World scans China turnaround; New economic tilt could affect many relationships

As India struggles for political stability, the United States is watching still another corner of populous Asia where dramatic and sweeping change foreshadows new opportunities and challenges for the global order.

The country is the People's Republic of China.

Chinese leader Deng Xiaoping's bold industrial reform - aimed at injecting a good dose of capitalism into the communist system - is viewed here as a significant development on the world scene.

Diplomatic experts in and out of government see several implications.

China has a chance of becoming more prosperous and powerful with a market-oriented system that involves it more with the international economic community and allows greater freedom for the Chinese people.

If reforms succeed and China emerges as a NIC (a newly industrialized country), this will pose opportunities for wider global economic cooperation and challenges to an orderly trading system. It could also affect development in such communist countries as Vietnam and North Korea.

As China gains in economic strength, it will also increase its military might , heightening concerns among its neighbors and above all in the Soviet Union.

Moscow will be eyeing Peking with a mixture of envy and concern: envy because it, too, urgently needs to reform its economic system and is afraid to do so; concern because China may succeed in its headlong drive to become a great power.

Chinese leader Deng several years ago launched his country on a reformist road that has produced enormous progress in agriculture. The recently announced reform extends to industry.

Still to be worked out in detail, the reform means shedding much of the Soviet-style system of central planning and introducing profit incentives, freer wage and price setting, competition, and other market levers in large segments of industry.

''Looking around the world country by country in terms of what is happening in ... economic policy, we can't see anyplace else that is more dynamic right now,'' a State Department official says.

''Deng has turned China around as much as Mao and probably in a way that will stick,'' says Harry Harding, an expert at the Brookings Institution.

''These reform ideas are not new. But the significance is that the Central Committee of the party has approved them,'' Dr. Harding says. ''In terms of the durability of the reform, this means the odds have shifted in favor of a continuing reform after Deng.''

Experts caution that the reform faces formidable difficulties. One problem, says Harvard specialist Dwight Perkins, will be the resistance of the hordes of government bureaucrats who now administer the economy and face a loss of power and status because they are untrained for a new system.

Inflation will be a concern, especially if the price of food in the cities, now subsidized by the state, is allowed to rise. Population pressures will continue, threatening to spark explosive urban growth. Also, China may face an energy crunch.

Still, Dr. Perkins voices optimism that the reform will last. Every time China makes a reform it is a ''steady movement toward more reform.''

Analysts are intrigued by the potential impact of the Chinese reform on Moscow. The Soviet newspaper Pravda has already indicated disapproval.

But liberal Soviet economists have long urged reforms in the USSR that would unleash its people's creative energies in the way that China is doing. The question is whether they dare tell the conservative Kremlin leadership that the Soviet Union risks falling behind if it does not change.

How the Soviets respond to developments may depend on the international-relations situation, diplomatic and academic specialists say. If it remains relatively benign, those in the Soviet Union who want more sensible policies could point to the Chinese experiment as ''making socialism work'' and urge similar reforms.

But if the world situation is threatening to them, these specialists say, the Soviets could well view China's economic and military progress - and the growing US influence in China - with alarm. Feeling themselves hard pressed, they could even resort to some irrational act.

Administration officials view the Soviet Union today as very much on the defensive after a period of expansion in the 1960s and early '70s.

While the US was wrestling with Watergate, the oil embargo by the Organization of Petroleum Exporting Countries, and other problems, Moscow expanded its influence to the point that it was boasting of a change in the ''correlation of forces,'' that is, a shift in the global balance in Moscow's favor.

Now, for a multitude of reasons, that feeling of being on the upswing has changed, US officials say. The Soviet economy has encountered increasing difficulties. There have been two leadership changes, with more uncertainty ahead. Moscow was unable to forestall the deployment of new NATO missiles in Europe. Afghanistan remains an albatross. Eastern Europe continues to challenge Soviet power, and there have been diplomatic setbacks in other parts of the world.

''So a defensive, worried, highly suspicious leadership is looking at the world in a different way,'' says a State Department expert. ''And the longer they have trouble getting their act together, the more vulnerable they are.''

Experts say the reason the Soviets find it so hard to reform their economic system is that they are driven by a different national goal than the Chinese are.

China, self-assured about its culture, seeks primarily to become a great power. The Soviet state is most concerned about security and control - how to fight against the outside and keep cohesion on the inside. Economic decentralizaton poses a problem because it risks losing political control over the vast Soviet domain.

Although reform in China may be giving the Soviets pause, Dr. Harding does foresee a significant effect on foreign policy in the near term.

''It does not bode ill for Sino-Soviet relations or well for Sino-American relations,'' Harding says. ''What China will try to do is reestablish the diplomatic dialogue with the Russians, lower tensions, while maintaining a tilt to the US.''

Administration officials concede that Soviet weaknesses provide the US with an opportunity to advance its own interests around the world, but they say this must be done without alarming the Russians. They also believe Moscow's defensive posture should make it possible to negotiate arms control.

''It doesn't mean that they can't keep up the arms race or that they will collapse,'' says the State Department official. ''But it does argue that you're not negotiating from a weak position and can get a better agreement.''

As China pushes ahead with its far-reaching reforms, analysts note that a dynamic Chinese economy dependent on exports may one day aggravate trade competition and accelerate a tide toward protectionism. But the benefits of an economically more rational and freer China may outweight future problems.

''Would you rather have another Japan or another Soviet Union?'' asks Dr. Perkins. ''The choice is between a China that is prospering and integrated into the world system or an isolated, powerful state that is suspicious of the outside world.''

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