A financial scandal in Shanghai is being felt across China, with Hong Kong business managers and a prominent banker implicated. The case comes as the country's leaders struggle to control corruption.
Shanghai property developer Zhou Zhengyi amassed a fortune worth hundreds of millions of dollars. But he is now under house arrest as Chinese authorities investigate allegations he lied to borrow $80 million for his businesses.
In Hong Kong, his wife and other officials of his companies have been arrested by the city's anti-corruption agency. And Liu Jinbao, the former head of the prominent Bank of China operation in Hong Kong has been recalled to mainland China. He faces questioning about loans to Mr. Zhou's companies.
Hong Kong authorities also are investigating the Bank of China, the second-largest bank in the city, because of its dealings with Mr. Zhou.
One of Mr. Zhou's land development projects recently brought protesters onto the streets of Shanghai. Dozens of residents are suing his companies, saying they have not been adequately compensated for the loss of their homes, torn down to make way for new buildings.
Their claims, however, get no support from the government. In fact, their attorney has been arrested for "stealing state secrets."
The government says the arrest has nothing to do with the corruption scandal. Analysts, however, say China routinely uses such charges to intimidate people who challenge the government.
The Shanghai case poses tough financial and political challenges for the government. Financial because the government is trying to push banks to reform their lending practices and deal with the $400 billion in bad debt they have piled up.
At the same time, the government has pledged to attack corruption, which is quickly eroding trust in the ruling Communist Party.
Jean Pierre Cabestan of the French Center for Research on Contemporary China says the Shanghai case is a barometer of reform. "It says the system is going through changes. And that there are people trying to push the limits, and there are fierce resistances within the system against these people."
Some political analysts speculate the Shanghai case may be an attempt by China's new leaders, who took power in March, to reduce the influence of former President Jiang Zemin.
Mr. Jiang is the former mayor of Shanghai and much of his support comes from there, so the corruption could embarrass him. But Professor Cabestan says it is too early in this case to discern the political forces that brought it to light.
