An investigation into accusations of financial irregularities by the China Youth Development Foundation, which oversees charity Project Hope, has been launched by the Central Disciplinary Inspection Commission and Communist Youth League.
Officials from the disciplinary commission have approached Liu Yang, the former foundation accountant who has made accusations about Project Hope's investments. The committee has collected documents from her, according to a source.
The Project Hope accusations have caused alarm among members of the Standing Committee of the Politburo, the highest decision-making body.
Ms Liu said a senior government official had told her it was 'a major economic case with very strong political implications'.
'It affects the reputation of our party and country,' she quoted the official as saying. The upcoming investigation into the accounts and financial management of the foundation is expected to spread out to the provincial level of the foundation.
According to allegations, a few local units of the foundation lent money from donations to the foundation headquarters in Beijing in the hope of earning interest.
The foundation lost a lot of money through risky investments, according to its 1997 audit report and former staff members. Such lending and borrowing activities are banned by government regulations.