By Benjamin Kang Lim and Ben Blanchard
BEIJING, April 1 (Reuters) - A disgraced senior Chinese army officer is accused of selling hundreds of military positions, raking in millions of dollars, sources with ties to the leadership or military told Reuters, in what is likely China's biggest military scandal in two decades.
In a renewed campaign on graft, Chinese President Xi Jinping has vowed to go after both powerful "tigers" and lowly "flies", warning that the issue is so severe it threatens the ruling Communist Party's survival.
Lieutenant General Gu Junshan, 57, who was sacked as deputy logistics chief of the People's Liberation Army (PLA) in 2012, has been charged with corruption, taking bribes, misuse of public funds and abuse of power, state news agency Xinhua said late on Monday in a brief report without giving details. He will be tried by a military court, it added.
The charges signal the determination of Xi, who has repeatedly reminded the PLA to be loyal to the Party, to pursue wrongdoing in the upper ranks of the military, which wields considerable influence in leadership circles.
The case could overshadow what had been China's most dramatic military scandal, a vast smuggling ring uncovered in the late 1990s in the coastal city of Xiamen involving both the military and government officials. The ringleader, Lai Changxing, was extradited from Canada and jailed for life in 2012.
Three sources with ties to the leadership or military, speaking on condition of anonymity, said one of the key crimes Gu is suspected of is selling promotions.
"Gu sold hundreds of positions," one source with leadership and military ties told Reuters.
Not all officers of the 2.3 million-strong PLA promoted in recent years paid bribes.
But "if a senior colonel (not in line for promotion) wanted to become a major general, he had to pay up to 30 million yuan ($4.8 million)", the source said.
Lower ranking military positions were sold for hundreds of thousand of yuan, the sources said.
The buying and selling of military positions has been an open secret, but Chinese media have avoided the taboo subject. It is difficult to assess how widespread the problem is.
For officers who paid bribes to be promoted, corruption is seen as a means of making a return on the investment.
Examples of graft include the leasing of military-owned land to private business, selling military licence plates, illegally occupying military apartments or taking kickbacks when purchasing supplies of food or equipment.
PLA officers who paid bribes to be promoted have been questioned, but the party leadership has not decided whether to demote, discharge or prosecute them because too many people were involved, they added.
"Morale is very low. Many fear punishment. Those who are able but passed over for promotion are disgruntled," a second source with ties to the military said.
The party expelled Gu from its ranks before he was indicted by military prosecutors, the sources said, though it was unclear exactly when this happened. Party members are typically expelled ahead of graft trials.
The Defence Ministry spokesman did not respond to requests for comment.
Since becoming Chairman of the Central Military Commission - China's commander-in-chief - in late 2012, Xi has spent about one-tenth of his time visiting barracks, addressing troops and attending meetings in a bid to boost military morale.
Worried about decadence in the military, he has banned binge drinking, waste and extravagance, in a bid to make the PLA combat-ready in the face of rising tensions with China's Asian neighbours.
Gu has been under investigation for corruption since he was sacked in 2012. The sources said prosecution was delayed because he was "protected" by more powerful figures.
Sources told Reuters last month that Xu Caihou, 70, who retired as vice chairman of the state Central Military Commission last year and from the party's decision-making Politburo in 2012, was under virtual house arrest while helping in the probe into Gu.
As one of Gu's main supporters in his rise through the ranks, Xu was entangled in Gu's alleged misdeeds.
"Gu has implicated Xu Caihou" during questioning by investigators, a third source with leadership ties said.
The party leadership faces a dilemma over whether to prosecute Xu, who is undergoing treatment for bladder cancer, sources said.
Reuters has not been able to reach either Xu or Gu for comment. It is not clear if they have lawyers.
A commentary issued on Tuesday in the official PLA Daily said Gu's trial would probably be held behind closed doors as it would involve state secrets, though the verdict would be announced.
It implied he would be dealt with severely.
"The military holds the guns, and there cannot be corrupt elements hidden within their ranks. Only if the law is strictly followed ... can there be a political guarantee of the party's aim to build a strong military."
In January, Chinese magazine Caixin said investigators had seized objects, including a solid gold statue of Mao Zedong, from Gu's mansion in the central province of Henan.
In addition, Gu hired authors to concoct heroic tales about his father's revolutionary deeds in a bid to bolster his image in the eyes of China's red aristocracy - the sons and daughters of revolutionary leaders, Caixin said.
Investigators seized millions of yuan in cash, several kg (lb) of gold and about 10,000 bottles of the fiery liquor baijiu at Gu's residence in his home province, called "The General's Mansion", sources told Reuters.
China stepped up a crackdown on rampant corruption in the military in the late 1990s, banning the PLA from engaging in business. But PLA has engaged in land deals in recent years due to a lack of checks and balances, sources say.
The PLA cleared out illegal occupants from 27,000 military apartments over a seven-month period last year.
It also reduced the number of military vehicles by 29,000 between June and December. Vehicles with military plates enjoy many privileges and do not have to pay for petrol, highway tolls, parking fees or fines for traffic violations.
The party has struggled to contain public anger at a seemingly endless stream of corruption scandals, particularly when officials are seen as abusing their posts to amass wealth. ($1 = 6.2180 Chinese yuan) (Editing by Alex Richardson)