Graft arrest fuels speculation over Deng succession

The arrest of a senior official at one of China's largest state-run enterprises and the sudden retirement of his powerful and well-connected father has fuelled speculation in Peking about political manoeuvring in the leadership succession.

Zhou Beifang, chairman of the Hong Kong arm of Capital Iron & Steel Corporation (better known by its Mandarin name Shougang), has been charged with "serious economic crimes". The accusation may involve Shougang's use of state funds to purchase companies listed on Hong Kong's stock exchange, sources in Hong Kong say.

A day after his arrest last week, Mr Zhou's father, Zhou Guanwu, 77, chairman and Communist Party Secretary of Shougang, announced his retirement for health reasons. A company spokesman denied any connection with his son's arrest.

The Zhou family has a close relationship with China's ailing senior leader, Deng Xiaoping. The elder Mr Zhou has been associated with Mr Deng since the Forties, when they served together in the Communist army. One of Mr Deng's sons, Deng Zhifang, has for several years worked with the younger Mr Zhou, running Shougang's Hong Kong operations.

The moves at Shougang may represent the first visible sign of the power struggle expected to follow the death of 90-year-old Mr Deng. "It is not yet possible to tell what is really going on, but whatever it is, it is happening at the very highest levels," a Peking academic said.

One explanation is that the previously unassailable Deng family influence is no longer proof against attack by political opponents. Until now, the leading contenders for supreme power appeared to have agreed that Mr Deng's legacy of pragmatic economic reform, as well as his associates, would remain unchallenged while he is alive and for a decent interval after his death.

If the inquiry into Shougang's alleged wrongdoing extends to the leader's son, it will be taken as a clear sign of the breach of that delicate consensus. Another explanation is that Peking means to show it is serious about its latest pledge to crack down on the rampant corruption and profiteering by relatives of high-ranking government and party officials.

Such corruption has alienated the foreign investors on whom Peking depends to fund its ambitious economic-growth programme, and has enraged ordinary people. Corruption by high-ranking leaders, particularly that of their powerful offspring - the "Red Princelings" - was one of the earliest and most heartfelt grievances of the millions who took to Peking's streets in the spring of 1989.

The Prime Minister, Li Peng, last Wednesday said publicly that the future of the party and the nation depended on a successful effort to fight graft.

According to one well-placed Communist Party official, China's leaders now recognise no anti-corruption campaign will be taken seriously unless the most visible and best-connected offenders are punished. "That is why the Zhou family has been targeted, and that is why others like them ought now to be nervous."