July 9 (Bloomberg) -- Chinese military police yesterday sent reserve forces into Urumqi and cordoned off sections of the city to break up ethnic violence that forced President Hu Jintao to cut short a trip to the Group of Eight summit in Italy.

Groups of men belonging to China’s Han majority were seen assaulting minority Muslim Uighurs in the capital of western Xinjiang province in a third day of clashes. A row of police in full riot gear guarded a Uighur neighborhood. Hu returned to Beijing yesterday, Xinhua News Agency said, after two days of rioting left at least 156 people dead. The official toll makes the violence the most deadly in decades, possibly since the 1966-1976 Cultural Revolution.

The decision to cancel participation in a gathering of leaders from the world’s biggest economies reflects how significantly China views internal challenges to its leadership. Hu had been expected to meet with U.S. President Barack Obama and others to discuss the global economic crisis.

Hu’s return “sends a message of seriousness,” said Phil Deans, a professor of Asia Studies at Temple University in Tokyo. “Some will certainly see it as a sign of weakness, and say that the Communist Party isn’t as strong as it used to be.”

The party’s chief in Urumqi, Li Zhi, said in a press conference in the city yesterday that those responsible for killings could be sentenced to death. China’s chief police officer, Meng Jianzhu, vowed to show no leniency in punishing rioters, state news agency Xinhua said.

Legal Means

China should use legal means to decisively deal with the “extremely serious” criminal violence that’s taken place, the Communist Party’s newspaper People’s Daily said. “The most important thing now is to speedily restore law and order,” the party-owned newspaper said in an online editorial to be published today. “Then, we can discuss the resolution of other problems.”

The unrest in China’s northwestern province “seriously breached” the nation’s laws, said the commentary posted on the central government’s Web site last night. “The law is a powerful weapon for us to use to strike down violent crimes and maintain social order.”

Military police with rifles and trucks with water cannons set up on one of the main thoroughfares through the city that divides Uighur and Han neighborhoods to keep the two sides apart. A van with loudspeakers urged people to go home.

Officials imposed a curfew for a second day July 7 after Han and Uighurs fought in the streets with machetes, pipes and bricks, and police fired tear gas to break up the violence. More than 800 people have been injured since July 5. The government didn’t impose a citywide curfew last night, for the first time since the riots started.

Stabbing Attacks

Several Uighurs and ethnic Han were stabbed July 7 in attacks and reprisals, Li said in yesterday’s press conference.

The Xinjiang government will allocate 100 million yuan for the more than 1,000 people injured in the clashes and in hospital, Li said. At least nine of those killed had been burnt beyond recognition, he said.

Chinese stocks were little changed, with the Shanghai Composite index falling 0.3 percent to close at 3,080.77 yesterday. The measure has risen 69 percent this year, the world’s best-performing major market.

“In the short term, I don’t see any direct impact on the financial markets,” said Fan Cheuk Wan, head of Asia Pacific research at Credit Suisse Private Banking in Hong Kong, which oversees almost $50 billion in the region. “The situation is pretty much contained, not having a major impact on the national economy, unless it spills over to other parts of China or triggers policy reversals.”

Migrant Workers

The strife followed a demonstration in Urumqi over the deaths of migrant Uighur workers in a June factory brawl in southern China, and underscores persisting grievances among some Chinese minorities who complain of restrictions on religious and cultural practices. Beijing’s policy of investing in the restive territories of Tibet and Xinjiang has attracted more Han, who make up more than 90 percent of the country’s population.

Hu, 66, who was in charge of Tibet during riots there in 1989, hasn’t commented on the events in Xinjiang.

Muslim Uighurs, who make up less than half Xinjiang’s population of 20 million, complain of discrimination and unfair division of the region’s resources. The landlocked region, about three times the size of France, has China’s second-highest oil and natural gas reserves and was the biggest cotton producer.

Foreign Separatists

China’s Foreign Ministry this week blamed foreign-based separatists for formenting the riots, branding them terrorists and criminals. The riots were a premeditated attack, Qin Gang, a ministry spokesman, told a briefing in Beijing July 7.

Police in Xianjiang said they have evidence that Rebiya Kadeer, an exiled Uighur activist living in the U.S., planned the demonstrations, Xinhua reported.

Kadeer, who heads the Munich-based World Uighur Congress, denied any role in the riots, saying at a July 6 news conference in Washington that the only calls she made were to her children in Urumqi to ask them to stay home.

Police killed 400 Uighurs during the Urumqi riots, Kadeer wrote in yesterday’s Wall Street Journal, citing unnamed Uighur sources.

Authorities made mass arrests, deployed 20,000 security personnel and cut Internet and phone lines to stem the violence. Protesters attacked Uighur property, sang the national anthem and ripped down posters exhorting residents to preserve social harmony. Protests spread to the Uighur-majority oasis town of Kashgar this week, Xinhua reported.

“The government feels that if they don’t control it immediately and harshly it will get out of control,” said Dru Gladney, president of the Pacific Basin Institute at Pomona College in Claremont, California.

To contact the reporter on this story: John Liu at jliu42@bloomberg.net.

Last Updated: July 8, 2009 12:34 EDT