The nattily dressed car salesman grinned when asked how he could offer the brand new vehicle at half the usual price quoted at state-approved dealerships.

"To be in this business, you have to know people," he said with a swagger.

China has launched a crackdown on smuggling to try to put Shantou's fast-talking car salesmen out of business, and with them an army of shady dealers along the China coast.

But if the illegal commerce conducted in broad daylight in Shantou's Automobile Trade Market is anything to go by, it will be a long hard slog.

"We've had to educate local grass-roots cadres who held mistakennotions like `smuggling does no harm' and `smuggling helps economic growth'," explained Xie Weizheng, head of the Shantou municipal government's Anti-Smuggling Office.

"They do not understand that smuggling harms the entire national economy," he said.

Xie's words echo warnings issued by premier Zhu Rongji that rampant smuggling was undermining China's economy and threatening the government's 8.0 per cent growth target for this year.

Smuggling not only robs Beijing of badly needed customs revenues but also squeezes the profits of some of China's most important state-owned industries, including petrochemicals and steel.

And the corruption that goes hand-in-hand with smuggling has eaten into China's civil service and customs authorities, causing bitter public resentment.

Educating local officials may be the easy part. Far more difficult to rein in will be the military and security forces which have built a vast business out of smuggling and run it with impunity, protected by high-level generals andhigh-powered weapons.

Several years ago, a number of super-luxury yachts that went missing from their typhoon shelter moorings in Hong Kong turned up in naval bases near Shantou in Guangdong province.

Chinese media have touted the success of the anti-smuggling campaign. One report said customs had confiscated 5.4 billion yuan worth of contraband goods in the first eight months of the year, up 32 per cent from the same period last year.

But the geography of China, with a seaboard stretching from the frozen north near Siberia to the coral reefs of the tropical South China Sea, gives smugglers the advantage.

Indeed, China's vulnerability to smuggling was proved most dramatically more than a century ago when British traders flooded the country with opium from India. The drug was mainly spirited through Guangdong province.

Modern-day "Open Door" trade policies have made life even easier for smugglers, particularly in Shantou, which has more than 200 miles (321 km) of coastline and easy importpolicies.

Xie said Beijing considered the eastern Guangdong coast one of China's worst hotbeds of smuggling activity.

Shantou is most notorious for contraband cars. But Xie said other illegal cargoes included oil products, cigarettes and electronics parts.

High import taxes have made these goods the most commonly smuggled commodities across China.

Contraband made its way into Shantou through two main routes, Xie said.

Most arrived on ships with ring leaders controlling the operation from overseas, making the chief culprits difficult to catch, he said.

In other cases, state-owned enterprises and export-processing firms in the Shantou Special Economic Zone obtained foreign goods through legitimate import licences but sold them on the black market.

While Guangdong has cracked open high-profile cases of military-backed smuggling rings, Xie said none had been uncovered in Shantou so far.

But provincial military officers placed "great importance" on the problem, he said.

"We have made contact withair force officers from the regional military district, who wanted to find out if the army was involved in smuggling here," he said.

President Jiang Zemin this year ordered the People's Liberation Army to abandon its sprawling commercial empire, citing its involvement in smuggling as one reason.

"The road ahead will be extremely difficult, and the struggle will go on for a very long period of time," said Xie.

Meanwhile, the fast-talking dealer in Shantou's Automobile Trade Market is busy finding a buyer for a black Mercedes-Benz limousine.

"This one just came in," he said, pointing to newly broken factory stickers in German over the doors.

"It's fresh out of the oven."