On the morning of August 5, the end of a narrow street in Lower Manhattan was thronged with about 200 sign-bearing protesters and a dozen or so reporters. A regular scene in the hustle and bustle of New York, except most of the protesters were Chinese, as was the name on their signs: John Liu.

Many were chanting: "Give Liu the money."

For a largely quiet ethnic group often perceived as somewhat submissive, such a roar is rare, and it is even rarer that the mainstream media were there to listen. It was, though, a protest that failed.

In a building further up Rector Street, the city's Campaign Finance Board (CFB), which oversees the fundraising activities of political contenders, was meeting to decide who among this year's candidates for mayor would be eligible to receive public funds for their election campaigns. The fund, set up to limit the influence of wealth in politics, matches the money raised by candidates who opt to participate in the programme using a 6:1 ratio (relating only to the first US$175 from each New York donor) providing they follow strict rules on fundraising and spending.

After a short closed-door discussion, the board's chairman, the Reverend Joseph Parkes, solemnly announced its decision to the 30 or so people who had managed to get into the small meeting room. Liu, the city's comptroller, had become the only major candidate this year, and indeed in recent memory, to be denied their entire portion of the matching fund - a total of more than US$3.5 million and money his campaign had been counting on for the election this year.

Liu was already trailing four other candidates in the running for the Democratic primary - which will decide who will go head-to-head with a Republican contender - and the loss puts him at a huge disadvantage. He won't have the same ammunition as his rivals for advertising and other campaign activities - and the decision in itself taints his campaign.

Liu's supporters are seething with anger. Some have called the board members criminals. Others have vowed to donate more money and time to help him win.

"He is mistreated. He needs our support more than ever. This is a time we Chinese should all stick together," says Joy Chen, a retired garment factory worker living in Chinatown who hasn't donated to Liu but now plans to do so.

Liu has long been considered someone to be proud of by New York's Chinese. When, in 2010, he became comptroller - essentially the city's auditing officer and the managing trustee for its pension funds - he also attained the distinction of becoming the highest-elected Chinese official the city has ever had. He showed, and continues to show, both the will and the potential to become mayor - which would be another first in the almost 200-year history of Chinese Americans in New York.

The unusual scrutiny has prompted inevitable cries of unfairness and even racism. Meanwhile, the basis of the CFB's decision - investigations by the Federal Bureau of Investigation into irregular fundraising activities around Liu's campaign that led to the recent convictions of two of his associates - reflects a misunderstanding of the American political system among Chinese voters.

But a setback such as this is nothing new for Liu, a politician with 12 years experience who never concealed his ambition to become mayor when he was elected comptroller, one of the three most prominent public positions in the city.

"The 'campaign' against my campaign has been going on for years," Liu tells Post Magazine. "[The CFB's decision] absolutely weakens my campaign. But the strength of my campaign has never been money but people. I am not going to be knocked down."

He has shown resilience in the past, revealing himself as a dark-horse election winner after being underestimated on more than one occasion.

Taiwan-born Liu moved to the United States as a five-year-old, when his father, Joseph, came to study. His father became an entry-level clerk at a bank after getting an MBA; his mother worked for garment factories to make extra money. Times were hard and racism occasionally raised its ugly head but the couple kept their faith in the American dream and named their three sons John, Robert and Edward, after the Kennedy brothers.

After a few years working in the private sector, as an actuary, a 30-year-old Liu started on his political path. In 1997 he ran for a City Council position in the Chinese- and Korean-dominated district of Flushing, in Queens. His opponent, incumbent Julia Harrison, who was then in her late 70s, based her campaign on an "Asians invading" pitch. Liu lost because many Asian residents were, for various reasons, unwilling or unable to vote at that time.

Four years later, he ran for the position again. This time, his campaigning coincided with a court case against his father, one of the directors of a bank involved in an inappropriate business deal. Liu's rivals tried to hammer him with the case, but he didn't bend. With a narrow margin - and shortly before his father was sentenced to six months in prison - he became the first Asian American in the 51-member City Council.

In 2009, after two terms in the council, Liu stood for the citywide comptroller's position against three strong candidates. This time, his bid was hit by an investigative story by the New York Daily News focusing on a campaign advertisement that claimed he helped his mother in a sweatshop when he was a child. The reporter found Jamy Liu had never worked in garment factories but had, instead, taken the work home. Liu was called a liar by some mainstream media and various polls predicted his defeat. Nevertheless, he won after a bitter run-off.

"No matter what the attacks are, at the end of the day nobody ever attacked my core principles or my record," says Liu. "Look at this year, a lot of terrible publicity. But no one has questioned the work I've done as a comptroller; the fact we saved billions of dollars through our auditing; the fact we created thousands of jobs through our construction plans; my investment record for the pension funds.

"They cannot attack what I've done so they are trying to go after me on the silly fundraising questions."

This time, however, the waves are much more threatening, and Liu knows it.

"Running for mayor is not a simple thing," he says. "The stakes are very large, therefore the attacks will be larger."

After 12 years in office, Mayor Michael Bloomberg will finally be termed out of office at the end of this year, providing a long-awaited opportunity that has stirred up the ambitions of many big players.

Among Liu's Democratic competitors are Christine Quinn, speaker of the City Council, who is close to Bloomberg; Public Advocate Bill de Blasio, who is now leading the polls; Anthony Weiner, a former congressman who has become synonymous with sex scandals; and former comptroller Bill Thompson, who almost defeated the incumbent four years ago.

The competition is so strong it's likely none of them will get more than 40 per cent of the vote in the Democratic primary election, slated for September 10, an outcome that would trigger a run-off between the top two candidates. The winner of that will then face a Republican candidate in the election in November. (This being a Democrat-leaning city, the Democrat is supposed to win, although Bloomberg and his predecessor, Rudy Giuliani, were both elected as Republicans, proving that assumption wrong.)

Liu has distinguished himself from his competitors in the Democrat race by adopting some ideas considered particularly liberal. He is the only one calling for the abolition of "stop and frisk", a tactic used by the police on anyone they perceive as suspicious on the street. The policy mainly affects black and Hispanic people - leading to claims of humiliating stops on a regular basis in some neighbourhoods.

Liu is also calling for the city's minimum wage to rise from the current US$7.25 an hour to a whopping US$11 - the other candidates think US$9 is high enough. And he wants to legalise marijuana.

However, every time he appears to be making an impression in the race, controversy over his fundraising activities returns to drag him back.

The snowball was set rolling by a New York Times story on October 12, 2011, for which the reporters checked Liu's funding records and found "straw donors", names created as carriers for a donation bigger than the amount legally allowed from one genuine contributor. This was just after he had boasted of a successful fundraising cycle - more than US$1 million raised in the first part of that year, even with a self-imposed cap of US$800 per person, less than one-sixth of the US$4,950 limit demanded by law.

Liu said that by setting his own donation ceiling, he wanted to invoke the good fortune associated with the lucky number eight and encourage broader participation by small donors. But some analysts believe this was what annoyed his political enemies the most, and brought him much of the subsequent scrutiny.

On November 14 of that year, the New York Times reported that the FBI had been looking into Liu's fundraising. Two days later, one of Liu's fundraisers, Xing Wu Pan, was arrested and charged for helping an undercover FBI agent to bypass the cap on donations and funnel US$16,000 into Liu's campaign.

Pan's arrest dragged down Liu's rating and fundraising performance. In the second half of 2011, he raised only half the amount of the previous period. By the end of the year, Liu announced he would abolish his US$800 per person limit.

On January 9 last year, some influential politicians and union leaders held a 45th birthday and fundraising party for Liu. He raised US$100,000 that night, a success given what had just happened.

But his nightmare was to continue. On February 28, 2012, Liu's campaign treasurer, Jia "Jenny" Hou, was arrested for funnelling money through straw donors. For a long while afterwards, a hot topic in town was who would be next, or, more specifically, when would it be Liu's turn.

But that never came. Liu formally announced his campaign for mayor on March 17, in front of thousands of cheering supporters. A month later, Pan and Hou went on trial. Many Chinese were called to testify, including new immigrants who were, understandably, scared.

After listening to the arguments and looking at the evidence, many of the Chinese observers who packed the court room every day believed Pan and Hou would be acquitted. It sounded as though Pan had been set up by the FBI and Hou was only 23 years old when she asked a former boyfriend on the internet to help her to fulfil her job quota by donating to Liu, promising to give him the money back later. But on May 2, the two were convicted, Hou of attempted wire fraud, obstructing justice and making false statements, and Pan of conspiracy and attempted wire fraud.

Liu has not been charged with any wrongdoing. And his supporters stand by him.

"I know Liu for a long time. He is a clean person," says Zaitian Huang, a long-term supporter who has donated the maximum amount to the comptroller. "New immigrant donors may not know much about campaign law here, and made mistakes when making donations. But you cannot expect a candidate to be able to check the information of every donor."

Chinese contributors have made illegal donations to US election candidates in the past, including to Bill and Hillary Clinton. Some donors have been locked up and questionable money returned by beneficiaries - but the candidates weren't otherwise penalised. Liu has also returned questionable money, to 35 contributors out of a total of more than 6,300.

The CFB decided Liu was to be an exception, however. In a written statement he read in the decision-making meeting, the board's chairman explained its reasoning: "The candidate is ultimately responsible for the campaign's compliance with the law … the actions of a campaign's treasurer or other agents are legally indistinguishable from the campaign."

Even the New York Daily News, which does not tend to be kind to him, published an editorial the day after the meeting, criticising the board for having denied Liu his entire share of the fund based on an "incomplete picture".

"In denying Comptroller John Liu more than US$3 million in public funds, the city's Campaign Finance Board dealt what may prove to be a lethal blow to his mayoral ambitions. But by imposing such a harsh penalty, the board has also wounded itself and the highly praised programme it administers," the paper wrote.

In the eyes of many of Liu's Chinese supporters, he had been singled out for a specific reason.

"This is how they treat us Chinese," says Kwong Mo Yu, chairman of the Fujian Consolidated Benevolent Association USA, a township organisation for immigrants from Fujian province. "Today they with-hold our matching funds, and tomorrow they can deprive [us of] our voting rights."

Liu shrugs off the claim.

"Racism is a pattern. You cannot establish a pattern for a sample size of one - myself," he says.

He believes he was attacked because he is seen as a tough guy who sticks to his principles.

"Ever since I took over the office as comptroller, I've been warned by people to not push so hard at certain fronts. But I've gone after big companies who have cheated our city; I've gone after Wall Street companies who have cheated our shareholders; I've gone after Mayor Bloomberg's City Hall, which has been unfair to our city residents. No question some powerful people don't want to see me be mayor."

Now, single-digit levels of support in various polls have placed him far behind his major competitors, and the loss of funds means he hasn't the money to run the expensive television ad campaigns they are now pushing. Asked about the chance of Liu winning in such a dire situation, even Martin Connor, Liu's campaign attorney, who served as a New York state senator for decades, will not respond.

"I am only an attorney. I am not a politician anymore," he says.

There was yet more bad news for Liu this month, when mentor Bill Lynch died. A long-time political consultant, Lynch was the strategist behind Liu's victory in the comptroller election and the person who was in many ways running his mayoral campaign. Lynch had helped to get David Dinkins elected as New York's first black mayor, in 1989.

Apparently undaunted, Liu keeps his schedule crammed with a dozen or so events every day. He runs around the city, shaking hands with voters from dawn to dusk.

On August 15, after an address in which he gave his vision of the city in the legendary Apollo Theatre, in black-dominated Harlem, Liu walked along the street, greeting almost everyone he bumped into.

"My name is John Liu, and I am going to be the next mayor," he told them, with a few dozen of his campaign volunteers rapping behind him: "Hey, you, you know the story. Tell the white world, this is Liu's territory."

"The candidates should do more of this, going into the neighborhoods. I think he is on the right track," said bus driver Nathan Hardy, after shaking hands with Liu. "But it's hard work. I just don't know how he keeps himself so energetic."

But Liu has been running like this since he was 16, when his marathon coach at the Bronx High School of Science told him: "You'd better be puking at the finish line or I'll kick your ass."

"That has played a role in everything I've done," says the would-be mayor of New York. "You'd better give it your best shot or don't do it."