Can This Man Fix China?

By Michael S. Serrill

The first time Chinese Vice Premier Zhu Rongji made his presence felt in the U.S. was back in 1985, when American Motors' high-profile, $24 million China investment, Beijing Jeep, was on the verge of collapse. Don St. Pierre, who headed the venture, appealed to a series of Beijing officials for help but got no response. Back in Detroit, where he had been summoned for a crisis conference, he suddenly received a telex from Zhu, then the obscure vice chairman of the State Economic Commission. "Please send a high-level delegation to China immediately, and we will solve this problem," the message read.

Zhu did solve it, by instructing some government ministries to buy Jeeps (now made by Chrysler), thus spurring production and injecting $250 million into the company. Zhu has been successfully tackling nettlesome economic problems ever since, and next week he is expected to get his reward: the National People's Congress will officially elect him Premier, the third most powerful post behind President (Jiang Zemin) and head of the National People's Congress (Li Peng will fill this job).

With Zhu's ascension, China's future government will be in the hands of an extraordinary man, a lifelong technocrat who was purged twice, then clawed his way to the top, despite irking cadres across the country with his abrasive personality and his low tolerance for dishonesty and inefficiency. At stake is the very future of the Communist Party and the viability of its peculiar experiment in free-market socialism. But by all accounts, Zhu is one of the few top leaders who have the drive and decisiveness to hold the system together. Admired from Tokyo to Washington for his brains, integrity and ability to cut through swaths of red tape to get a job done, Zhu is considered the antithesis of the cautious, faceless, communist bureaucrat. "He behaves more like the CEO of an international corporation than a politician," says John Wadsworth Jr., chairman of Morgan Stanley Asia. "He's very 'American.'"

As Zhu, 69, steps into the shoes of the current Premier, Li, the challenges before him are more complicated than rescuing an auto factory. With half a dozen of China's neighbors financially shipwrecked, Zhu must steer China's 1.2 billion people through some dangerous political and economic shoals. Among his most immediate problems: repairing a chaotic and bankrupt financial system, closing thousands of rust-bucket factories useful only for soaking up excess labor, and stemming rising unemployment and social unrest, which recently exploded in a fatal bomb blast in the industrial city of Wuhan.

U.S. and European leaders are convinced that the sophisticated, English-speaking Zhu has what it takes to succeed. When U.S. Deputy Treasury Secretary Lawrence Summers visited Beijing last month to discuss Asia's financial crisis, he came away struck by Zhu's solid grounding in international economics. "His command of macroeconomics is quite good," said a State Department official. "And obviously the Chinese are going to need that expertise as they get into what could be a difficult year."

Zhu, who served seven years as Vice Premier, earned his credentials as a hero of socialist capitalism beginning in 1993. Paramount Leader Deng Xiaoping's invocation for the Chinese to get rich quick had touched off a frenzy of entrepreneurialism that threatened to engulf the country in inflation and debt. Zhu was given the job of cooling down the economy without dampening the double-digit growth in GNP. He did so by making himself head of the central bank and sharply curbing various abuses, including out-of-control bank lending to local enterprises. Inflation has since declined, from 24% to 1%, and China has thus far avoided the excesses that have defanged the Asian tigers. At the party congress last week, the outgoing Li projected economic growth for 1998 at an impressive 8%.

Zhu's first job as Premier will be to steel China against the pressure to follow in its neighbors' footsteps and devalue its renminbi trading currency. Those competing economies have a step up on Beijing, whose goods are relatively more expensive. Chinese sales to the rest of Asia fell 1.4% in January compared with 1997, and as South Korea, Thailand and Indonesia flood the world with cheap goods, China's trade with the West will take a beating. If Beijing ultimately succumbs and devalues its currency, the move will probably force Hong Kong to do the same, which could trigger a new Asian crisis.

The no-growth malaise that afflicts Japan and other Asian nations would be a catastrophe for China, a "bicycle economy" that must keep pedaling fast to absorb all the workers being put on the street by cutbacks in the civil service and state industries. Estimates of the number of unemployed run as high as 142 million, 12 million in the cities and the rest in rural areas. Tensions caused by layoffs and other wrenching social changes were cast in stark relief three weeks ago, when the Wuhan bomb explosion killed 16 and wounded 30. Suspects include both disgruntled workers and Muslim separatists.

Zhu's delicate and perhaps impossible task is to transform China's economy without fomenting social upheaval--a phenomenon with which he has had some experience. Born into poverty in the city of Changsha, capital of Hunan province and home town of Mao Zedong, Zhu obtained an engineering degree from elite Qinghua University in Beijing. Considered an up-and-coming cadre, he was purged as a "rightist" in 1957 for criticizing government policy, then purged again in 1965, at the start of the Cultural Revolution. Rehabilitated in 1979, he worked his way up fast, and in 1988 was named mayor of Shanghai.

There he quickly made his mark, restoring the city's crumbling infrastructure at the same time he was wooing foreign investors. He also cemented his reputation as a tough manager who didn't hesitate to dress down his subordinates in public. At one meeting, he noticed an official smoking an expensive brand of foreign cigarettes and demanded to know how he could afford them on his salary. At another, a bureaucrat reported that his department had increased production that month "around 5% or 6%." Zhu broke in: "Comrade Bureau Director, is it 5% or 6%? Is it 5.1% or 5.9%? When it comes to statistics, we must be very exact."

Zhu's high profile brought him to the attention of Deng, who promoted him to Vice Premier in 1991 because, Deng explained, "he understands economics." With the economy's fast-paced growth since then--an average of more than 10% a year between 1991 and 1996--Zhu's rise to the top was all but inevitable.

Will the new Premier turn China's socialist paradise into a capitalist one? Not likely. The government will not sacrifice social stability on the altar of economic reform, and will temper its reforms according to what the public will tolerate. Says St. Pierre, the ex-Jeep chief who is now a Beijing wine importer: "Deep down, [Zhu] believes in market forces. But he knows he can't unleash the free market on China." Even a quasi-capitalist China, however, has proved a formidable economic power. With the hard-driving Zhu at the helm, prospects for China, even amid the rubble of its neighbors' economies, are still bright.

--Reported by John Colmey/ Hong Kong, Jaime A. FlorCruz/Shanghai and Mia Turner/Beijing

With reporting by John Colmey/Hong Kong, Jaime A. FlorCruz/Shanghai and Mia Turner/Beijing