ASIAWEEK, JULY 30, 1999

The Man In the Middle

How domestic issues have hurt Zhu Rongji

BY PAUL MOONEY IN BEIJING

IN RECENT WEEKS, SPECULATION has been rife that Premier Zhu Rongji is engaged in an epic power struggle with conservatives. Observers say Zhu's opponents went on the offensive after he failed to ink a deal with Washington on China's entry to the World Trade Organization, despite making major market-opening concessions. Doomsayers see a slowdown of reforms as further proof that Zhu is on the defensive.

Last month, rumors that Zhu was on the verge of resigning prompted jitters on mainland stock markets. Then the premier disappeared from the front pages of leading official dailies for more than a week. Reliable sources say that he retreated to Hangzhou, reportedly to seek medical treatment. In the past, this has been a popular tactic to avoid attacks from within the Communist Party.

While Zhu certainly is beset with problems on both the political and economic front, he is unlikely to resign. And talk of a power struggle is probably overstated. Zhu could not possibly have made his WTO concessions, for instance, without the support of President Jiang Zemin and the Politburo. Still, criticism is mounting within and without the party about Zhu's policies and his personal style.

Much of the heat is coming from those who stand to lose the most by joining the WTO, among them the people running the automobile, banking and telecom industries. They were especially miffed when the first details of Zhu's concessions appeared on a U.S. government Website. "The people affected said: 'We weren't even consulted, and we can't accept that,'" says a Western diplomat. Zhu also has made a lot of foes by cracking down on smuggling and graft.

For their part, Zhu's own people express reservations because they feel he doesn't trust them. "Zhu has a very strong personality and he believes in himself," says a Chinese economist. "He sometimes listens to advisers, but he doesn't always accept their ideas." The economist says that while Zhu has a "basic understanding of economics," he often lacks the background to make informed decisions.

A joke making the rounds is that China's stock market is neither bull nor bear, but rather pig, a play on Zhu's family name. Zhu is said to be the main force behind recent attempts to boost the country's ailing bourses, a strategy he hopes will create a wealth effect that will in turn fuel consumer spending, prompt a cash-injection into state firms and turn around the lagging economy. The move is an indication of just how desperate Zhu is to find a formula to avert an economic crisis, and halt the growing discontent with his leadership.

As the economy slows and unemployment surges, Zhu has lost some of the support he once enjoyed among Chinese citizens, who last year welcomed his no-nonsense stance on the economy and official corruption. "In the beginning, many people had high hopes for Zhu," says the editor of a mainland magazine, "but now a lot of people are disappointed in him. They feel he has not done what he said he would do."

On the other hand, Zhu has made some remarkable achievements, even as the Asian Crisis has washed across China's borders. The economy is expected to grow about 7% this year (impressive even if you knock off a few points to account for local officials talking up their economic performance). China has 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 problems may have less to do with what he has or hasn't done than with external forces over which he has no control. If such conservatives as Li Peng, chief of the National People's Congress, are ascendant it is mostly because of China's souring relations with the U.S., and especially the bombing of Beijing's Yugoslavia embassy in May. 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 as crippled. He's still alive and well."

Battle lines are being drawn for the annual meeting of top officials at Beidaihe. "There are always struggles at Beidaihe," says the 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 engineer 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. Either way, Zhu will have to tread softly for the time being.