Domestic media portray the sacking of Shanghai Party Secretary Chen Liangyu as proof that no one can evade China's anti-corruption campaign; the foreign press see it as President Hu Jintao consolidating power.
Either way, the demise of Chen marked the convergence of a multitude of forces, and the outcomes of the investigation are likely to be far reaching with a number of significant scalps.
Whatever the politics involved, we cannot lose sight of the fact the anti-corruption campaign is serious business. In his National Day speech, Premier Wen Jiabao put it at the center of major Party goals, vowing to "build a clean and honest government [and] ensure social fairness".
Struggles against corruption have come and gone, but this sustained campaign is intensifying. In July, the Party announced the completion of an 18 month education campaign, engaging a record 70 million party members. Many high profile targets have been netted. The vice mayor of Beijing, deputy commander of the Navy, top tier local railway officials, former chairmen of major banks – all have been arrested, expelled or demoted. Key officials have signed anti-corruption pledges.
Within this broad anti-corruption campaign, the Shanghai scandal touches other, sharp sensitivities.
Irregularities involved the city's US$1.25 billion social security fund. For a decade, large accumulations of investable capital in China have grown far faster than effective controls over them. Provincial and municipal ITICS (international trust and investment corporations), city banks, brokerage houses and investment groups, jituan group finance companies, and, of course, pension and insurance funds, have suffered everything from poor credit management to gross misappropriation to outright embezzlement.
China faces a decline from six to two active workers per retiree in one generation. These population dynamics and resource implications rank among China's most compelling national risks.
The pilfering of Shanghai's benchmark pension fund – which enjoys high contribution flows driven by high wages and substantial presence of foreign employers – sends an unsettling message to China's aging population.
History of misconduct
Since the early 1990s, the Shanghai fund has been plagued by poor, and sometimes questionably legal, investments. A 2004 analysis of the fund reported a 2002 deficit exceeding US$505 million. It was in 2002 that the city's Social Security Bureau replaced Pudong Development Bank as fund manager with two public institutions. The irregularities remained, including the dubious mixing of social security money with enterprise annuity funds.
China must expand its pension funding, and at the very least secure what is already invested. Overall, improvements need to be made in the credibility, control, and management of all large investment entities. If this can't happen in the glistening, sophisticated and disciplined municipality of Shanghai, where can it?
Other factors playing a role in Chen's sacking provide insight into Shanghai's future challenges. Analysts have questioned the extent to which city officials supported Hu and Wen's campaign to cool fixed asset investment, particularly in property.
It's no coincidence that allegations being investigated charge that at least a third of the fund was misdirected to municipal property projects and toll roads. Using such public funds to increase property investment is not part of the national agenda.
In the background was a growing sense elsewhere that Shanghai had long been the beneficiary of a disproportionate share of resources and special regulatory relief.
Pudong's development zones, especially the glamorous Lujiazui financial and trade district, are symbols of Shanghai's leap into the ranks of world cities. But they point to privileges the city has received at the expense of other places in China.
Before Chen's ousting, focus on Shanghai as the key industrial and financial development center was already diffusing.
National level government investment has shifted, with US$1 billion a month now going to Chongqing. Much of this money is earmarked for the city's massive New North Zone, a development that Chongqing's leaders envision as an inland version of, and rival to, Shanghai's Pudong.
Meanwhile, experimentation in financial reform has moved from Shanghai to Tianjin. In September, the city mayor Dai Xianglong announced that the massive Binhai development, four times the size of Pudong, would play host to a national pilot project that will see companies keep and manage their own foreign exchange and convert yuan freely. Other aspects of banking liberalization will also be tested.
The Bohai Industry Investment Fund was announced last quarter with approval to invest up to US$2.5 billion, 80% of it in the Tianjin region.
Quite pointedly, among the first investors in the fund were the National Social Security Fund, China Life Assurance, and China Post. The Bohai fund assumedly will not focus on property.
These events by no means constitute an epitaph for Shanghai, which remains one of the world's fastest growing, most vibrant, and most fascinating cities. But they do suggest that in the years ahead, China will move toward "more fairness", not only among groups of people but among the country's key economic regions.
And that trend, as Wen has suggested, begins with the fight against corruption.