On the surface, the article was unremarkable. The China Youth Daily recently reported that the Sichuan town of Wanyuan had laid on a lavish concert to commemorate a 1934 Red Army battle. Wanyuan is too poor to have a proper stage, but that didn't stop authorities from paying popular pop singer Song Zuying more than $50,000 to sing just four songs in a school auditorium, the paper said. In addition, Wanyuan government offices, schools and businesses reportedly received a "political assignment" to buy $165,000 worth of tickets to help bankroll the event.

What the article didn't say, but many believe, is that Song is a "close friend" of former president Jiang Zemin, 78. In private, he's been known to accompany her singing by playing a Chinese fiddle, or erhu. The China Youth Daily is associated with the Communist Youth League, a stronghold of support for President Hu Jintao, Jiang's younger successor. So its report wasn't just provocative gossip: it's widely perceived as the latest salvo in a thinly veiled power struggle pitting Jiang against Hu, and Hu's ally, Premier Wen Jiabao.

Neither camp wants to risk a naked power struggle. So the mudslinging has targeted relatives and cronies rather than the leaders themselves. This kind of "power struggle by proxy" has long been played out in China, but its effects are now felt much more widely. When the Communist Party Central Committee meets in a plenary session this week, the struggle could influence China's foreign and economic policy, and by extension that of the United States and Europe, for months.

The key question is whether Jiang will relinquish his last major post at the meeting. He's long been expected to step down as head of the influential Central Military Commission (CMC), allowing Hu, 61, to take over as military chief. Hu became party head in November 2002 and president in March 2003--but without control over the military his clout remains constrained. Now each new leak suggesting Jiang will retire completely is matched by counterrumors saying it's all a ploy. The tactic even has a name--"to retreat in order to advance"--and Jiang has used it before. A nephew was quoted in a recent news report saying his uncle did not intend to resign.

China is run by committee and consensus. Still, China watchers say Jiang and Hu have somewhat different priorities. If Jiang steps down as military chief, Hu might tilt Beijing's diplomatic focus toward Europe, which he's said to favor, rather than concentrate on Sino-U.S. ties as Jiang has done. The two men also differ on economic policy. Under the influence of Jiang and his so-called Shanghai faction, Beijing has funneled state money to the country's wealthy coastal provinces. Hu and Wen champion the shifting of investment to impoverished areas farther inland.

Then there are the hot-button issues of Taiwan and Hong Kong. Taiwan President Chen Shui-bian's reelection in March shocked Beijing's mandarins. Mainland critics have called Jiang "naive and overoptimistic for believing economic ties and nice words would prompt Taiwan to come closer to the mainland, not move away," says Susan Shirk, a Sinologist at the University of California, San Diego. Ever since, no Chinese leader has dared to deviate from hardline rhetoric on Taiwan. Before Hu consolidates his authority over the military, he's not likely to soften the tone, much less policy, toward Taiwan.

The pro-Jiang camp's influence can be seen more clearly in Hong Kong, which held Legislative Council elections on Sept. 12. Premier Wen was criticized when large pro-democracy protests erupted in the territory in 2003. Since then Jiang's camp has been more hands-on, and has been credited with orchestrating the Chinese Parliament's abrupt move in April to rule out universal suffrage in the 2007 and 2008 Hong Kong elections, the earliest such a move could have been implemented. That decision came after Jiang protege Zeng Qinghong took charge of the central government's Hong Kong portfolio last December. "The policy tone shifted noticeably," says Evan Medeiros, a China expert at the Rand Corporation in Washington.

Jiang has packed the military leadership with his supporters. This year he promoted more than a dozen Army loyalists, and is said to want ally Zeng Qinghong to become CMC vice chairman. That threatens Hu, who reportedly favors adding two additional CMC vice chairmen, both his supporters. Even if Jiang retires completely, he's left his successors little room to maneuver on touchy policy areas.