Beijing's graft inquiry reins in Shanghai 'clique'

"It's not just about Shanghai. It's about the balance of power. If you look back in Chinese history, it's always a challenge for the center to deal with regions that have grown too powerful, wealthy, and independent," says Qin Shao, a history professor at the College of New Jersey in Ewing.

Mr. Chen, the disgraced party boss, hasn't been formally charged. State media have reported that he is accused of diverting city pension money to invest in risky private ventures, including a toll-road operator. Investigators have detained Zhang Rongkun, the owner of the toll-road company, who was last year named as China's 16th-richest man by Forbes magazine, along with other prominent politicians and businessmen.

Chen, who was Shanghai's mayor before his promotion to party secretary, had survived earlier graft scandals at city hall, gaining a Teflon reputation. When Mr. Lang, the talk-show host, began airing allegations in January of the misuse of pension funds, his show was pulled from state-run television. The official reason: Lang wasn't speaking in the correct dialect of Mandarin.

But the net quickly closed in on Chen after the arrest of the director of social security in August for alleged embezzlement. Last month he was dismissed from his post and suspended from the national Politburo.

Few details have emerged of how Shanghai's $1.2 billion pension fund was plundered. One sector of the economy that benefited, however, was real estate.

Property prices have skyrocketed over the past decade, as huge tracts of this densely packed city of 17 million people have been turned over to developers for urban renewal. Bulldozers have reduced old neighborhoods to rubble, ready to rise again as glass-clad condos.

This speculative real-estate boom has created winners – and losers. Among the latter are residents forced to move with minimal compensation to make way for the rich and connected, creating the kind of anger and resentment that is brushwood for the protests that China's leaders are struggling to contain.

In recent weeks, disgruntled property owners have gathered to vent their frustration, seizing on the pensions scandal to demand justice. A separate group of pensioners has also stepped up their campaign for better treatment.

"China's economic development is at a huge human and social price," warns Ms. Shao, of the College of New Jersey, who is writing a book on Shanghai's urban redevelopment. "Without a well-enforced legal framework to protect the powerless, the process has generated a great deal of grievances, and the center is feeling the pressure."

As Shanghai falls from favor, its buoyant economy may undergo a correction as more resources are redirected to China's poorer provinces. A ban on foreigners buying real estate is already cooling Shanghai's property market – though not the relocation of a further 18,000 households for construction ahead of the 2010 World Expo. Local businessmen are betting that whoever takes charge will want the city to keep growing.

Shanghai's boosters say that after the fuss dies down, its world-class infrastructure, strategic location, and hardwired capitalist ethos will prove hard to beat. "Once you remove the corrupt officials, Shanghai is still moving forward. It's in the blood. Shanghai people are entrepreneurs, and you can't take that away," says Lang.

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