Beijing's graft inquiry reins in Shanghai 'clique'

With its rooftop turrets and fancy brickwork, the Moller Villa is a throwback to the Roaring '20s, when the treaty port of Shanghai, China, was a byword for speculative excess. Built by an Englishman, the Norwegian-style hotel now rents luxury suites to foreign bankers lured by the promise of China's new bull market.

But since August, when it abruptly closed its doors to the public for "refurbishment," a different kind of drama has unfolded behind its high walls. Investigators from the Communist Party's disciplinary committee have turned the hotel into their temporary headquarters as they probe a blossoming financial scandal that has already snared Shanghai's political boss and some of his closest business allies.

The fact that Shanghai has been tarred is no coincidence, say political analysts. The probe plays to the strengths of President Hu Jintao as he seeks to define his leadership and consolidate his power.

Mr. Hu is keen to marginalize opponents loyal to his predecessor, Jiang Zemin, who packed the party's ranks with officials from his powerbase in Shanghai.

Chen Liangyu, the party boss dismissed last month, was a member of this "Shanghai clique," and his removal could prefigure a wider purge ahead of a crucial party congress next year.

More arrests are expected to follow in what has become China's biggest graft case in a decade and a pressure point for reformers intent on curbing the cronyism shadowed by Shanghai's red-hot economy.

Last week, the party's central committee held a meeting on "building a harmonious society," the favored slogan for easing the tensions stoked by a yawning gap between China's haves and have-nots.

"The central government is giving a strong signal against corruption. We have to slow down, and we have to have equity before efficiency," says Larry Lang, a US-educated economist and former talk-show host in Shanghai.

Under Mr. Jiang, who retired in 2002, Shanghai rapidly regained its pre- communist reputation as China's most business-friendly and cosmopolitan city. Tax perks and 21st-century infrastructure brought in foreign investors, and urban redevelopment tied the architectural heritage of its past to a space-age vision of its future. Officials had a hotline to Beijing, which touted Shanghai as a showcase commercial city.

"Other provinces were jealous of Shanghai. They asked, how come they get so much support from Beijing?" says Zhang Jun, director of the China Center for Economic Studies at Fudan University in Shanghai.

That support is waning with the ascendancy of Hu and Premier Wen Jiabao, neither of whom have political ties to Shanghai. Their emphasis on social welfare and more equitable development is a shift from the go-for-broke growth that lit up Shanghai's skyline. China's rust belt northeast may be the beneficiary: Tianjin recently beat Shanghai in a bid to host an assembly line for European airplane maker Airbus.

More broadly, China's leaders are trying to rein in city and provincial leaders who increasingly thumb their nose at party directives on sustainable growth. Officials in Inner Mongolia Province were criticized this year for building a $365-million power plant without permission, then ignoring a direct order to stop its construction.

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