The People’s Republic of China will celebrate the 50th anniversary of its founding Oct. 1, and major national events are scheduled to take place at that time. President Jiang Zemin has been promoting the slogan of “stability first” — a reflection of his desire to complete the ceremonies successfully and consolidate his leadership.

Prime Minister Zhu Rongji, in his first report on government activities to the recent National People’s Congress, only reiterated the year-old policy of achieving reforms in three areas — government organizations, state enterprises and the financial sector — within three years and emphasized the difficulties lying ahead. He failed to tell the congress how much progress had been made so far and where problems had been encountered. Zhu presumably took a conciliatory stance toward the Chinese Communist Party — choosing not to touch on specific problems, for instance — in compliance with Jiang’s wishes.

I doubt if such dilly-dallying is warranted in the light of China’s present economic difficulties. The recent bankruptcy of the Guangdong International Trust & Investment Corp. was not an isolated instance of a local bank in trouble, but part of a serious bad-loan crisis affecting almost all banks and nonbank financial institutions in China, including state-owned banks. Most of the commune-type state enterprises, dating back to the Mao Zedong years, are stuck with obsolete production equipment and inflexible structures, imposing enormous fiscal and financial burdens on the government. Mass unemployment has resulted from the restructuring of these enterprises. Faced with the challenge of guaranteeing a livelihood for the jobless, the government has been trying to expand private enterprises.

The roles played by private enterprises are now spelled out in the constitution, and a legal framework is being established to help them achieve stable growth. This just goes to show the extent to which private enterprises have been subject to the government’s tight control and arbitrary judgment.

Underpinning China’s entire economic and administrative structure is the CCP. The National People’s Congress, which allows no debate, is not a real parliament. It is an arena for ceremonies, where a handful of top leaders issue orders to the whole party concerning basic, preformulated policies. In each of the pyramid-shaped party organizations, the leaders issue orders to their subordinates within the limits of the authority invested in them.

Private enterprises are also required to receive approval from party leaders at various stages, from their founding on, and party leaders often let their relatives sit on the boards of such enterprises. This has led to the concentration of power in crony groups. The pattern, which represents the privileges and power historically enjoyed by Chinese political leaders, also characterizes state enterprises.

CCP leaders probably take all this for granted. In fact, there are probably few Chinese who are shocked by the idea of party leaders retaining their privileges — as long as they do not commit serious crimes. Chinese dynasties used to be run by privileged bureaucrats who passed archaic examinations for government service in China. There was nothing unusual in their receiving bribes commensurate with their status and power. People believed that the stability of their clans and the safety of their businesses could be guaranteed through bribes.

The principles of the Communist Revolution were respected during the early Mao years. As communist rule was consolidated, however, the party leaders started scrambling for privileges. The trend was accelerated by Mao’s paternalistic rule and China’s traditional respect for families and clans. As a result, all aspects of China — political, economic, social and even military — are now completely crisscrossed by networks of political power and privileges. The boom in new enterprises, which started 20 years ago, can be seen as nothing but an effort by high party leaders and crony groups to gain privileges.

Not surprisingly, this boom has hit a snag in the wake of recent economic changes. Jiang and Zhu have announced major reforms of state enterprises, administrative organizations and financial institutions, which have long constituted the backbone of the national economy. In the social structure explained above, however, any such reform would require disciplining of party leaders. It is likely that Jiang has been forced to postpone his reform efforts in the face of protests from within the party.

What will happen if Zhu’s reform efforts fail? Economic turmoil would likely spread, leading to severe political turbulence. If the development of private enterprises does not help, the only alternative will be to introduce more foreign capital. And the likelihood of that happening hinges on the outcome of Zhu’s visit to Washington in April.

One obstacle is the growing anti-Chinese sentiment in the U.S. Congress, following the leaking of military secrets to China and a ban on exports of communications satellites. Some newspapers are already using the term “New Cold War.” It now appears unlikely that the U.S. government will choose the alternative path suggested above any time soon. However, if the U.S. takes an anti-Chinese policy stance, China could well resort to nationalism, anti-Americanism and militarism to promote reforms and maintain its political structure. One can only pray that Zhu’s Washington visit will be a success.

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