Free-Enterprise Zone Leads China Toward Market System

Guangzhou's entrepreneurial spirit has withstood both a national retrenchment program and the crackdown against democracy in 1989. Provincial officials say the momentum toward reform here is irreversible. Guangdong Province ON THE FAST TRACK

FOR a panorama of Guangdong's upstart economy, pull back the white-lace curtains on a northbound ride on the Kowloon-Canton Railway.Across the border from Hong Kong rise the skyscrapers of Shenzhen, China's liveliest free-enterprise zone. Next appear the rice paddies and humming rural workshops of the country's richest region, the fertile Pearl River Delta. Finally, the blue diesel engine chugs past the abundant markets of the provincial capital, Guangzhou. Scenes of prosperity on the three-hour journey lend credence to claims by Guangdong leaders that a large chunk of the southern province will achieve the living standards of a middle-income developed nation by the end of the century - 50 years ahead of the rest of China. They also support a consensus among Guangdong officials that the free-market forces unleashed here since 1979 now constitute an irreversible engine for economic progress. "The momentum of development in south China ... cannot be controlled by man," said Zhou Baohong, director of foreign investment in Shenzhen. In recent years, Guangdong's resilience has been proven in the face of two major shocks: a nationwide economic retrenchment launched in 1988 and the reversion to Marxist orthodoxy by hard-line leaders after the June 4, 1989, Beijing massacre. China's biggest exporting province, Guangdong now also boasts the country's fastest growing industrial sector, chalking up a growth rate of 27 percent from January to May. Today, some Chinese predict the freewheeling province will also push forward with political liberalization ahead of Beijing. "You could argue that Guangdong is going the way of [authoritarian regimes like] South Korea and Taiwan," where the emergence of a middle class has spawned demands for political participation, says a Western diplomat based in Guangzhou. Now that Beijing has lost its grip on the province's economy, "the crucial question is one of political control," says a Chinese resident of Guangzhou. Beijing's concern over Guangdong's growing autonomy prompted a long-awaited reshuffle of the provincial leadership this spring. Ye Xuanping, a Guangdong native who emerged as a popular champion of reform during his tenure as governor since 1985, succumbed to pressure from Beijing and accepted a ceremonial post in the capital. But Mr. Ye's departure is unlikely to cramp Guangdong's maverick style, say Chinese officials in Guangzhou. Apparently by Ye's demand, the acting Governor Zhu Senlin and other officials recently promoted in the province are all avid reformers who are either native Cantonese or have spent much of their careers here. Ye himself is likely to retain his Guangdong powerbase, orchestrating decisions in the traditional Chinese way from behind a "yellow curtain," officials and diplomats say. "Ye understands Guangdong very well, so maybe [his move to Beijing] will offer us some advantages," says Lin Pingjiang, a vice director at Guangdong's Economic Reform Office. Moreover, provincial officials suggest that even leaders newly assigned by Beijing would be quickly co-opted by entrenched local interests. "If new leaders come, we'll make full use of them," says one high-ranking Guangzhou official. In a sign of its rising political influence, Guangdong appears to be playing a leading role in recent efforts by China's reformers to revive controversial price and ownership reforms nationwide. For example, the province recently began promoting itself as an economic model for all of China to emulate. "The Pearl River Delta can be called no less than the cradle of the socialist commodity [market] economy," said a May 7 article in the Guangzhou Daily that was highlighted by the provincial press. Beijing, meanwhile, is more obliged than ever to heed Guangdong, having delegated economic decisionmaking power to the province over the past 12 years. The central government is heavily dependent on Guangdong for revenue, especially hard currency, as it faces a $10 billion budget deficit this year. "The center is very respectful of the opinions of the localities, and the localities also try to help the center," says Xu Zhi, director of Guangzhou's Economic Reform Commission. "For instance, if the central government has a special need, a big project, or a major problem, our contribution [of revenue] can be adjusted through negotiations," Mr. Xu says. Yet Guangdong's relations with the central leadership have not always been harmonious, especially since the brutal crushing of protests for democracy in Beijing two years ago. Provincial officials acknowledge that since the 1989 crackdown, Beijing's hard-line leaders have withheld new preferential policies for Guangdong and its coastal free-enterprise zones. Last fall, Guangdong leader Ye also led, and won, a bitter battle against Beijing's attempt to boost its share of provincial revenues by scrapping the current financial contract system for one based on tax sharing. "The central government sometimes fails to understand problems as deeply as local cadres, so conflicts arise," admits Shenzhen Mayor Zheng Liangyu.

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