The rise and fall of a career cadre

PUBLISHED : Sunday, 25 June, 2006, 12:00am
UPDATED : Sunday, 25 June, 2006, 12:00am

The scandal that claimed a vice-mayor of Beijing spread last week to the property sector, with the chairman of one of the city's top developers being interrogated as part of a widening probe, which threatens to cast a shadow over the Olympics.

Beijing Capital Land (BCL), the mainland's sixth-largest real estate firm, said on Wednesday that its chairman, Liu Xiaoguang , was being questioned in connection with the investigation into vice-mayor Liu Zhihua, who was detained on June 9.

According to sources in Beijing, Mr Liu is one of several property tycoons being questioned as part of the case. Shares of BCL on the Shanghai stock market were suspended on Wednesday and fell 2.23 per cent when they resumed trading on Thursday.

The news of the questioning of Mr Liu, stopped at Beijing airport on June 16, gave some clues as to the real reasons behind the dismissal of his namesake.

Many people believe that it was related to land deals for which he had a major responsibility as the vice-mayor responsible for property development and construction.

Industry sources said that the focus of the investigation of Liu Xiaoguang concerned the auction at the end of May of the Morgan Centre, a half-finished building on a prime site close to an Olympic venue in Beijing's north.

Work on the project stopped in October 2003 when the developer ran out of money and the city government put the site up for auction, against the objections of the developer.

Beijing Capital Land outbid five other companies for the site with an offer of 1.761 billion yuan for the property, more than 200 million higher than the second-highest bid.

The size of the bid surprised many in the industry, leading some to suspect something irregular.

BCL is a powerful company with interests in infrastructure, tourism, hotel and industry as well as property and a land bank of 4 million square metres, of which more than 90 per cent is in the capital, giving it the title of 'Beijing's Land King'.

Officially, not much has been said about the reasons for the vice-mayor's arrest. In a brief statement on June 11, Xinhua said that Liu Zhihua had been fired 'because of his corrupt and degenerate ways' in the face of incontrovertible evidence received by the authorities. Since then, the mainland media has given no more information about the most high-level dismissal since the arrest of Beijing party chief Chen Xitong in April 1995.

In July 1998, Chen was sentenced to 16 years in jail for embezzling US$2.2 billion of public funds during his time as party chief from 1987 until 1995. At the court he pleaded innocent and continues to deny any wrongdoing.

The official silence about Liu Zhihua is expected, but has angered many people. The rise and fall of such a powerful official in the Chinese city hosting the Olympics for the first time cannot be explained in a single paragraph.

Born in Panjin , Liaoning province , in 1949, Liu graduated from university with a degree in economics and served in the Beijing and National Labour Bureaus, in the Western District of Beijing and was appointed vice-mayor of Beijing in 1999, ranking fourth among the nine vice-mayors.

His was a particularly important portfolio - responsible for construction, property redevelopment, sports and public transport - making him a key player in construction projects for the Beijing Olympics.

Since 1999, vast areas of the city have been demolished and replaced with residential and commercial high-rise property, with prices more than doubling during that time. This has made real estate one of the most lucrative businesses and opened up officials who control the sale of land and permits to bribes and kickbacks that run into the millions of dollars.

The Beijing Organising Committee said that Liu held no position with it and that his arrest would not affect the preparations. IOC spokeswoman Giselle Davies said the update it had received from Beijing was that the charges were not Olympic-related.

The official secrecy has Beijing residents speculating on reasons for the arrest. They believe the charge of degeneracy is not unusual for high officials. Liu is said to have several mistresses, some introduced by developers competing for his favour. Woman reporters who have interviewed him say that his salacious behaviour and body language made them feel uneasy.

On weekends, he used a pleasure palace called Xanadu in a high-security compound in Huairou county outside the capital which is full of luxury villas belonging to senior Communist Party officials and rich business figures. Domestic staff and several beautiful young women at his villa have been ordered to stay at home to help the police investigation.

In this, Liu's life was similar to that of Chen, who had a luxury villa in western Beijing with a mirror on the bedroom ceiling where he took his mistress, the sales manager at a city hotel, at weekends.

But this behaviour is not sufficient cause for dismissal, especially at such a sensitive moment two years ahead of the Olympics.

Four other hypotheses are possible.

The first - and most plausible - is that he fell foul of the fierce competition for land. The party-controlled Wen Wei Po newspaper in Hong Kong said that a disgruntled businessman had alerted the authorities to Liu's corruption. Most likely, he had paid a bribe in return for land, had not received it and, in anger, reported Liu.

The second is that he was a scapegoat for soaring house prices in Beijing, which along with Shanghai, has seen the fastest growth over the past five years, a bonanza for the city government and property developers but a disaster for people on low and medium incomes who are forced to take out increasingly high mortgages.

The third concerns possible poor construction quality at Olympic venues, which may even have required the demolition and rebuilding of some. Given the national prestige at stake for the Games, that would be sufficient cause for the government to fire Liu.

The fourth is that he was the victim of a power struggle ahead of a leadership reshuffle at a five-yearly meeting of the Communist Party next year.

Reuters reported last week that party chief Hu Jintao himself ordered the sacking at a secret meeting to prevent Liu's political patrons from protecting him.

Meanwhile, in his cell, Chen Xitong remains defiant. He has refused an offer of medical parole, insisting he be released unconditionally saying he is innocent and not ill. 'I will die before I admit my guilt. There are political factors that have consigned me to death. I will raise protests and appeals,' he has told investigators.

His supporters say that he was the loser in a power struggle with then party chief Jiang Zemin , whose authority he challenged.

Then, as now, control over land for property development was the most lucrative source of patronage.