China reins in market reforms. Move aims to head off unrest over inflation, corruption

The Chinese Communist Party's slowdown of reform is an effort to defend its credibility amid the country's gravest economic crisis in a decade. Attempting to halt unrest resulting from the worst inflation in its 39-year rule, the party has reined in reform harder than at any time since it began easing state economic controls 10 years ago. The party also pledged to crush corruption, which it admits has seriously harmed its public image.

For at least two years the party will postpone major steps in price decontrol, which has increasingly allowed the marketplace rather than state bureaucrats to regulate the economy. Chinese and Western economists view freeing of fixed prices as critical to invigorating China's backward economy.

In a formal decision Friday to curb inflation while halting bold reform, the party's Central Committee pledged to tighten credit and cut state spending on all but the most strategic projects. On Saturday, the state dispatched price inspectors to markets nationwide to help control inflation, the official New China News Agency reported.

The new policy aims to eliminate two forces that have troubled Chinese regimes over the millennia: corruption and economic turmoil. The two menaces have undermined numerous Chinese governments, from imperial dynasties to the nationalist administration which the Communists overthrew in 1949.

Historically, Chinese regimes have legitimized their rule largely by maintaining stability, public faith, and adequate material well-being, according to China scholars.

Pervasive corruption and inflation, which is expected to exceed 20 percent this year, have threatened all three of those things. Widespread bank runs and panic buying have created a crisis that has pushed China to ``an important juncture in the historical development of the [People's] Republic,'' said an editorial Saturday in the party newspaper People's Daily.

The bank runs and panic buying, while serious, do not threaten the party's political dominance. But rampant corruption and inflation imperil its credibility and its ability to govern effectively.

In the People's Daily editorial, the party showed its anxiety over popular trust, saying future policy must ``accord with the popular will'' and ``must be carried out within the limits of what the masses are able to endure.'' Chinese officials and economists have acknowledged privately that the leadership overestimated public tolerance for inflation.

The editorial also highlighted the party's drive to eliminate the corruption that has estranged the people from the state and become their biggest complaint. ``Currently the corruption, bribe-taking, extortion, profiteering with scarce commodities, squandering of public funds, and extravagant waste by workers in some party and government organizations is deeply and utterly detested by the masses,'' it said.

``If this is not promptly disposed of, it is bound to become a great destructive factor...,'' it said.

Corruption today is worse than at any time since the communists took power, Chinese officials say privately. Millions of party and government cadres, technically barred from running businesses, are abusing their political power for financial gain. Many officials re-sell scarce, state-priced commodities for huge profits on the free market.

Peking's decision to slacken bold, market-oriented reforms signals that Party General Secretary Zhao Ziyang, an aggressive reformer, has bowed to his more cautious comrades after weeks of internal party debate. The slower pace of reform espoused by Premier Li Peng prevails in party statements, indicating a blow to the prestige of Mr. Zhao, according to Western diplomats.

However, the move away from Zhao's plans for reform does not necessarily signal a decline in his power compared to Mr. Li or in absolute terms, the diplomats say. There is no sign that Zhao has lost his position as the ranking prot'eg'e to senior leader Deng Xiaoping, they note.

The entire leadership, not only Zhao, endorsed bold reform as recently as last spring and must bear responsibility for the severe economic instability and public discontent, the diplomats said.

``The leadership is probably spending more time pulling together to improve their esteem among the public rather than competing with each other,'' a diplomat said.

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