China Trade Report, August 1999, Volume 37

FORBIDDEN CITY

BY PAUL MOONEY IN BEIJING

When rumors began to spread in late June that Premier Zhu Rongji had threatened to hand in his resignation, they sent jitters through mainland stockmarkets and the foreign business community. For months, speculation had been rife that the premier was locked in a power struggle with conservative opponents following his failure to sign a deal with Washington on China’s return to the World Trade Organization.

Then, Zhu disappeared from the front pages of major Chinese dailies for more than a week. Reliable sources say he retreated to the east coast city of Hangzhou, reportedly to seek medical treatment. In the past, this has been a popular method for avoiding attacks from within the Communist Party.

    While Zhu is definitely under attack on both the economic and political fronts, he is unlikely to step down. Talk of a power struggle may also be a bit overdone. For example, analysts say Zhu could not have made his WTO concessions without the approveal of President Jiang Zemin and the politburo. Howeve, there is no doubt that criticism is rising within and without the Party about his policies as well as his personal style.

    Much of the heat is coming from people who stand to lose the most if China joins the WTO, including the those who run the automobile, telecommunications, banking and services sectors. These people were particularly miffed when the first concrete details of Zhu’s far-realhing concessions appeared on a U.S. government Web site. Zhu has also made his share of enemies by cracking down hard on corruption and smuggling.

    Leading economists express reservations because they feel he doesn’t trust them. “Zhu has a very strong personality and he believes in himself,” says one economist. “He sometimes listens to advisers, but he doesn’t always accept their ideas.”

    The economist says that while Zhu—an engineer by training—has a “basic understanding of economics,” he often lacks the background to make informed decisions.

    The premier has also lost some of the support he once enjoyed among Chinese citizens, who just a little over a year ago welcomed his no-nonsense stance on the economy and official corruption.

    Zhu’s recent attempts to shore up the nation’s stock markets to fuel economic growth shows how anxious he is to find a solution to the economic problem and halt growing opposition to his policies.

    On the one hand, Zhu has made some remarkable achievements, even as the Asian crisis has blown across China’s borders. “For good or bad, China needs Zhu Rongji,” says a Western diplomat. “There’s no one else up to dealing with the huge challenges posed by economic reform.”

    The economy is expected to grow 7% this year (impressive even if you knock off a few percentage points to account for local officials who exaggerate their economic performance), China has steadily avoided a currency devaluation, the People’s Liberation Army is being forced out of business, and most important, the official commitment to reform remains essentially unchallenged.

    In fact, Zhu’s troubles may have more to do with external forces, over which he has no control. If conserveatives are ascendant, it is mainly because of China’s worsening relations with the United States, especially the Nato bombing of the Chinese embassy in Yugoslavia in May. 

    “There’s a very strong faction in China now that does not favor engagement with the West, and they have the upper hand,” says a Western diplomat. “I don’t see any evidence that this will be short-term and that the political dynamic will soon return to the way it was. There’s been a fundamental shift in mood.”

    A tendency among hardliners to turn inward is quite at odds with Zhu’s pragmatic, outward-looking policies. “There’s no question that Zhu and his supporters who favor stepping up the pace of reform and engagement with the West have had a setback,” says a Western economist. “But we don’t see him crippled. He’s still alive and well.”

    Battle lines are now being drawn for the annual summer meeting of top officials at the seaside resort of Beidaihe. “There are always struggles at Beidaihe,” says a Chinese magazine editor. “But this year will be especially heated. There have never been so many economic problems on the table. And then you have the embassy bombing and Taiwan.”

    Should Zhu somehow succeed in engineering entry to the WTO before the end of the year, he could salvage some of his tarnished authority and reputation. China has so far stuck to its refusal to return to the negotiating table before it gets a “satisfactory” explanation from the U.S. on the embassy bombing.

    However, the word coming out of Western embassies in Beijing is that a deal could be in the making. Western diplomats are saying that the Clinton administration now realizes that it made a mistake when it failed to accept Zhu’s far-reaching package of concessions during his April visit to Washington. Furthermore, Zhu has stated that the package remains on offer.

    Either way, Zhu will have to walk softly for the time being.