The Party: The Secret World of China's Communist Rulers

by Richard Mcgregor

  Weeks before his arrest, Zhou dined with Sir Christopher Hum, the then British Ambassador, along with other members of Shanghai’s emerging entrepreneurial class. Zhou was charmingly open about his arriviste status, complaining to his hosts that Chinese entrepreneurs had a more difficult time than their more experienced western counterparts in refining their lifestyles. When he first became rich, he said he knew nothing about ‘standards and quality’, and so decorated his bathroom in gold. Later, after realizing what bad taste this was, he said he stacked his house with brand-name products only. Zhou at that time had a son at boarding school in the UK. Asked which school, Zhou was stumped. Picking up his mobile phone, he called his wife in Hong Kong, who didn’t know either. He then called his son in the UK, who finally told him the name of the institution, Millfield, one of the most exclusive schools in Britain. Why had he chosen it, his dining companions asked. ‘Because it was the most expensive,’ he replied.

  Zhou was much less charming in business. He had already narrowly survived a corruption investigation into one of China’s most famous bankers, Wang Xuebing. The investigation into Wang led to the Bank of China branch in Shanghai which had made a number of questionable loans to Zhou. The developer got through this episode unscathed, but hubris got the better of him in his greatest business coup, the right to develop an area in the centre of the city called the ‘East Eight Blocks’. The long stretch of land on Beijing West Road in Shanghai had been covered with shikumen, or ‘stone gate’ houses, a style of low-rise dwellings favoured during the colonial era. The residences were modelled on late nineteenth-century European terraced houses, with an elegant chinoiserie flourish in the stonework capping their entrances. They were less elegant seventy years later. The houses, like much of the city, had been neglected under communist rule. Properties built to house a single family might now include three or four, who had simply moved in during the chaos of the Cultural Revolution.

  Zhou had beaten some of the region’s most experienced and best-capitalized property developers, including Hong Kong’s Li Ka-shing, one of the world’s richest men, to win the right to clear the blocks and then rebuild on what was a prime site in central Shanghai. Zhou’s deal with the Jing’an district government in 2002 to get the land was straightforward–he would pay little for a seventy-year lease on the land, in return for compensating and rehousing the residents together in the same area in his new development, thereby preserving a longstanding community. It wasn’t long before the thousands of families who lived in the East Eight Blocks realized that Zhou had no intention of keeping his side of the bargain. Far from looking after the first batch of about 2,160-odd households whose residences were demolished, Zhou dispatched them to apartments on the distant edge of the city and offered them paltry compensation in return.

  When the furious residents began to organize, Shanghai-born Shen Ting received a call at her home in Hong Kong. Shen’s grandmother had bought a house on the block for three pieces of gold in the thirties. Shen herself had grown up in the house and her mother, now on the verge of being evicted, was still there. Shen, living in Hong Kong with her husband and two children, started travelling home to Shanghai to help her mother get a better deal. She petitioned the local housing bureau and tried to start legal proceedings, without success. She then started to look for a lawyer. The first twenty or so firms she approached sent her packing. ‘No lawyer will dare to fight a demolition and relocation case,’ one told her. ‘If I do it, I will lose my job,’ said another. Finally, a day after her mother was forcibly evicted in April 2003, Shen knocked on the door of Zheng Enchong.

  Zheng could not have been more different from Zhou Zhengyi. He had the plain-living look of a suburban lawyer, always dressed in the same colourless suit and carrying a matching ragged briefcase as he strode intently from meeting to meeting. But if he was a grey figure, it was a kind of gunmetal grey, shown in the resolve and toughness with which he took up the cause of the residents. Zheng agreed to Shen’s request to represent 300 residents, including her mother, in a class action against the district. He also began advising Xu Haiming, the restaurateur-turned-activist. Almost immediately, city officials tried to scare him off. Soon after Zheng filed the class action, the city investigated his tax affairs. When they found nothing, they put pressure on his law firm, which forced him to resign for ‘taking on a resettlement case without consulting the partners’. Next, the authorities deliberately delayed the transfer of his licence to practise to a new firm. Zheng said the head of the local party body overseeing the registration of lawyers had told him, ‘90 per cent of the district chiefs in Shanghai’ had complained about him and he could have his licence back when he dropped the residents’ cases. Even then, he continued to advise the residents and draft documents for them. He knew work for the residents of the East Eight Blocks would only bring him trouble. ‘Shen Ting, I will get into serious trouble with this case, and you must save me,’ he told her. ‘Zhou Zhengyi is very probably the Lai Changxing of Shanghai.’ (Lai Changxing, in exile in Canada, was the mastermind of the $6 billion Xiamen smuggling racket.)

  Tales of the multiple land disputes in Shanghai began to seep out of the city, much like an unsightly substance which oozes from under a firmly closed door. District government officials, unused to the scrutiny, responded clumsily when confronted with evidence of their personal financial interest in developments. When I asked Sun Jingkan, the party secretary of Jing’an district, the epicentre of the city’s land scandals, about the cheap shares he had obtained in development for Xu Haiming’s block in defiance of city rules, he denied his holding was improper. ‘The government is encouraging the development of the private economy,’ he replied. For officials, the property deals were sweet. One arm of the Jing’an government responsible for approving real-estate projects would be given cheap shares in developments in the district. Another arm of the same government, the Housing and Land Bureau, would be paid to evict residents, and arrange compensation at rates far lower than the going market value

  Shanghai, which marketed itself as being on a par with places like New York and London as one of the great metropolises of the world, was acutely sensitive about its image and worked feverishly to stop information about the property scandals from getting out. At the large railway stations, the city began positioning plain-clothes police to watch out for petitioners leaving Shanghai to take their complaints to Beijing. A Chinese journalist at Xinhua in the city who had been sending reports to Beijing about the real-estate scandals, as part of the covert news service the state agency provided to party authorities, was hauled in by the local propaganda bureau and ordered to stop. Hong Kong journalists, always receptive to reporting dirt on the mainland–especially out of Shanghai, a business rival–were threatened in menacing phone calls and trailed closely when they visited the city. Foreign reporters based in the city who ventilated the disputes were also put under heightened surveillance and their contacts ordered to report all conversations with them to state security. After writing about the Jing’an scandals, I began to receive regular visits from the district’s own plain-clothes security police, pressing for information about future stories.

  The city authorities’ heavy-handed efforts to put a lid on the land scandals were too late to protect Shanghai’s glittery façade. In late May 2003, the investigators from the Central Commission for Discipline Inspection in Beijing descended on Shanghai, setting up camp at the Moeller Villas. Their arrival was a calculated snub to the Shanghai party committee and the city’s own anti-graft body. So was the base they chose for their operations. The Moeller Villa, famous for itsfairyland-like turrets, inspired by the dreams of the daughter of the original Norwegian owner in the thirties, was also for years the Shanghai headquarters of the Communist Youth League, Hu Jintao’s power base. Within days of arriving in the city, the commission’s investigators had detained Zhou Zhengyi. The message the investigation conveyed was unmistakably political. Beijing had made Shanghai the focus of a major corruption ca
se for the first time in more than a decade and displayed its ability to intervene in a city which for years had sealed its doors to outsiders. But if the presence of a flying squad from Beijing’s anti-graft unit in the city was a wake-up call for Shanghai, then Chen Liangyu slept right through it.

  The city was initially quick to marshal its defences. Jiang Zemin, who still retained his position at the head of the military, used his remaining clout to issue a series of internal instructions on the Zhou Zhengyi case to return it to Shanghai’s jurisdiction. Jiang’s henchmen in the propaganda department also went to work. Tens of thousands of copies of the business magazine Caijing containing a lengthy article about the case were hauled off news-stands throughout the country. It was the first time an entire edition of the pioneering publication had been suppressed. A few weeks later, the Shanghai authorities took further retaliatory action by arresting Zheng Enchong, the activist lawyer, for leaking state secrets, a charge often wheeled out when the authorities want to make a political example of critics, and sentenced him to three years in jail. For the moment, Beijing withdrew from the Zhou Zhengyi case, leaving it to Shanghai to handle. In doing so, it allowed the two rival political camps to step back from the brink of a damaging split in the top leadership. Chen’s subsequent behaviour, however, soon ensured that Shanghai was back firmly in Beijing’s sights.

  Chen’s first mistake was to thumb his nose at Beijing by charging Zhou Zhengyi with minor offences which avoided the real-estate scandals altogether. Zhou served just two years of a three-year sentence and was soon back in the property business, operating from an expensive high-rise in the central business district. Later, it would emerge that Zhou had bribed his jailors while inside. He was able to shirk the usually mandatory prison labour, receive visits from friends whenever he wanted, use a phone and watch television in his supervisor’s air-conditioned office. His lenient treatment and prison privileges might have been brushed off as trivial, and never seen the light of day, had not Chen opened a new front in the war with Beijing, on the economy.

  No development had been too grand or expensive for Shanghai to tackle while Chen, and his predecessors, were in the chair. The city’s obsession with returning to the international limelight saw it splash out on one mega-project after another. A billion-dollar track to attract Formula One motor racing was built in a couple of years, dazzling the globe-trotting crowd that followed the sport. ‘No democracy could afford this,’ gushed Jackie Stewart, the former F-1 champion. A new $300 million tennis centre, constructed to host the end-of-season Tennis Masters Cup, attracted similar gushing compliments. Tens of millions more were spent on building the first ever commercial Maglev train track, even though it travelled only about 33 kilometres from the airport to drop passengers off far from the city’s commercial hubs. The colonial-era opera house in the city centre was literally lifted off its foundations at great expense and shifted about 70 metres, so it didn’t have to be knocked down to make way for the nearby construction of a new underground. The city also started negotiations with Walt Disney to bring its signature theme park to Shanghai, and with Paris for a version of the Centre Georges Pompidou.

  In the ocean nearby, away from the silty, shallow mouth of the Yangtze river, the city set about building the largest port in the world, along a string of islands linked by landfill, connected to the city by an extraordinary 32.5 kilometre bridge across the open seas. Never mind that Ningbo, a vigorous entrepreneurial centre 100 kilometres to the south, was blessed with a natural deep-water port available at a fraction of the price. Shanghai would spend billions to have the facility for itself.

  Shanghai could not be faulted for its ambition, energy and execution. Any one of these projects might have overwhelmed the resources of many large cities around the world or been delayed by endless planning disputes. In a few short years Shanghai had polished off most of them–the Formula One track, the tennis stadium, the Maglev and the first stage of the port, on top of other infrastructure projects, such as new subway lines and bridges, plus a surge in ordinary construction. The city’s political skills, by contrast, were not nearly so adroit.

  The turning point came in May 2004, a year after Zhou Zhengyi’s arrest, when Beijing announced a sharp, nationwide credit squeeze. The rate of investment–the national economic indicator that the central government watched most intently–was going through the roof, increasing at unheard-of year-on-year monthly rates of 50 per cent. The central government reacted with alacrity. Banks were ordered to curtail their lending and local governments told to submit any large projects to Beijing for approval first. From the early nineties, Shanghai had for years set itself an internal target, to grow at two percentage points faster than the national average–no mean feat for a relatively rich city in a fast-expanding economy. Chen Liangyu made it clear soon after the announcement that he had no intention of slowing his city down, no matter what Beijing said. Many city leaders around the country probably harboured similarly defiant thoughts. But only Chen dared to say so out aloud.

  When Wen Jiabao, the Premier, briefed the Politburo on the credit crunch, Chen confronted him, according to officials briefed on the meeting. Chen complained that the policy would hurt Shanghai and other fast-growing coastal centres. If companies went bankrupt and jobless queues lengthened as a result of Wen’s policies, then the Premier ‘would have to bear the political responsibility’ for whatever instability followed. It was only the intervention of Hu Jintao, re-stating the centre’s priorities, that brought the argument to a close. Chen’s brazen behaviour, though, had changed the game. By taking on Wen so openly, Chen had turned a difference over economic policy into a dangerous, top-level political dispute.

  Up until this point, Chen still enjoyed the political protection of the Shanghai gang’s godfather, Jiang Zemin, through his control over the military. By September that year, Jiang had stepped down from this, his final post, and retired to Shanghai, to a large, secluded house down a dead-end street in the old French Concession, a location so sensitive that it was obscured on city maps. Hu Jintao now occupied all three of the most senior positions in the country–as Communist Party secretary, state president and chairman of the Central Military Commission. Hu’s ascent left Chen seriously exposed. All Hu needed now to move against Chen was a consensus in the nine-member Politburo Standing Committee, the informal consent of Jiang himself and, of course, hard evidence of corruption as well.

  There was no shortage of people willing to help Beijing build a case against Shanghai. Even after Zhou Zhengyi’s arrest, aggrieved homeowners had continued their campaign against the city’s party committee and government. Groups of petitioners, including Shen Ting, regularly evaded the guards posted at Shanghai’s main railway station to take their complaints directly to the capital in 2003 and 2004, trooping ostentatiously from office to office in the capital in search of a hearing. First, they would go to the State Petition Bureau, then to the Central Politics and Law Commission and on to the Legislative Affairs Office of the State Council. They were rounded up by Shanghai security officials, and on one occasion addressed by Chai Junyong, a senior city government official. ‘You want to embarrass the Shanghai municipal government, and damage Huang Ju and Chen Liangyu. Now you’ve achieved your objective,’ Chai told them, according to Shen. ‘The Central Party now knows, and you can let it go. We will solve your problems once we are back.’

  The petitioners ignored Chai and continued on their way, to the Public Security and Construction ministries, and anywhere else where they thought they could get attention. Xu Haiming, who also travelled to Beijing around this time, staged a small personal protest in Tiananmen Square, holding up a banner demanding that the Shanghai government ‘stop taking our private property’. Like most protests in the square, the most heavily policed piece of real estate in China, it was over quickly. ‘We lasted about one minute,’ Xu said. Beijing was swarming with plain-clothes Shanghai police for lengthy periods during this time. Every petitioner initiative or protest was
eventually squashed. But the protesters’ actions were more effective than they might have realized. Each incident was an embarrassment for Shanghai and ammunition for the city’s emboldened enemies in the capital.

  In the Watergate scandal, the investigative journalists, Bob Woodward and Carl Bernstein, were famously advised to ‘follow the money’. In Chen’s case, the investigators started with a principle more familiar to corruption probes in China, to ‘follow the family’. Many of the charges that Shen and the petitioners had laid against Chen over the years, that he had enriched his family, were borne out. City-owned companies had created phantom paid positions for Chen’s wife and son in return for favourable treatment for contracts. His father and younger brother were both helped out in valuable property deals, including some with Zhou Zhengyi. His brother-in-law had enriched himself through his job in charge of the Formula One track.

  The surest way to follow Chen’s demise during this period was to watch the fall of officials who once clustered loyally around him. It was a case study in how the commission operated. One by one over 2005 and 2006, Chen’s intimates in the Shanghai government were rounded up and held for questioning under the shuanggui provisions. And one by one, these ‘so-called good friends’ of Chen, as the state media later tartly remarked, ‘handed in all the materials’ investigators were looking for. On top of the charge of enriching his family, Chen was accused of masterminding the diversion of about $270 million from the city’s pension fund to a company run by a hitherto obscure local businessman. The businessman’s fall in August 2006 was one sign that a major scandal was afoot. From the moment that Chen’s personal secretary, Qin Yu, was detained later that month, it was only a matter of time before the party secretary himself went down.