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Written by Laurence Brahm - Published by South China Morning Post on 07/19/2002
With Premier Zhu Rongji due to retire soon, it is time to assess his legacy “PLANNING AND MARKET are both tools to accompany the use of resources, but are not in themselves standards of socialism or capitalism,” Deng Xiaoping once told Zhu Rongji. The occasion was Mr. Zhu’s promotion from mayor of Shanghai to vice-premier in 1992.
Little known to the world at the time, in this one sentence lay the formula for China’s economic transition over the next decade, implemented under the administration of Mr.Zhu, who has served as premier since 1998.
As China is expected to undergo a major political transition at the Communist Party plenary congress this autumn, it is worth taking a look at the achievements of administration, and especially Mr. Zhu.
While both President Jiang Zemin and National People’s Congress Chairman Li Peng rank ahead of Mr. Zhu on the Politburo Standing Committee, there is little question in the minds of many both in China and abroad, that most of the key financial and monetary decisions over the past critical decade of China’s transition came form his desk.
Certainly on questions of economic, financial and monetary management, the standing committee deterred to Mr. Zhu’s judgment and, in the end, gave collective support to his decisions on most critical issues. If he steps down from power this autumn, Mr.Zhu will be missed by many.
Speculation is in the air in Beijing and among China watchers concerning the succession of the fourth generation of leaders, the content to which members of the current third generation may continue to exercise power, and whether there will be a successor to Mr. Zhu who will be able to exercise the fortitude needed to maintain the momentum of China’s economy and keep reforms on track.
Guesswork aside, there are two important points to keep in mind in the course of this leadership transition. First, it is a transition, not an abrupt change in adminis-transition. This is how the Chinsese body politic works. Deng’s own authority was phased in over time, as was Mr. Jiang’s.
This is likely to be the case for Mr. Jiang’s successor, Hu Jintao, and Mr. Zhu’s likely successor, Wen Jiabao. While Western analysts and media may express chagrin that such a phase-in does not carry with it the preciseness of a change of cabinet in Western systems, most Chinese dislike such abruptness. They prefer retaining a level of comfort by having the older leaders; China’s transition form planned to market economy is already a fact. While issues may remain to be addressed, the major transition ahs already occurred. Chinese politics is no longer a question of reformers versus non-reformers. The question is how they will fine-tune the application of monetary and financial tools used in running a market economy. The reforms have already taken place. They are now unquestionably irreversible. To a great extent, this is part of the Zhu Rongji legacy.
From his position, an vice-premier and then premier, Mr. Zhu has overseen the formulation and implementation of policies which converted China from what was still a command economy in the early 1990s to a largely market economy by the close of the century.
China’s transformation during the 1990s is testimony to the successful application of Mr. Zhu formula of fusion economics, which has provided an alternative to “Washington consensus” International Monetary Fund (IMF) and World Bank models. In the eyes of many, the latter models have failed in their application to transitional developing economies.
Mr. Zhu model of economic reform has involved “ managing” an economy rather than free-floating it; adopting a series of often unrelated tools of economic intervention an guidance; leading a closed market in the direction of an open market; evolving, not dismantling institution; and allowing private enterprise to grow alongside state-owned enterprise, not replacing ne with the other.
Like so many things Chinese, Mr. Zhu’s model sought a middle mad. It was neither capitalist nor socialist; in fact, in its application such ideological terms became irrelevant. Mr. Zhu’s model was practical, applied to each situation, but with vision to keep a certain momentum, always moving the economy closer towards a market-based system, without worrying about the theoretical baggage. At times, this meant commanding the economy to move towards a market, giving rise to Mr. Zhu’s own economic model of “managed mercerization”.
Events such as his measures to control hyperinflation when it reached 21.7 per cent in 1994; the closing of irregular financial institutions which culminated in the well-publicized Guangdong International Trust and Investment Corp bankruptcy; attempts to clear China’s triangle debt; maintaining currency stability throughout the Asian financial crisis; high growth maintenance; and the strategic adjustments of China’s economic which accompanied these events are flag posts marking an era of transition. The policies adopted in each of these situations serve as milestones on China’s road to transition.
Mr. Zhu’s managed execution of his programme of reforms was influenced by his own grasp of both successful and failed measures adopted by China in handling economic and financial predicaments during the 1980s, and an understanding of the reactive psychology of China’s over-all population, what Mr. Zhu once described to me as the “social psychology effect” on a “herd of sheep”.
In fact, Mr. Zhu understood at a remarkably deep level how the psychology of China’s population was evolving and changing over this period. He understood the resistance points of popular sentiment how far reforms could he pushed without sparking unnecessary social reactions which might otherwise put these very reforms off course.
The reforms which Mr. Zhu has introduced during his tenure as premier may be summaries in his own words as including “one guarantee”, that of high growth, low inflation, and currency stability, “three achievements”, that of reforming the banking system, turning around state-owned enterprise losses and cutting China’s bureaucracy in half within three years; and “five items of reform”, involving grain circulation, health and social welfare, housing, taxation and capital circulation.
Mr. Zhu himself closed the final round of negotiation for China’s entry into the World Trade Organization, preparing China for the next stage of transition and development, just as Deng had urged him to do.
Private business has flourished in the shadow of the restructuring and downsizing of state enterprises. Lifestyles have generally improved across the board for most people, although, undeniably, there are some who have fallen between the caracks of such dramatic change. More importantly, social psychology has changed.
During the Asian financial crisis, China did not follow the IMF’s “prescription”. Premier Zhu refused to devalue the yuan. Those nations that followed the IMF’s prescription witnessed economic and then political meltdown. Meanwhile, China’s foreign exchange reserves soared, from US$60 billion (HK$46H billion) in 1992 to more than US$240 billion today, the second largest in the world, China’s new export economy is booming, drawing manufactures from the West and across Asia to relocate production in China, which has become the rest of Asia’s outsourcing factory.
It is hard to imagine the leader of any other country daring to take the political risks inherent in tackling economic and financial challenges on such a scale as China’s. Yet Mr. Zhu has done so and arguably succeeded.
Where the execution of any IMF or World Bank reform measures to Russia, Eastern Europe, Central Asia, Mongolia, Indonesia, South Korea or any other transitional economy will receive praise form Washington and the predominantly pro-Western international media, one must ask honestly how many of these reforms have been successful in carrying our economic structural capacity-building, raising lifestyles, invigorating these economics, and establishing social and political stability in these countries.
Many of those who accepted the economic panacca proffered by Western academics have lived to regret it. Mr. Zhu, however, developed his own practical model suited to Chinese realities, a new and fresh model for developing and transitional economies which marked out his own theory for the managed marktisation of China’s economy. And China’s economy is all the stronger for it today.
There are those in the Western media who criticise Mr. Zhu, saying that reforms have begun but not been completed. Last spring he furiously rejected a Hong Kong media report which called him the “deficit premier” because he had increased government debts to finance infrastructure, “I can never accept that title”, he said, arguing the deficit had acquired 2.5 trillion yuan (HK$2.3 trillion) worth of “ quality assets” for China such as roads, railways, power plants and now public civic centers, all of which will cam money over time to pay back the government bond issues which have financed such infrastructure.
For China, Mr. Zhu’s legacy has been the transformation of the nation’s economy from a planned to a market system while maintaining high system while maintaining high growth and broad-based political and social stability.
For the world, due recognition should be given to him for the successful application o a new economic development model of managed marketisation. His name should be remembered alongside that of John Maynard Keynes.
He is deserving of a Nobel Prize in economics, which is normally reserved for academics, not practioners. Where the academics have failed, he has succeeded.
Laurence Brahm is a global activist, international mediator, political columnist and author. He is the leading advocate of a fresh development paradigm - The Himalayan Consensus - an innovative approach to development.