By James Pomfret and Sisi Tang
HONG KONG (Reuters) - A political storm that has rocked the candidacy of the frontrunner to become Hong Kong's next leader poses a delicate challenge for Beijing, and in particular for the man expected to take over as China's president in 2013.
Hong Kong, a former British colony that returned to Chinese rule in 1997, has been abuzz this past week over an illegal construction scandal engulfing Henry Tang, a wealthy tycoon and former senior government official long seen as Beijing's favored successor to the bowtie-wearing Donald Tsang.
"To be honest, for the central government, this is a real headache now," said a member of the election committee that selects the Hong Kong chief executive, speaking on condition of anonymity.
"If they select Tang now, this will be very different from what the people want. The governance will be very weak and there may be another mass protest."
Late last year, Tang, 59, seemed to be coasting. Under the aegis of China's top leaders, he was the man with the pro-business credentials, experience and accommodative style to ensure continuity and stability in the affluent and influential financial hub nestled on China's southern coast.
But Tang's public support has plummeted in the past few months. Allegations of extra-marital affairs and, more recently, the illegal construction of a "palatial" basement and wine cellar beneath a family-owned villa have battered public confidence in his integrity and ability to govern.
All this is an unwelcome distraction for Xi Jinping, the man expected to emerge from a watershed leadership transition late this year as China's leader for the next decade. Xi is currently Beijing's point person on Hong Kong and Macau affairs.
Thus far, it appears Beijing still backs Tang, but grudgingly.
While Hong Kong's chief executives are more like mayors and generally lack the influence of China's frontline leaders, a poor leader can stoke risks and unnerve Beijing, which prefers stable transitions.
China will want to avoid a repeat of the scenario that hit the first post-handover administration of Tung Chee-hwa. Tung -- a wooden, unpopular chief executive -- triggered deep resentment and a massive half-million strong protest in 2003 that ultimately forced him from office mid-term.
The clock is ticking. On March, 25, the elite 1,200-member election committee, largely handpicked by Beijing, will convene to choose the city's next leader.
Tight electoral rules and the dominance of Beijing loyalists on the election committee, rather than opposition democrats, have provided China's Communist Party rulers a high degree of control over the choice of candidates and the outcome.
This time, however, some analysts say Tang's missteps have loosened Beijing's grip over a carefully orchestrated process.
"This is something they did not predict," said Jin Zhong, the editor of Open Magazine, an independent Hong Kong publication that specializes in greater China politics and current affairs. "When we see this kind of situation emerge from this election, it's Beijing losing control."
Yet faced with bigger challenges such as an economic slowdown, Beijing seems to be opting for damage control rather than outright abandonment right now. In short, it is hoping the scandal will blow over.
Indeed, the pro-Beijing newspapers in Hong Kong gave upbeat banner-headline coverage to the bespectacled and wine-loving Tang this week when he formally submitted his nomination, backed by nearly a quarter of the election committee, including business tycoons such as Li Ka-shing.
STILL TANG FOR NOW
With a feisty pro-democracy opposition camp agitating for full democracy, China's stability-obsessed leaders have long viewed Hong Kong with suspicion as a potential base for spreading broader dissent and democratic reforms in mainland China, making it paramount to have a leader they can trust.
Vice President Xi, who just went on a profile-raising visit to the United States, and other senior leaders will ultimately have to sign off on any decision on Tang, possibly during a scheduled parliamentary meeting this week.
If Beijing did pull its support for Tang it would throw Hong Kong's leadership race wide open, leaving it with a conundrum of finding an acceptable and capable replacement at short notice. It would also have to downplay public suspicions the entire electoral process is being puppeteered up north.
"It's very obvious that Beijing is still favoring Henry Tang," said Allen Lee, a former member of China's parliament, the National People's Congress.
Tang's main rival since late last year has been prominent surveyor and former government advisor Leung Chun-ying. However, Leung's independent policy vision and brash style make him a less predictable option for Beijing and the business elite.
The opposition Democratic Party Chairman Albert Ho also is vying for the top job, while other potential candidates could include unpopular former security chief Regina Ip and veteran pro-Beijing politician Tsang Yok-sing.
With a lack of other trusted alternatives and time running out some observers say Beijing will opt for Tang, but he must focus on swiftly winning over the public.
Lee, a Hong Kong political veteran and pundit, thinks this is still possible if Tang doles out policy sweeteners, including greater welfare for the elderly, and boosts public housing.
"There are about 1.3 million people below the poverty line. If he is able to do that, I think within six months he should be able to turn his popularity around," Lee said.
(Editing by Brian Rhoads and Alex Richardson)