Thursday, August 24, 2006

'Shanghai Noon' for Chinese Toll Road Operator

Shanghai district chief probed in fund scandal

August 24, 2006

By Andrew Torchia
Copyright 2006

SHANGHAI (Reuters) - More than 100 investigators from Beijing have arrived in Shanghai to probe a corruption case involving government pension funds, the biggest scandal in the city for decades, Chinese state media said on Friday.

The governor of Shanghai's Baoshan district, Qin Yu, is being investigated for a severe breach of discipline, a spokeswoman for the city said, declining to provide details.

Qin, one of 19 district governors, is the second Shanghai official to be publicly linked to the scandal which the state-owned China Securities Journal described as the city's biggest since economic reforms began in the 1980s.

Chinese leaders have said the government faces self-destruction if it fails to curb graft and the state has launched a series of campaigns to crack down on corrupt officials.

The central government in Beijing has sent more than 100 personnel to Shanghai to investigate the affair on a long-term basis, the newspaper reported.

Beijing sometimes sends its own personnel to other regions during crackdowns on crime to ensure that officials cannot use their local influence to protect themselves.

Some analysts believe the Shanghai scandal is linked to national politics and could be a useful tool for President Hu Jintao, who took over as Communist Party leader in 2002, to further consolidate power by pressuring rivals with power bases in Shanghai.

"Central authorities will likely prevent direct incrimination of Shanghai's top leadership, but they will use the scandals to weaken local authorities enough to enable Hu to transfer them out of the city during next year's party congress," U.S.-based consultancy Eurasia Group wrote in a report.

Earlier this month, the Shanghai government confirmed that Zhu Junyi, director of the Shanghai Municipal Labor and Social Security Bureau, which supervises city pension funds, was being investigated. He has been stripped of his positions.

Zhu is suspected of impropriety involving a 3.2 billion yuan ($400 million) loan of city funds to toll road operator Fuxi Investment Holding Co., according to state media.

Fuxi's chairman, Zhang Rongkun, who has risen from obscurity to become one of China's richest men this decade and is still in his early 30s, has been detained for questioning.

Zhang was ranked China's 16th richest man by Forbes magazine last year with an estimated fortune of $605 million.

Zhang is also non-executive director of Hong Kong-listed Shanghai Electric Group, China's top power gear maker, in which he owns about 8 percent.

Former Shanghai Electric chairman Wang Chengming and executive director Han Guozhang have been detained in the scandal, the firm and city officials said.

The scandal has jolted China's short-term debt market because of concern about the ability of Fuxi, which saw its credit rating slashed this month, to redeem 1 billion yuan in one-year bills.

The country's largest bank, Industrial and Commercial Bank of China, sought to reassure the market this week by issuing a statement saying it had consulted the Shanghai city government on plans to redeem the bills.

Fuxi, one of the largest private investment firms in the city, and Shanghai Electric have said their businesses continue to operate normally.
($1 = 7.97 yuan)

(Additional reporting by Lucy Hornby and George Chen)

© 2006 Reuters :