SOCIALISM DIES, AGAIN

By Michael S. Serrill

Evolution is revolution in today's China, as the great transformation of the communist system proceeds in the painful effort to create a system that works. Last week Jiang Zemin was the latest leader to order a retreat from one of the ideology's sacred tenets: state ownership of industry. Although he cloaked his decision in the semantic cant of "socialism with Chinese characteristics," the change he has ordered is nothing less than the last major step toward Chinese-style capitalism. Beijing will sell off the bulk of the nation's virtually broke state enterprises. Call it what they may, that's still privatization.

The government will keep control of a few strategic industries like steel and armaments. But it will otherwise relinquish the common ownership of production that has underpinned the Communist Party's claim that China is still a socialist nation. However much elders of the party might flinch at the crumbling of their faith, Jiang is sure to win endorsement from the 15th Party Congress, meeting for seven days in the capital to set the country's agenda for the next five years. The inefficient and money-losing businesses have become such a burden that the leadership can no longer put off reforming them, hazardous though the political consequences might be.

Even though this sharp turn toward free enterprise, seven months after the death of paramount reformer Deng Xiaoping, had been rumored for weeks, it was still greeted with wonder. "It's breathtaking," said Charles W. Freeman Jr., a former U.S. diplomat. "Nothing on that scale has ever been attempted." Others saw the change as a risky move. "Jiang is doing what Deng did not dare do," says a Chinese political analyst in Beijing. "He's putting the bankrupt state sector on the block even at the risk of social instability."

In presenting the new program, Jiang, 71, was careful to pay rhetorical obeisance to Mao Zedong and insist that the government would continue to "oppose bourgeois liberalization." He never uttered the politically incorrect word privatize, explaining that the new shareholding system is simply a modern form of "public ownership" that "can be used both under capitalism and under socialism." But few were fooled by the verbal acrobatics. "It's a deep change," says Wang Shan, a political commentator in Beijing. "The industrial worker who used to rely on the state will be thrown into the marketplace."

More than half of China's 125,000 state industries are hamstrung by outmoded management. Though the factories employ 110 million workers, they can barely pay them, and while these businesses soak up 90% of loans from state banks, they account for only a third of China's total industrial output. But Beijing has always been afraid of the social turmoil that could be unleashed if millions of those workers were dismissed.

Over the next few years, all but 1,000 companies will be sold to their workers and to the public, and presumably to some foreign investors. Small enterprises, which make up 80% of the total, will be completely privatized, while the government will retain some stake in medium- and large-size firms. Beijing has come up with a Deng-style slogan for this devolution of power: "Take a tight grip of the big ones and let loose of the small ones." That process will result in the death of many inefficient firms that have been propped up by government loans and subsidies. "This is the first time the government has been willing to push everyone into the ocean," says Denis Simon, a China strategist for Andersen Consulting. "They're essentially saying, 'O.K., you either sink or swim.'"

Jiang would not be willing to undertake such a risky change unless he felt secure in his own position. Now in his eighth year as Communist Party chief, he has been regularly dismissed as a political lightweight. But at this point, says Wang Shan, "there is really no one in the top leadership who can seriously challenge him." Premier Li Peng is no longer considered a threat; he will soon be rotated out of his government job, though he will remain No. 2 in the party. Everyone expects his replacement to be Zhu Rongji, the Vice Premier and respected economic czar, who will be in charge of the shareholding scheme.

Jiang's fearless economic move is not the only sign of his confidence. Appointed as a hard-liner in the wake of the 1989 Tiananmen Square massacre, he has recently shown an inclination to loosen some political controls. Explaining the government's sudden tolerance for newspaper and magazine articles challenging Beijing's policies, Liu Ji, a close Jiang adviser, says, "People want to air their opinions, as they are now well fed and better clothed and better educated. It is a sign of the nation's vigor and prosperity."

Freeman says he has learned that Beijing intends to expand the village electoral system that began in 1987. But however much Jiang wants to set his own mark on China, don't expect him to abandon the one-party rule that keeps the communists in power anytime soon.

--Reported by Sandra Burton/Hong Kong and Jaime A. FlorCruz/Beijing

With reporting by SANDRA BURTON/HONG KONG AND JAIME A. FLORCRUZ/BEIJING