The power struggle behind China’s corruption crackdown

BEIJING/HONG KONG, (Reuters) – Liu Han seemed to thrive in the company of officials.

Even a birthday party in 2011 for Liu’s primary-school aged son drew a crowd of bureaucrats in Chengdu, the capital of China’s western Sichuan province where the flamboyant mining tycoon was based.

“There was a mayor of a nearby city with a population of three or four million,” recalls Australian political lobbyist John Halden who helped win approval for Liu’s mining investments in Western Australia and was invited to the October 15 celebration. “There were senior people from the provincial treasury and about seven or eight officials from the city of Chengdu.”

But Liu’s close ties with officialdom didn’t last. When Chinese President Xi Jinping was named President at the end of the annual parliamentary session in March last year, the 48-year-old Liu was detained and surrounded by a different class of public servants; corruption investigators and prison guards.

The billionaire head of the privately-held Sichuan Hanlong group of companies is the first high-profile casualty of a power struggle wrapped in a corruption crackdown that is convulsing the senior echelons of the ruling Communist Party.

A verdict is expected Friday after Liu’s sensational trial on charges of murder, gun-running, fraud, extortion, illegal gambling and a string of other offences. He has denied all the charges.

Liu’s most serious offense, however, could well be political: He was caught up on the wrong side of a titanic power play, multiple sources say, because of his business partnership with the son of former domestic security chief, Zhou Yongkang. In a campaign unprecedented in modern China, Xi is determined to bring down Zhou for making a behind-the-scenes grab for power, the sources say.

 

PATRONAGE NETWORK

 

To get at Zhou, Xi last year began rolling up the strongman’s extensive network of patronage, assembled over more than four decades in the oil industry, Sichuan provincial politics and the internal security services.

More than 300 of Zhou’s relatives, political allies, business associates, underlings and staff, have been arrested, detained or questioned, according to people briefed on the investigation. Liu was one of them.

Investigators have targeted the giant, state-owned China National Petroleum Corporation – where Zhou was once general manager and Communist Party Secretary – and its subsidiaries.

First, they detained six senior executives from the oil giant late last year. Then, late last year, Xi launched a probe into Zhou himself and people around him. Several of Zhou’s men have been felled, including Jiang Jiemin, briefly the top regulator of state-owned enterprises, and former Vice Minister of Public Security Li Dongsheng.

Authorities seized assets worth at least 90 billion yuan ($14.5 billion) from Zhou’s family members and associates, two sources said. Liu’s assets were included in these seizures. Ahead of his trial, the official Xinhua news agency reported that authorities had last year “seized and frozen enormous amounts assets of Liu Han and the Hanlong group”.

Zhou is the most senior leader targeted in a corruption probe since the Communists took power in 1949. With the approval of China’s two previous leaders, Hu Jintao and Jiang Zemin, as well as other senior officials, sources close to the leadership say, Xi broke with an unwritten rule that incumbent and retired members of the Standing Committee were immune from corruption investigations.

The Communist Party’s Central Commission for Discipline Inspection, China’s top anti-corruption watchdog, and the Ministry of Public Security declined to comment on the investigation when reached by telephone. The office of the Communist Party spokes-man also declined to comment when reached by telephone. Although he retired in late 2012 from the elite Politburo Standing Committee, the apex of political power in China, the 71-year-old Zhou wanted to rule from behind the scenes and had become a threat to leadership stability, according to multiple sources with leadership ties. One of Xi’s influential patrons, former vice president Zeng Qinghong, was the catalyst for the investigation into Zhou, three sources with ties to the leadership said.

“Zeng proposed to central (authorities) that Zhou Yongkang be investigated for posing a political risk to the collective leadership,” one of the sources said. Neither Zhou nor his representatives were available for comment. No evidence has emerged that Zhou or his relatives have violated any Chinese laws or used Zhou’s influence to clinch deals.

 

“TIGERS AND FLIES”

 

As part of his vision for a rejuvenated China, Xi is preaching a return to the austerity of the Party’s early years. An attack on corruption is at the core of this campaign. Xi pledges to go after “tigers and flies” in rooting out wrongdoing. He warns that popular disillusionment with rampant official graft threatens the Party’s hold on power. While there is little risk for Xi and his supporters in taking down Liu, a similar move against someone as senior as Zhou Yongkang will take much more political courage.

“If the leaders are using the corruption crackdown just to bring down their political rivals, there will be grim consequences, as many officials in China are believed to have corruption problems,” says Zhao Guangbin, managing director of Shanghai and Toronto-based consulting firm, Gateway Inter-national Group.The government and state media have not made any official statement about Zhou or the case against him. An announcement is expected around the fourth plenum of the party’s elite 205-member Central Committee later this year, two sources said. Xi and other top leaders have yet to decide whether to put Zhou on public trial, according to multiple sources with leadership ties.

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