The figure shuffling into the courtroom wearing handcuffs was James Peng, 36, a businessman born in southern China and naturalized as an Australian citizen. Peng bowed his head as a criminal court in the special economic zone of Shenzhen pronounced him guilty of corruption and embezzlement and sentenced him to 18 years in jail.

Peng wasn't necessarily guilty, and neither was he alone in the dock last week: also under scrutiny were China's systems of justice and patronage, those curious hybrids produced by a booming capitalist economy run by ambitious communist satraps. In court, Peng maintained that he had been framed by party power brokers, including a niece of retired leader Deng Xiaoping, who allegedly used the justice system and their personal connections to steal his company out from under him.

Just hours after the court formally rejected his defense, Peng's intimations of top-level corruption received indirect support from an unlikely source: the Communist Party Central Committee, which was closing a four-day meeting in Beijing. Made up of 301 of China's most lofty and powerful figures, the committee announced that one of its own, former Beijing mayor and municipal party secretary Chen Xitong, had been expelled from its ranks and from the powerful 19-member Politburo. His sin: corruption. As a committee statement put it, Chen "led a dissolute, extravagant life, abused his power to seek illegal interests for relatives and accepted gifts, taking advantage of his position."

The Central Committee didn't intend to highlight China's seedy side. The real point, in fact, was to portray a country economically booming and fully under the control of the communist leadership. The plenum endorsed a new five-year plan and a 15-year national-development "proposal," which call for continued growth during the years between 1996 and 2000 and a doubling of gnp between 2000 and 2010. In political terms, the meeting was considered a triumph for President Jiang Zemin, who is struggling to consolidate his grip on power as Deng, his mentor, continues to fade. The plenum formally called for the country to "unite under the leadership of the Party Central Committee with Comrade Jiang Zemin at its core." The expulsion of Chen, one of Jiang's rivals, was a bold move on the part of the former Shanghai mayor. Says an Asian diplomat in Beijing: "Many people did not believe Jiang had the guts and the numbers."

The plenum coincided with signs that Jiang was getting close to arranging a meeting--though not the full-dress state visit he would like--with Bill Clinton in Washington this month. Both sides badly want a summit of some kind in order to repair frayed relations. After months of deliberate delay, China finally assented last week to the appointment of a new U.S. ambassador to Beijing, former Senator Jim Sasser of Tennessee. China's Ambassador Li Daoyu, who was summoned home from Washington in the wake of Taiwan President Lee Teng Hui's visit to Cornell University in June, is said to be on his way back to the U.S. Chinese Foreign Minister Qian Qichen was received by Secretary of State Warren Christopher last week in New York City; hours before the meeting, Beijing agreed to allow a recently freed dissident, Yang Zhou, co-founder of the Shanghai-based Chinese Human Rights Association, to seek medical treatment in the U.S., accompanied by his wife. That was a substantial improvement over the two ministers' August meeting in Brunei, where a poker-faced Qian failed to tell Christopher that China had arrested two U.S. Air Force liaison officers three days earlier. (The two were later flown safely out of China.) This time, Qian actually brought good news to the meeting: he told Christopher that China had "terminated" (he later amended it to "suspended") its plan to sell Iran two 300-megawatt nuclear reactors, which Washington had feared could be used to make nuclear weapons materials.

But that productive diplomatic activity was matched by the ugly impasse in Shenzhen. Australian diplomats were waiting across the border in nearby Hong Kong in hopes that Peng would be expelled from China after his conviction, much as U.S. citizen and human-rights activist Harry Wu was quickly deported after a Chinese court sentenced him in August to 15 years in jail for espionage. In reality, the two cases have little in common: Wu's abduction, detention and release took place during three months of high bilateral tension. His main crime was getting in the way when relations between his native and adopted countries were at an ebb. Peng has already spent nearly two years in a cell designed for eight people but occupied by 41. His crime was a far more dangerous one: making enemies among the powerful and greedy.

In 1987 Peng bought a group of money-losing companies in southern China, which he called Champaign Industrial Co. Ltd. It was the first foreign joint venture on the Shenzhen Stock Exchange. When Champaign started making piles of money, local government officials requested shares. Peng sold some but refused to surrender majority control. The government then accused him of making profits from a Chinese company and repatriating his gains to Hong Kong and Australia, where he had become a citizen in 1991. The investigations were eventually suspended for lack of evidence.

To gain some political muscle, he brought in a new business partner: Ding Peng, niece of Deng Xiaoping. She moved to Hong Kong and befriended Peng and his family. But the friendship lasted little more than a month, and Ding and another business partner tried to take control of the company, according to Peng's wife. On Oct. 13, 1993, Peng was abducted by Macao police from a hotel in the Portuguese enclave and delivered, with no extradition proceedings, to police in Shenzhen. He spent more than a year in prison waiting to hear the charges against him. At his trial in November 1994, a Shenzhen court refused to issue a ruling, citing a lack of proof, and referred the case back to the prosecutor six times, requesting more evidence. The court finally delivered its verdict last week.

In Hong Kong the case shocked investors who have considered foreign passports as shields against mistreatment on the mainland. As Lina, Peng's wife, says, "Everybody doing business with China is running the same risk. You can be detained for no reason at all." Australian diplomats say the case was prolonged during the past year because of disagreement between authorities in Shenzhen and those in Beijing over the severity of the sentence. Whether Peng is expelled from China soon may depend on his legal strategy. Harry Wu reportedly waived his right to appeal his sentence because he knew that move would hasten his return home. Peng may do the opposite: he is considering demanding an appeal to prove his innocence. That, say legal experts, could keep him in Chinese jails another two years.

--Reported by Mary Binks and John Colmey/Hong Kong, Tamala M. Edwards/Washington and Jaime A. FlorCruz/Beijing