Chinese courts jail East Star's owner for tax evasion

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The owner of East Star Airlines, a privately-owned Chinese carrier that went bankrupt in August, has been sentenced to four years imprisonment for tax evasion.

A court in Wuhan found that Lan Shili was guilty of ordering his staff to hide more than 500 million yuan ($73 million) of revenue to avoid paying 50 million yuan in taxes.

East Star was declared bankrupt in August after a court in Wuhan, where it was based, rejected a plan by its parent East Star Group and another company to inject 200-300 million yuan into it. The airline was launched in 2005 with the backing of East Star Group, a large Chinese travel agency.

In March 2009, the Civil Aviation Administration of China (CAAC) grounded the airline at the behest of the Wuhan Government, which said that the carrier could not pay the money it owed and that its internal management was weak. The Wuhan courts announced its liquidation in late August.

Air China, the country's flag carrier, had tried to buy East Star in March 2009 as part of a government-led attempt to consolidate the domestic airline industry. However, the privately-owned carrier rejected the offer.

Lan disappeared in the middle of the negotiations, and government officials later said that he was picked up while trying to leave the country and placed under house arrest.

In November, the Wuhan authorities held an auction of East Star's assets and Air China picked them up for 23.23 million yuan. Air China had announced plans to set up a base in the city before that.

Separately, Air China increased it stake in Shenzhen Airlines to 51% in March. This came after Shenzhen's majority shareholder Li Zeyuan and its president Li Kun came under investigation for alleged unspecified "economic crimes".