Curtain falls on Shanghai Gang as Hu takes control

BEIJING, Oct 10 (Reuters) China's leaders may govern from Beijing, but for more than a decade dozens of them have owed their rule to its freewheeling financial hub of Shanghai.

Former president Jiang Zemin rose through the ranks in Shanghai before being catapulted to Beijing in the aftermath of the political crisis of the 1989 Tiananmen Square movement, and former premier Zhu Rongji was once the city's mayor.

President Hu Jintao has spent most of his four years in power trying to emerge from the shadow of Jiang, hemmed in by Jiang's proteges both on the ruling Politburo Standing Committee and governing Shanghai itself.

But with the dismissal last month of Shanghai's Communist Party boss, Chen Liangyu, Hu was not only serving notice that he is in charge, he was writing the obituary for the group that became known as the Shanghai Gang.

''The Shanghai Gang is dead,'' said Bruce Gilley, a China scholar at Queen's University in Canada, of the group that was loved for its track record on economic growth and loathed for its monopoly on political power.

Hu is likely to drive that point home at the four-day plenary session in Beijing of the Central Committee, the party's elite group of about 350, which is due to wind up tomorrow.

The changes in Shanghai likely mean that Hu will now have greater power to hand-pick a new leadership line-up and stack the Central Committee in his favour at the five-yearly Party Congress set for late 2007.

On the nine-member Politburo Standing Committee that rules China, Huang Ju, the main patron of the Shanghai group, is said to be sick with cancer and will likely retire in 2007.

Another Jiang ally and Standing Committee member, Jia Qinglin, will also likely be forced out, and younger leaders selected to join the party's elite will owe their allegiance to Hu alone.

But others point out that in China's opaque elite politics, the gang may be crippled, but it's not dead yet.

''Given the long tenure of Jiang Zemin, he has promoted many people and it will be destabilising if the central leadership today wants to cleanse out all those associated with him,'' said Joseph Cheng, of the City University of Hong Kong.

FAVOURS AND DEALS There is also the question of Vice President Zeng Qinghong, a rocket scientist-turned-apparatchik who was once seen as Jiang's man in the leadership.

Although analysts say he has of late been cooperating with Hu, such allegiance doesn't come without a price.

''In exchange for his cooperation, Zeng likely asked for something at the 17th Party Congress,'' said Victor Shih, a China scholar at Northwestern University.

Further, too many officials across the ranks owe their positions to Jiang for Hu to be able to rout them entirely -- though they likely aren't threatening enough for him to need to.

But while the strength of the leadership in Shanghai has meant favours that helped it emerge into one of China's wealthiest cities, analysts say it could yet prosper despite the falling of its political star.

Cheap credit, approvals on land use and tax breaks have all come easily to Shanghai, helping build its modern financial district of Pudong and emerge into the country's main banking centre and the world's busiest port.

But its special treatment also bred contempt among its leaders for policies spearheaded by Hu and Premier Wen Jiabao that sought to moderate the pace of growth and help the poor hinterland catch up with China's booming coast.

While some say Shanghai's investor confidence may be affected by the turmoil surrounding Chen's ouster -- and the city's social security fund scandal that preceded it -- others see the chance for the city to mature into an economic centre unfettered by political favours.

''Ironically, the depoliticisation of Shanghai will probably be good for the city itself,'' said Gilley.

Reuters LL GC1039