Shanghai Communist Party secretary Chen Liangyu was sacked and put under house arrest Sunday for his alleged role in the city's 3.2 billion yuan (HK$3.15 billion) pension fund scandal in a move that observers said is part of central government efforts to install favored candidates in key positions as it shores up support ahead of party elections next year.
Apart from "his involvement in a social security fund scandal," said Xinhua News Agency, in announcing the arrest Monday, Chen, 59, also unlawfully aided family members and "illegal entrepreneurs," as well as protected staff who had been guilty of wrongdoing.
Mayor Han Zheng, 51, will become acting party secretary in Shanghai.
Chen's dismissal followed the sacking last month of Zhu Junyi as the chief of Shanghai Social Security Fund. Zhu is alleged to have diverted up to 3.2 billion yuan to business associate Zhang Rongkun, a former director in Hong Kong-listed Shanghai Electric Group (2727). Wang Chengming, former chairman of Shanghai Electric, is also implicated in the scandal.
"Such high-profile corruption cases are giving the central government legitimate excuses to remove officials who it finds difficult to work with," said political commentator Johnny Lau Yui- shiu.
"These types of personnel changes are partly politically motivated."
For President Hu Jintao, who succeeded Jiang Zemin in 2002, the dismissal of Chen, a Jiang protege, could serve to undermine any support still enjoyed by the former president ahead of next year's key 17th party congress, when Hu is expected to win a new five- year mandate to govern the country.
In June, Beijing vice mayor Liu Zhihua, another Jiang supporter, was dismissed for alleged corruption involving funds earmarked for infrastructure work related to the 2008 Beijing Olympics.
Chen is under house arrest in Beijing, where he attended a meeting of China' ruling politburo Sunday, a source said.
As one of the 24 politburo members, Chen is the highest-ranking mainland official to be shown the door since the sacking in 1995 of former Beijing Communist Party chief Chen Xitong, who was recently released on medical parole after serving eight years of a 16-year sentence for corruption.
"If this is a part of a serious anti- corruption effort, then it should be positive for investors," said Huang Yiping, Citigroup chief Asia economist. "But if it is a part of a political struggle within the party, then it is difficult to interpret."
Tathagata Guha Roy, a Hong Kong- based senior portfolio manager at Alliance Trust, said: "It is good to see the central government addressing the problems of corruption in the country, but there may yet be a long way to go." The Shanghai Composite Index fell 0.2 percent to 1,722.37, although news of Chen's sacking initially drove it down as much as 1.3 percent.
"There will be a period of uncertainty about the position and policies going forward for Shanghai, especially in the property sector and the financial services industry," Huang said.