By John Ruwitch

JINAN, China, Aug 23 (Reuters) - Fallen Chinese politician Bo Xilai called his wife insane after she testified at his landmark trial on Friday that he knew of money and a villa in the French Riviera that prosecutors say were given to the couple by a businessman friend.

The video and written testimony by Gu Kailai directly contradicted Bo's robust defence on Thursday, and appear to set him up to be found guilty in China's most dramatic trial since the Gang of Four were dethroned in 1976 at the end of the Cultural Revolution.

"He should know about it all," Gu said in a video recording shown in court and posted on the court's microblog, when asked whether Bo knew that she and their son, Bo Guagua, had received money from plastics-to-property entrepreneur Xu Ming.

Bo dismissed Gu's testimony as the ravings of a madwoman.

"Bogu Kailai has changed, she's insane, often tells lies," Bo said, according to transcripts on the court microblog, using Gu's official but rarely used name. "Under the circumstances of her mental illness, the investigators placed huge pressure on her to expose me.

"Her testimony as far as I am concerned, was (given) under psychological pressure, and driven by (hope of) a reduced sentence," he added.


Gu has been jailed for the murder of British businessman Neil Heywood in November 2011, the crime which eventually led to Bo's downfall.

The businessman Xu, who is also in custody, was once close to the Bo family, but also testified against him on Thursday, according to the transcripts. Foreign reporters were not allowed into the court.

Bo, the 64-year-old former Communist Party chief of Chongqing metropolis, has been charged with illegally taking almost 27 million yuan ($4.41 million), corruption and abuse of power. Of that amount, about 21.8 million yuan came from Xu and another businessman Tang Xiaolin, the court said, citing the indictment.

Bo was a rising star in China's leadership circles when his career was stopped short last year by the scandal involving Gu.

Supporters of Bo's Maoist-themed social programmes say he lost out in a power struggle with capitalist-leaning reformists in Beijing, exposing divisions within the ruling party as well as Chinese society.

Last week, two sources told Reuters that Gu would only testify against her husband if a deal had been reached with authorities to protect their son.

A deal in which Bo can be swiftly convicted and sent to jail, sparing him a death penalty and with no repercussions for his son, would be in the interest of China's leadership, which wants the trial to be concluded without causing open friction between Bo's followers and critics.

On Thursday, observers said the court proceedings were probably scripted and that Bo could receive a pre-arranged sentence in exchange for limited outbursts that would show that the trial was fair, appeasing his followers.

The trial will continue for a third day on Saturday, the court said, despite expectations it could last just a single day.


VILLA IN NICE

In written testimony, Gu said she had shown Bo the graphics and slideshows for the design of a villa in Nice, France that was paid for by Xu. Bo asked her about the slideshows and according to Gu, she told Bo about Xu's involvement.

"Therefore he knew that I asked Xu Ming to pay for this villa in France," Gu said in her written statement.

In the poorly shot video, Gu appeared soft-spoken and composed as she was questioned by a worker from the state prosecutor's office. She laughed when asked whether she had been coerced into giving evidence.

Gu did not link Bo with Heywood's murder, but said he was aware she considered the Briton a threat to their son. According to testimony at Gu's trial, she killed Heywood because he had threatened Guagua after a business dispute with Gu.

Gu said Bo was also aware of her fears about the safety of Guagua, who is now in the United States preparing for a law degree at Columbia University. Gu said she was afraid Guagua "would be kidnapped and killed in America".

"In 2011, Guagua's personal safety was threatened and Bo Xilai understood this," she said in her written testimony.

"We drew up a blacklist of suspicious people. One of them was Neil Heywood. I explained all of this to Bo Xilai."

Bo could face the death sentence, though a suspended death sentence is more likely, which effectively means life imprisonment, or a 20-year term. ($1 = 6.1211 Chinese yuan) (Additional reporting by Judy Hua in JINAN and Sui-Lee Wee, Ben Blanchard and Hui Li in BEIJING, Writing by Sui-Lee Wee; Editing by Raju Gopalakrishnan)

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  • Bo Xilai

    Until his ouster, Bo was the Communist Party chief of the mega-city of Chongqing and one of the country's most prominent political figures. The telegenic, media-savvy politician rode to nationwide fame by waging an anti-mafia crackdown and organizing mass sing-alongs of Communist Party songs. But his publicity-seeking ways and his revival of Mao Zedong-era radical campaigns alarmed many in the political elite. The son of one of the Communist state's founding fathers, Bo was already in the party's 25-member Politburo and before the scandal was seen as a contender for an even higher post. Rumors had also swirled about the Bo family's wealth and the shenanigans of his son. Bo is standing trial for bribery, embezzlement and abuse of power. <em>In this March 11, 2012 photo, Bo Xilai, former Chongqing party secretary wipes his glasses during a plenary session of the National People's Congress at the Great Hall of the People in Beijing. (AP Photo/Andy Wong)</em>

  • Gu Kailai

    Bo's wife has confessed to killing British businessman Neil Heywood after having a dispute over money and worrying that he had threatened her son's safety, according to state media. She is said to have risen out of a trying childhood during nationwide upheaval to become a prominent lawyer and high-flying politician's wife. She was skilled at turning on the charm when the going was smooth, yet quick to turn hostile when crossed. Like Bo, she is the offspring of a prominent Chinese revolutionary veteran. A Chinese court gave Gu a suspended death sentence in August last year which will likely be commuted to a life term. <em>This video image taken from CCTV shows Gu Kailai, second left, the wife of disgraced politician Bo Xilai, being taken into the Intermediate People's Court in the eastern Chinese city of Hefei Thursday Aug. 9, 2012. (AP Photo/CCTV via APTN)</em>

  • Bo Guagua

    Their 25-year-old son, who was educated at top universities in England and the United States, including Harvard. Guagua, who has appeared shirtless at parties in photos posted on the Internet, has said he attended social events as an Oxford University undergraduate to broaden his perspective. He denies accusations he received preferential treatment in admissions, that he was a poor student or that he drove a pricey sports car. He is not believed to have returned to China since the scandal broke and he is currently studying law at Columbia University. He says he has been denied access to his parents since their detention 18 months ago. <em>China's Minister of Commerce Bo Xilai (R), stands at a mourning hall held for his father Bo Yibo on January 18, 2007 in Beijing, China. (Photo by China Photos/Getty Images)</em>

  • Wang Lijun

    Once Bo's right-hand man and Chongqing's police chief, Wang was sidelined by Bo in February last year after Wang confronted him with news that Bo's wife was suspected of killing a British businessman. Fearing for his life, Wang fled to the U.S. Consulate in the nearby city of Chengdu where Chinese authorities say he applied for asylum. Chinese security sealed the area around the consulate as Wang negotiated with officials for safe passage to Beijing accompanied by State Security officials. While in the consulate, Wang is believed to have alleged that Gu was behind Heywood's death, prompting the British government to ask China to launch a new investigation. In a surprising twist, people who attended Wang's trial say the court heard evidence that Gu had informed Wang of her intentions and that for a time, he too participated in planning the murder. Wang was sentenced to 15 years for corruption and covering up the Heywood murder. <em>In this Oct. 16, 2011 file photo, then Chongqing city police chief Wang Lijun delivers a speech during the 2nd International Forensic Science Meeting in southwestern China's Chongqing city. (AP Photo/File)</em>

  • Neil Heywood

    A British business consultant and Bo family friend, his body was found in a secluded Chongqing hilltop retreat in November 2011. Chinese authorities originally blamed his death on excessive drinking or a heart attack and his body was cremated without an autopsy. Subsequently, an official Chinese statement said he had a longtime business relationship with Gu and her son, Guagua, but that it had deteriorated over financial disputes. Bo reportedly sought to block a police investigation after Wang came to him with his suspicions. <em>In this April 12, 2011 file photo, Neil Heywood, a British business consultant, smiles at an art gallery in Beijing. (AP Photo/China.org.cn, File)</em>