NBC News and news services
updated 9/25/2006 11:09:35 AM ET 2006-09-25T15:09:35

Shanghai’s top leader was dismissed Monday for alleged corruption, the highest level official to be axed in more than a decade as President Hu Jintao moves to consolidate his power.

Chen Liangyu, the financial center’s Communist Party secretary, was also kicked off the party’s powerful Politburo and is under investigation by its anti-graft watchdog, the Central Commission for Discipline Inspection, the official Xinhua News Agency said.

As a senior member of the party’s so-called “Shanghai faction,” 59-year-old Chen is viewed as a political rival to Hu, who has been expanding an anti-corruption crackdown in the runup to a key party congress in 2007.

In Shanghai, party investigators are conducting a top-level probe over alleged illicit investments of pension funds in real estate and other infrastructure. Chen is accused of aiding illegal businesses, shielding corrupt colleagues, and abusing his position to benefit family members, Xinhua said.

Corruption crackdown
Chen’s case already is being touted as an example of the party’s determination to fight the corruption that permeates Chinese public life.

“No matter who, no matter how high ranking, if they’ve violated party rules or the law, the investigation will be earnest and the punishment severe,” Xinhua said.

Observers said Chen’s ouster showed Hu in firm control ahead of next year’s 17th Party Congress.

“It’s easy to see that people like this sort of thing,” said Li Datong, former editor of a weekly supplement in the party’s China Youth Daily newspaper.

“This looks like Hu Jintao is getting ready to take some pretty major steps,” Li said.

Shanghai Mayor Han Zheng was appointed acting party chief, Xinhua said.

Staff at the city government’s press office said they were checking the reports but had no further comment.

‘Odious political impact’
The scandal involves at least one third of a $1.2 billion city pension fund and has already led to the removal and detention for questioning of the city’s labor chief, a district governor and several prominent businessmen.

The ranks of those detained in the Shanghai probe include executives in Shanghai’s biggest industrial conglomerate as well as well-connected city officials.

Chen “gained advantages for the heads of some illegal businesses, shielded people he worked with, engaged in serious violations of law and discipline, using his position to gain improper advantages for relatives, and other serious violations of discipline,” Xinhua said, citing the ongoing investigation.

“This created an odious political impact,” the report said.

The last Politburo member to be purged for corruption was former Beijing party secretary Chen Xitong, who resigned in mid-1995 and was sentenced to 16 years in prison. He was quietly released on medical parole earlier this year after serving eight years of his sentence. Chen is a common family name in China and the two men are not related.

Shoring up political power
The post of party chief for China’s biggest city has traditionally been a steppingstone to higher positions in the central government. Because of that, top leaders usually have tried to appoint proteges who will support them.

Next year’s congress will reapportion jobs among the political elite, with Hu, who heads the party, expected to install favored leaders for his second five-year term.

Shanghai is a bastion of Hu’s predecessor, Jiang Zemin, and Chen’s removal could be part of a strategy to weaken rivals in the collective leadership for Hu to better position himself and the allies he wants to maneuver into place.

Chen was viewed as a Jiang protege and therefore an ally in the former leader’s attempts to wield influence even in retirement. He reportedly clashed with Premier Wen Jiabao over Beijing’s efforts to cool economic growth, lobbying instead for ambitious infrastructure projects for China’s wealthiest and most populous city.

“It’s a serious warning to corrupt officials and to those who don’t toe the party line,” said Joseph Cheng, director of the Contemporary China Research Center at Hong Kong’s City University.


Official message: Not just a power struggle
China's tightly controlled Websites let loose an avalanche of supportive comments from the public, with the Sina.com alone carrying over twenty thousand messages a few hours after the official confirmation of Chen's downfall.

"Let's lit fireworks and celebrate!" wrote one reader.

"This reflects the people's voice, and I hope this will open a new chapter in our fight against corruption!" said another.

"There are too many corrupt officials...Housing prices in Shanghai have shot up to the sky, people have no place to live and only speculators and corrupt officials have benefited," complained another one.

"We must wage a people's war against corruption," demanded one.

The basic messages clearly underline the calculated attempt of the central leadership in Beijing to present Chen's fall from grace as a corruption issue and not a power struggle.

Though Chen's case represents the biggest scandal to have hit China's financial capital in recent memory, some Shanghai residents contacted by telephone said the city is "calm.”

"Nothing unusual here, and actually we don't involve ourselves in politics as we are too busy already making a living," said one resident who requested that she not be identified.

Further reshuffles expected
Major reshuffles of local leaders are planned for many areas ahead of the congress, the Beijing-linked Hong Kong newspaper Wei Wei Po reported Monday. It said local leaders who have defied Beijing’s economic policies would be singled out.

Xinhua said the Politburo met on Sunday to discuss a preliminary report on the investigation into Chen presented by the Central Commission for Discipline Inspection.

With his protector Jiang now descending into political obscurity, Chen could face a lengthy jail term or other harsh punishments.

“Sacking Chen shows that Jiang has no power to protect his proteges and is in no position to affect the choice of new leaders,” said City University’s Cheng.

Chen was last seen in public on Friday at a meeting of chief justices from China, Russia and four Central Asian states. Mayor Han also attended, but neither man spoke in public.

It was unclear what impact, if any, the scandal may have on Vice Premier Huang Ju, the most senior leader in the Shanghai faction and sixth-highest ranking Communist Party official.

Huang disappeared from the political scene early this year amid reports that he had cancer. But in recent months he has made a number of public appearances.

NBC News' Eric Baculinao contributed to this report from Beijing.

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