A skeptical eye on the 'new' in China's new leadership

China's flinty Premier Zhu Rongji formally bowed out Sunday after a decade of steering China toward free markets. No one doubts the historical importance of this man vehemently hated by some and hero-worshiped by others.

More than anyone else, except the late Deng Xiaoping, Mr. Zhu kept the Chinese Communist Party in power with his forceful leadership. He aggressively pushed a Thatcherite economic vision while relying on old-fashioned state spending to maintain growth and placate public dissatisfaction.

His more equable successor, Wen Jiabao, now must put in force the World Trade Organization agreement that is Zhu's most enduring legacy and which casts China's economic future in cement.

Although Zhu helped destroy the influence of the party's left wing, there is still plenty of resentment despite the barrage of promising economic statistics put out at the National People's Congress.

Zhu's championing of competition and deregulation helped bring China out of its post-Tiananmen slump when it had swung so far toward autarchy and central planning that it seemed headed into a Stalinist twilight zone. But his solutions have been painful for many, and by piling up so much debt he may only have postponed the day of reckoning

When Zhu emerged into the limelight on the back of Deng's1992 southern tour, his main task was curbing the runaway inflation - and its attendant pain - unleashed by the new round of reforms. Then in the mid-1990s, Zhu spearheaded such a harsh austerity campaign that there were believable rumors that he and family members had narrowly escaped assassination attacks. Millions lost their savings and often their jobs as investment projects collapsed and people rushed to withdraw savings from shaky banks or shady investment schemes.

Zhu kept the state sector going during the liquidity crisis by aggressively funneling money raised on domestic and overseas stock markets. But he also reined in countless other overambitious experiments in capitalism: local stock markets, futures markets, trust and investment corporations, and some crazy property bubbles like that on Hainan Island.

Hard on the heels of the successful campaign to bring down inflation, he faced down another inner-party battle when the left wing revived with the 1997 Asian financial crisis. Chinese papers suddenly filled with triumphalist predictions about the imminent collapse of capitalism or warnings about the threats posed by the "sharks" and "crocodiles" of international finance.

Zhu cleverly managed to exploit the crisis as an opportunity. When foreign investment dried up, Zhu used this to insist that it was all the more urgent that China enter the World Trade Organization. He pushed through a deal with the US, despite being accused of selling out the country and he put China firmly on the path toward creating a thriving mixed economy.

On the other hand, the crisis saw an estimated 30 million jobs, mostly in rural factories, disappear. Zhu countered that by launching wave after wave of mega- infrastructure projects to stimulate the economy. He also pushed through the privatization of housing, which is unleashing a building boom.

His best legacy is that the new leadership seems committed to promoting private property ownership and creating a consumer-driven economy. The party now wants to keep shrinking the state and freeing the individual from China's suffocating bureaucracy.

Yet Zhu also got away with a lot through bluster and bluff, manipulating statistics to say the economy was growing at around 8 percent in 1998, even though it was barely growing at all. Likewise, his claims to have restored the huge state sector to profitability in just three years seem dubious.

Just how all this state spending is being financed is far from clear from China's published figures. Central government's revenues are still just 6 percent of GNP, and Beijing is now issuing treasury bonds - $16.8 billion this year - which mostly cover the interest payments on existing treasury debt that will cost $11.3 billion this year.

Zhu largely used state banks to finance government deficits, leaving his successor, Wen Jiabao, to struggle with $450 billion in nonperforming loans as well as unsecured pensions and other liabilities that raise the total to perhaps $1.5 trillion.

Most Chinese remain deeply insecure. About 28 million workers lost their jobs during Zhu's five-year tenure as premier. And he failed in his efforts to build a social-welfare system for urban Chinese - and in the countryside, peasants have still not been given legal title to the land they farm.

Last year Zhu boasted that he saved the Chinese economy from collapse, but his recipe for high debt- financed growth is not sustainable. And even more troubling is that he has left many younger Chinese enthusiastic about his brand of strong authoritarian leadership, and the merits of heavy-handed state intervention and big government. This does not bode well for political reform.

Jasper Becker is a journalist and the author of 'The Chinese.' He lives in Bejing.

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