Resisting extortion...Australian residents Lily Wang and Oscar Lin refuse to cave in to 'daylight robbery'.

Resisting extortion...Australian residents Lily Wang and Oscar Lin refuse to cave in to 'daylight robbery'.

AN AUSTRALIAN-CHINESE family spent five years and $5 million building a small hydro-electric power project in north-eastern China, at the invitation of the local government.

Then an official higher up the tree, Shi Huiyun, sent a message to Oscar Lin saying there would be no problems if he ''co-operated'' and handed over a stake in the venture. The Lin family resisted, the demands grew heavier, and late on Friday they received the boldest threat yet.

''Government officials told me that the time for talking was over,'' Mr Lin said. ''They said they would come and blow up the dam on the weekend.''

Mr Shi is head of the Liaoning Provincial Water Resources Bureau. Contacted by the Herald yesterday, Mr Shi said he had no personal involvement in the case. But recordings obtained by the Herald show otherwise.

''Why do we want to keep [your project]? To give staff some benefits,'' Mr Shi told Mr Lin at a lunch on September 1.

If Mr Shi thought the Lins would roll over then he miscalculated. Mr Lin and his wife, Lily Wang, are New Zealand passport holders and Australian residents; their 26-year-old son, Chris, is an Australian citizen. And they are pulling every lever they can.

''We are pushing ahead because we have nothing to lose,'' said Ms Wang. ''It's daylight robbery, a 28 million yuan [$4.7 million] joke,'' said her son.

The confrontation comes two months after the arrest of the Australian citizen Stern Hu and three of his Chinese colleagues at Rio Tinto, adding to concerns that foreign investors are increasingly exposed to

the arbitrary exercise of power in China. The risks are greatest for foreign citizens who are ethnic Chinese and sometimes expected to abide by China's ''hidden rules''.

More broadly, there is a growing unease in China that corruption, extortion and official thuggery may be on the rise, despite Beijing's high-profile campaigns to eradicate them.

Mr Shi appears to have orchestrated a series of bureaucratic objections to the hydro-electric project, even though the Lin family had secured approvals from all the relevant departments.

Mr Shi said the project ran into trouble because the construction site had shifted since the plan was approved and because the new site was on government land, at the foot of a huge government water diversion tunnel.

His latest objection conveyed to the Lins is that the dam will ''affect the view'' at an official ceremony scheduled for next Monday to open the tunnel, which state media describe as the world's largest of its kind.

The 85-kilometre tunnel will channel water from near the North Korean border to supply the needs of 10 million people in central Liaoning province.

On Saturday an explosives team arrived at the dam wall but it dispersed after being told a foreign journalist would be there to record any fireworks.

Officials told the family their dam must be gone by tomorrow.

The hydro project received a boost with approval to connect its generator to the national electricity grid. This virtually guaranteed the project would be highly profitable. And that's when Mr Shi stepped in.

Mr Shi's family controls a portfolio of coal, copper and iron ore mines. His personal powerbase is in the neighbouring township, Huanren, where his brothers are involved in a sandmining monopoly that has prospered from a freeway and two railway projects in the area.

The freeway was recently mired by an extortion incident involving guns, knives, serious injuries and two of Mr Shi's close relatives.

''I am personally not involved in any business dealings,'' Mr Shi told the Herald. ''And even if my relatives and family members are involved in any violations of the law, they should carry the legal responsibility by themselves. It has nothing to do with me.''

Mr Lin described how his project had been misrepresented. ''Shi Huiyun told every important leader that our project would affect the flow of water in the nationally important water diversion tunnel,'' he said.

His wife still hopes Beijing will intervene, but says: ''Foreigners should not invest in China. It's no use. When they see something valuable, they steal it.''

with Sanghee Liu