Dec 17, 2012 03:24 PM

Former Mayor of Chengdu Is Focus of Graft Investigation


A land auction is at the center of an investigation focusing on a former Chengdu mayor, Li Chuncheng. The Communist Party's anti-graft watchdog is probing Li, who was ousted as the Sichuan Province deputy party chief and removed from party ranks.

Li served in November as a Central Committee alternate at the 18th party congress, a sign his political career had been rising.

Li, a 56-year-old native of Liaoning Province, worked his way up in the northern city of Harbin, Heilongjiang Province, and was the city's deputy mayor until his move to Chengdu in 1998. As mayor from 1999 until 2011, he oversaw the southwestern city's rapid expansion.

One of Li's main projects was renovation of the northern part of Chengdu, where struggling, state-owned military factories were concentrated. His plan was to move these firms out and open up the area to financial, retail, tourism and entertainment industries.

The investigation of Li revolves around a 2008 land auction won by a company called Tongtai. The company's original majority stakeholder was a relative of Li's close friend.

The land went under the hammer in May 2010, starting at 1.05 million yuan per mu, or 544 million yuan for the total of 518 mu. There was only one bidder, Tongtai, and the whole auction took six minutes, selling for the starting price. At the same time, Poly Real Estate, a state-owned housing giant, paid 1.25 million yuan per mu, or 19 percent more than Tonghai, in winning an auction for a nearby plot.

Tongtai was founded in 2008 with registered capital of 10 million yuan, in which only 2 million yuan actually appeared in the official account. A local resident named Ma Chi owns 20 percent of the company and Wang Liang, a resident in Heilongjiang, owns 80 percent.

Wang's uncle, Shi Zhenhua, was a schoolmate of Li and a close friend. A native of Heilongjiang, Shi came to Chengdu in 2001 to try his luck in construction materials trade and real estate development. Wang runs the real estate arm of Shi's business.

Including Shi, several people from Harbin, known in industry as the "Harbin Gang," were active in Chengdu's real estate market in recent years and enjoyed close connections to the government, an industry insider said.

Tongtai's stock structure changed three times in two years, and in August 2009, less than a year before the auction, the Chengdu branch of real estate giant Vanke became the largest stake-holder of Tongtai.

A Chengdu real estate industry insider said Tongtai was the middleman, using its connections to win the bid on behalf of Vanke and taking a cut for handling the deal.

Tongtai doesn't have the money or the ability to develop the project, and Vanke, a public company listed in Shenzhen, can't participate directly in a pre-staged auction, therefore a scheme that saw Vanke buy a stake of Tonghai was used, said the insider. Vanke didn't answer an inquiry.

The stock transactions of Tongtai were all settled before the auction took place. Wang, Shi and several Harbin natives still own a 20 percent stake in Tongtai, which saw a huge value boost after the successful bid.

Li was acclaimed by economists as someone who understands economics, and Chengdu saw rapid GDP growth during his time. Economist Zhang Wuchang describes Li as someone who "has a good sense and raises hard questions."

In November, Li became one of the 171 alternate members to the Central Committee of the 18th National Congress.

Later that month, however, Shi was detained by party officials, and soon his secretary was questioned as well. Caixin learned that some Sichuan officials reported to the central leaders facts about Li's alleged wrongdoings.

Whistleblowers choose a time when personnel reshuffles in provincial and city officials were frequent after the congress, and the general public was pushing the central government to crack down on corruption.

Li was detained December 2, and kicked out of party ranks 11 days later.    

The shakeup has already affected the property market in Chengdu, where prices have started to cool.

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