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Thursday, 7 November, 2002, 11:28 GMT
China's economic gatekeeper steps down
Middle-aged construction worker smoking a cigarette
State spending fuels China's boom and keeps workers in jobs

Premier Zhu Rongji has long been the West's favourite economic reformer within the Chinese leadership, as well as the most powerful.

Zhu Rongji with then US president Bill Clinton
World leaders feel at ease with Mr Zhu

Foreign leaders viewed him as a safe pair of hands, steering China through Asia's financial meltdown in the late 1990s and into the World Trade Organisation (WTO) last year.

Now he is preparing to retire, officially at least.

The 16th Congress of the Chinese Communist Party is set next week to reshuffle its top bodies, promoting people picked in secretive internal power struggles over recent months.

Chosen successor

Mr Zhu will then remain as Premier until China's "rubber stamp" parliament meets next March.

Next week's Congress is expected to put the seal of approval on his struggle to clinch trusted deputy Wen Jiabao as his successor.

How successful has Mr Zhu been as top steward of China's booming but unbalanced economy?

There is no doubt he has been hugely influential.


Western political and business leaders found him reassuring and credit him with clinching China's market-opening World Trade Organisation (WTO) deal, which has brought foreign capital pouring into the country.

"He was a very impressive individual from the very beginning...a man of enormous curiosity," says Dr Nick Lardy, a China specialist at the Brookings Institution in Washington, who first met Mr Zhu in the mid-1980s as mayor of Shanghai.

A cleaner in a Beijing department store
Big city stores sell glamorous lifestyles

He is probably the most respected Chinese leader at home too; though CCP leaders do not need to win multi-party elections, achieving legitimacy does matter and his departure could leave a gap.

"He's someone who is well respected by Chinese citizens," says Angie Eagan, manager of US marketing firm Burson-Marsteller's Shanghai office.

"Having somebody who can hold the respect of multiple generations is quite something."

Powerful performance

Mr Zhu's report card for managing the economy blazes with straight As.

China is outstripping the rest of the world on growth rates and foreign investment and is taking a bigger chunk of global trade.

It notched up economic growth of 7.9% in the first nine months of 2002, according to official figures, and looks sure to beat the government's 7% target for the year while most major economies are in the low single digits.

Mr Zhu kept things on track in the difficult years of the late 1990s, so that China averaged growth of 9.7% a year over the two decades to 2000.

While global trade stagnates - it is likely to grow by 1% this year - China's trade soared by 18% in the first nine months of 2002, with exports outstripping imports, says Dr Lardy.

China is pumping goods into the world market. It now makes half the world's cameras, a third of air conditioners and about a quarter of all washing machines and fridges, according to weekly economic digest, the Far Eastern Economic Review.

Scrambling for a foothold

While foreign direct investment (FDI) worldwide halved in 2000, the flow of capital into China rose 10%.

As global firms scramble to avoid missing what they hope will be the 21st century's gold rush, FDI in China has risen 22.6% so far this year.

A couple wheeling a child in a handcart
Many districts are still waiting to get rich

Consumer spending is growing too, boosted by longer workers' holidays.

But the glowing statistics mask deep-seated structural problems: uneven development; inefficient state firms and a banking system mired in bad loans.

Mr Zhu has tried to tackle all the major ones, but most economists think there is a long way to go.

Balancing act

The biggest problem facing China's leadership is how to modernise the inefficient state sector without tipping ordinary Chinese into revolt.

"If you ask a Chinese citizen what the promise of the Chinese government is to them, it's to improve their quality of life," says Ms Eagan.

But millions are losing their jobs as state firms close.

Mr Zhu has demanded financial safety nets for unemployed workers. He has tried to set tax limits for peasants to protect them from arbitrary levies by corrupt officials.

In a schizophrenic policy, the CCP is trying to push through closures of inefficient state firms, while simultaneously pumping taxes into the economy to protect jobs and maintain consumer spending.

The result is an oversupply of manufactured goods, driving down prices and company profits whilst jacking up the level of bad debt in the banking system.

Peasant Zheng Qichen writes an appeal to Zhu Rongji on a sweater
Peasant protestor writes an appeal to Zhu Rongji on a sweater

The fiscal stimulus policy is designed to keep China's problems manageable.

It's an understandable aim in a country of 1.3 billion people, that needs 100 million urban jobs in the next five years to absorb laid off workers and rural migrants.

But it may be creating a vicious spiral of unprofitable enterprises and bad debt.

Wooden successor?

Mr Zhu's right-hand man Vice-Premier Wen has worked on better rules for the stock market.

Mr Wen has also been prominently associated with the campaign to develop poorer inland provinces to stem migration and regional resentment.

Observers think there are few substantial disagreements over economic policy in the CCP; tensions focus on the pace of change.

Mr Wen is "difficult to read," says Dr Lardy. "He sticks very closely to his script."

But then flamboyance in front of foreign observers is not the route to power in the CCP's sprawling bureaucracy.

Suppleness and discretion are, and Mr Wen is reportedly well-supplied with those qualities.



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See also:

06 Nov 02 | Asia-Pacific
02 Feb 02 | Media reports
05 Nov 02 | Asia-Pacific
06 Nov 02 | Asia-Pacific
05 Nov 02 | Asia-Pacific
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