during the booming opening credits of tonight's show. It opens in a huge, quayside car park filled with new Japanese saloon cars. The cars have no number plates and still have a factory sheen. Next is a warehouse full of Sony VCDs, then one full of Hilton cigarettes. There are containers loaded with air-conditioners, compounds stacked with barrels of oil, and more warehouses, styrofoam boxes, piles of iron ore ... The message is clear. "All these goods are smuggled," booms the narrator in a deep, authoritative voice. "Who has the power to carry out such smuggling?" The show quickly supplies the answer to that one.

A reporter interviews glum former government officials in prison and asks them what they did and why. The prisoners mumble their answers. The best bit comes when the crew goes to the south coast port of Beihai. Here a senior government official is filmed through a glass door; he's asleep on a sofa in his office. The crew barges into the room and the official snaps awake, jumping up angrily.

His face changes when he sees the camera. The reporter wastes no time: "Why have you been signing false customs declarations?" The official goes white, shifting uncomfortably from foot to foot. "I have to sign a lot of papers," he says unconvincingly, implying that he doesn't know what the reporter is talking about.

Liang laughs loudly at the man's foolishness, the first time he has laughed properly all night. "He's dead," he says. And he's probably right.

LIANG IS NOT worried about execution: he says he is too small scale. And anyway, after warnings from friendly local government officials, he closed down his business. Liang was a small but profitable link in a large, lucrative car-smuggling chain that began and ended with government officials.

In 1995, after a lot of initial reluctance, he had talked to me about his business. In subsequent meetings - the necessary, southern China male combo of beer, dinner, karaoke and more beer - he had been more secretive. He had always been happy to meet, but he kept his mouth shut when asked about work. "Good" is all he would say. One confession was clearly enough. Tonight he doesn't want to say anything.

Four years ago, he wasn't concerned about getting caught. He revealed how he arranged the pick up of (mainly Japanese) left-hand drive cars at a small container port in Guangdong, where customs officers were part of the same smuggling chain. Then he would deliver the vehicles to the Jiujiang car market outside Nanhai City, 40 kilometres from Guangzhou. Business was conducted according to the ancient Chinese transportation principle of biao ju: at the pick-up, Liang's outfit would pay from 200,000 yuan to one million yuan for each car. On delivery, he would get the money back, plus 10 per cent. in a good month, they would move 100 cars. He and his partner made a lot of money.

Liang's skill was getting the cars across country, through the maze of police and officialdom. And the dangers were not always of the custodial kind. The wrong cop - or even someone with a fake police badge - could take the cars to sell himself. Liang's guanxi (connections), he said, was excellent. The relevant local Guangdong Public Security Bureau units were paid and, apart from the odd run in with the provincial police ("they normally just take my cars") and the very occasional. heart-thumping sweeps made by elite units from Beijing, he had few problems, Everyone was at it, he had explained, with a wave of the hand.

He had talked about another nationwide "clean-up" campaign that had been launched on National Day, October 1, 1995. That campaign was waged against smuggling, drug-peddling, prostitution and all things "criminal". Things had slowed down and people had to be more careful, he had said, but there was no way smuggling would stop.

Now it has. The customs men who ran the racket at the port have been arrested, Liang says, and are awaiting their fate - which is possible execution. The car market is closed. Liang believes he is safe as long as he lies low and changes his trade to something clean.

Understandably, Liang didn't want to give me a guided tour of his old stamping grounds. Dinner, yes, but would he take me to the car market? No way.

Sitting off National Highway 325, just outside Nanhai, the Jiujiang car market is a vast lot of about 600 units that was set up in 1994. Before that, the market consisted of dozens of rough-and-ready roadside car parks. Then savvy local government officials saw the potential and built this industrial estate-style lot with blocks of roller-shutter units along wide, smooth concrete roads. Perfect. The rent, paid to the "government" was, according to one sultry woman still working at an on-site car-accessory shop, a hefty 10,000 yuan a month.

In its prime, there would have been thousands of cars on view. Today, though, it's dusty and deserted. There is still a sprawling, street-side secondary market - of tyre shops, car-accessory shops and stereo stores - but inside the lot itself, except for a few lonely units, nearly all the shutters are pulled down.

The thousands of cars that once sat here would have had no registration that was left to the buyer to sort out at considerable expense (from 20,000 yuan to 80,000 yuan). Now, the few cars that are on display have been crudely doctored to make them look "legal". A batch of new Honda saloons, for example, bear registration plates from Inner Mongolia. By law, one province can't examine another province's car records, and clearly there are still some in far-away places willing to play the game.

The lack of cars at Jiujiang doesn't mean there are no longer any for sale, says Liang. Those unsold at the time of the crackdown were spirited away to countryside lock-ups and sold surreptitiously. But if a stranger asks in Jiujiang now, he gets a suspicious stare and a shake of the head.

Back down the bumpy pot-holed road into Guangzhou, there is another car market, the Guangzhou Huanan Automobile Trading Square in south Guangzhou. Hundreds of cars are still on display. Outside one showroom sits a row of four-wheel drive Mitsubishi Pajeros. They, too, have been doctored.

The Mitsubishi badges have been replaced with crude, red-tin ornaments that say Guangdong Three Star Car Factory, although there is still an original spare-tyre cover on the back. Mitsubishi does not make vehicles in the state-owned Guangdong Three Star Car Factory. Asked where the Pajero was made, the salesman said he didn't know.

According to those in the trade, before the clampdown, small "foreign" car markets littered the 300 km road from Shenzhen to the eastern Guangdong town of Shantou, Here too the shutters are all down.

THERE HAS BEEN much speculation about the links between Western tobacco companies and the smugglers who supply the world's biggest cigarette market. A former international tobacco company executive spoke about what he called the 'smutty' side of the business (known officially as the "transit" market - cigarettes sold without duty. usually destined for a bonded warehouse and resale). He said: "it wouldn't be in [Western cigarette companies'] interests to know how the cigarettes get [into China], would it? The important thing to them is that they did actually get there." After all, it is governments, not manufacturers, who benefit from duty. In the past three months, however, he estimated one company's "transit" trade had dropped 66 per cent, from 300 million cigarettes to 100 million.

Shantou was to cigarettes what Jiujiang was to cars, and it is now just as firmly closed. At the end of a street in the old part of town is a fairly small wholesale cigarette market - about 100 cubbyhole stores crammed into a winding, covered lane, all selling cigarettes by the pack, carton or large box. These days most are local brands. In the middle of a crowded courtyard, waiting for delivery, sit just three boxes, each containing 10,000 cigarettes of China's favourite foreign brand 555 (famous because Mao was believed to have smoked them). The boxes are stamped "BAT HK" (British American Tobacco) and the tell-tale "HKDNP".

"We used to buy from Lushi, further up the coast but [the market] got raided it's now closed," says one woman trader, squatting behind a counter covered with cut-out cigarette boxes and prices. "After we finish these, " she says, indicating a stock of about 40 cartons of Hiltons, 555 and Marlboros, "there will be no more ... unless we get hold of fakes." Since the clampdown, she said, representatives from foreign cigarette companies on the look-out for fakes have been much more prevalent.

BAT sells wholesale 555s for about US$300 (2,500 yuan) for a box of 10,000 (500 packets of 20). If the trader - the only person in the market willing to talk - had bought them legally with China Duty Paid, she would have paid about 5,800 yuan a box. Instead, she used to buy boxes of 10,000 from a smuggler for about 4,000 yuan each. Each pack sells for a maximum of 12 yuan, so she made a profit of about 2,000 yuan on each box. But, as reported by the Southern Daily and on Guangdong television, Shantou's cigarette-smuggling fraternity has not taken this new rule of law lying down.

On August 18, 150 members of a Guangdong Public Security Bureau antismuggling task force turned up in the village of Woi Lo, just outside Shantou, to raid two warehouses for contraband cigarettes. Someone knew they were coming: the road to the warehouses was blocked by trucks. After moving the trucks, the PSB forced open the doors to one warehouse, where they found contraband cigarettes worth two million yuan. But by the time they attempted to open the second warehouse, a crowd had gathered, reportedly numbering 1,000. There was shouting, scuffling and the mob eventually broke through police lines, taking charge of the trucks loaded with impounded cigarettes. The cigarettes from the other warehouse were apparently loaded into two more trucks and, while the crowd fought with police, driven away. A Government investigation is now underway.

A backlash is hardly surprising, considering the scale of the smuggling activity, the amount of money and the high-level local government officials involved. For years there have been tales of Chinese security forces' involvement with piracy on the South China Sea.

Pottengal Mukundan, London-based director of the International Maritime Bureau (a shipping industry body that runs the Regional Piracy Centre in Kuala Lumpur), refers to a South China Sea "triangle" touching Luzon, Hainan island and Hong Kong, where cargo ships and tankers are swallowed up. "We have seen the disappearance of seven or eight ships a year," says Mukundan by telephone from the IMB's London office, "each ship had cargo worth in excess of $2 million. There is no doubt over the last two and a half years the destination has been the south coast of China. From our evidence, all the [missing] ships have gone there. Once they are there, the chances of recovery are very small."

Mukundan cites the 1996 case of a Bangladeshi ship, the Samudra Samrat. "It left Singapore on its way to Vietnam with a cargo of steel and disappeared," he said. After an IMB investigation, the ship was found in the Guangdong port of Fengcheng, re-registered as the Celtic Ranger under a Honduran flag, on "a totally false registration". The IMB contacted the International Maritime Court in Guangzhou and a judge travelled to Fengcheng. "The system in China means a judge has to serve a writ in person ... he wasn't allowed to enter the ship, he was told he didn't have the right authority. He arrived on a Saturday and waited in a hotel in Fengcheng until Monday, when he went back to the port with more papers. When he went back to [find] the ship it had gone. It was allowed to sail away."

Mukundan also talks about the Anna Sierra, a ship carrying 12,000 tonnes of sugar valued at $5 million, that sailed from Bangkok to Manila in September, 1995. The ship was boarded in the Gulf of Thailand by 30 pirates carrying submachine guns. The crew of 23 were handcuffed and locked in cabins for two days. Then eight were forced into a small raft at gunpoint, in rough seas and without food, water or navigation equipment. Several hours later, the rest of the crew was forced into another life raft. All were picked up by Vietnamese fisherman. Later that month, the IMB received evidence that the ship had turned up in Beihai with a crew of 14 Indonesians. It had been re-registered as the Arctic Sea under the Honduran flag, although, according to Mukundan, the original markings were still visible.

After 10 months of wrangling, during which the ship's documentation was found to be false and the local PSB had offered to return the ship to its owners for $400,000, the crew was released and the cargo discharged and taken to a warehouse 30 km from Beihai. The IMB heard in 1997 that the same PSB unit had sold the cargo.

"The police in Beihai had vessel, cargo and pirates. After 10 months, they let them all go. it's a sad reflection on the Government," he says. Mukundan claimed the same crime syndicates were behind the stealing of both the Samudra Samrat and the Anna Sierra. "It's organised crime. They've got contacts, they know how to operate the ships and they've got funding. our intelligence leads us to believe it is being run by triad outfits from Hong Kong."

The case of the Petro Ranger is still under investigation. The Malaysia-registered ship was reported missing on April 17, a day after it set out from Singapore for Vietnam carrying 11,000 tonnes of diesel and kerosene. on April 26, Chinese maritime police from Haikou, Hainan Island, intercepted the tanker, 11 suspected Indonesian hijackers and a Chinese-flagged vessel that had been filled with fuel from the tanker. The Petro Ranger had been repainted, renamed 'Wilpy', and had sailed the last part of its journey under a Honduran flag. The ship's communication equipment bad been damaged but neither the Australian captain, Kenneth Blythe, nor any of his Asian and African crew, who had been locked up by the hijackers, had been hurt. While the world screamed "piracy", the Chinese said "smuggling".

Even though China has its own oil reserves, the domestic product costs far more than that available internationally, a situation that worsened when the world oil market began tumbling last October. So while the state wants users to buy the home-drilled stuff, users want to get hold of a few million barrels of the cheap stuff. In its July 1997 issue, petroleum trade magazine The Strategist said: "While smuggling oil into China ... has been a feature of the business for some years the level seen in recent months indicates a serious deterioration of the internal workings of the country's oil procurement and distribution system. The ease with which oil is taken from tankers, often berthed in international waters, by smaller vessels to end-users in the coastal cities is possible only because traffic in such a basic commodity is lucrative and enjoys popular support."

CHINA'S SHIELD concludes, predictably, with government officials and politicians in the dock. There are old photographs of them in power, usually addressing meetings or standing in front of red banners. A series of condemned faces flashes across the screen, silent except for the piercing crack of a rifle shot. "Now," says the narrator, "all these people are dead."

It cuts to tough-looking elite units of police and military, marching, standing to attention and jumping in and out of trucks. There is some stirring music, and then a cut to Zhu Rongji and Jiang Zemin - the heroes of the hour - and talk about the formation of an independent body similar to Hong Kong's ICAC. The final shot is of thick plumes of smoke and burning barges full of smuggled goods. China's Shield is over.

Liang shouts for the bill. What will he do now? "I might set up a factory," he says unconvincingly. "Try selling something to the Americans." Easy come, easy go. The bill arrives, it's about 500 yuan and Liang pulls out of his trouser pocket a wad of crisp 100 yuan bills. There must be more than 1,000 in the stack. He throws the money onto the table and heads for the door. Liang is off to his favourite karaoke parlour for a massage. It's been a stressful night.

Liang's name has been changed.