Date: Fri, 12 Sep 1997 10:10:30 -0400
From: Louis Proyect <lnp3-AT-columbia.edu>
Subject: M-I: China Will Sell State Industries


September 12, 1997

In Major Shift, China Will Sell State Industries

By SETH FAISON

BEIJING -- China's leaders have agreed to sell off the bulk of the nation's
big state-owned industries, and will disclose their  plans at the opening
on Friday of a Communist Party congress that is expected to set the
nation's political and economic agenda for the post-Deng era. 

A central theme of the 15th Party Congress, government officials and
economists say, will be endorsing a ground-breaking shift from
socialist-style state ownership to a system of share-holding. More than
10,000 of China's 13,000 large and medium-sized state enterprises are
likely to be sold, though many issues -- like who the buyers will be --
remain unclear. 

Elder party members have objected that China may be dissolving the last
solid pillar of its socialist system, but President Jiang Zemin has
apparently convinced decision-makers that they can no longer afford the
burden of inefficient and money-losing industries, no matter the risks. 

Still ruled by a party that calls itself communist, however, Jiang's allies
are relying on semantical gymnastics to justify the move. Avoiding the word
"privatization," they instead insist that when ordinary people buy shares
of stock it is a form of "public ownership." 

By whatever name, Chinese leaders are essentially abandoning what has been
a central principle of Communist rule since the revolution here nearly 50
years ago: that the state would retain its position as the dominant owner
of industry. 

"What is socialism?" asked Dong Fureng, a senior economist advising
government leaders on how to make the shift to share-holding. "It means
seeking social equality, not that the state has to keep a majority stake in
every industry." 

The long-term effect of changing such a critical system of ownership,
perhaps lying beyond the political calculus of leaders now consumed by
short-term crises, seems destined to move China's economy toward an even
more capitalist and free market system, one where the Communist Party may
have difficulty preserving the role it has Thursday. 

For now, however, the party dominates politics in this country, and the
congress, with more than 2,000 delegates, is the most important political
gathering here since the last party congress five years ago. With the main
policy issue already decided, the principal drama at the weeklong congress
is expected to lie in changes in the top leadership. 

Since China's leaders still select themselves and make important decisions
in secret, with little accountability to public opinion, high-level
politics resemble a continuous campaign of infighting and ever-shifting
alliances among the 19 members of the Politburo, particularly among the top
three: Jiang, Prime Minister Li Peng and the legislative chief, Qiao Shi. 

A party congress is generally stage-managed to display an aura of unity to
the public, while the senior leaders are actually involved in intense power
struggles backstage, sometimes yielding important decisions only at the
last minute. 

One of the most-watched issues at this year's congress is what jobs await
Jiang's top colleagues and rivals, Li and Qiao, both of whom are expected
to relinquish their current positions. Just a day before the congress
opens, the answers remain uncertain. 

Like all capital cities, Beijing thrives on rumors and intrigue. But the
center of power here is so well concealed by secretive tradition, and
insulated by loyal aides, that outsiders rarely learn much about inside
politics until well after the fact, if then. 

It is clear, however, that the 15th Party Congress -- coming six months
after the death of Deng Xiaoping -- is well timed to showcase Jiang as the
leader likely to dominate the near future. A move to enshrine "Deng
Xiaoping theory" in China's constitution alongside "Mao Zedong Thought"
appears to be an effort to line Jiang up as a leader on a par with Mao and
Deng. 

Although economic reality is helping force Jiang's hand on state
enterprises, the political timetable of the party congress may have spurred
him to act sooner than he would otherwise. Jiang needs to show he can be
bold and is not just a follower of Deng, and reforming state ownership is
the issue he has grasped. 

Shifting ownership is a tremendously complex legal and organizational
challenge, several economists said, with a serious danger that state assets
will disappear into the pockets of factory managers during the transition.
Industrial managers, traditionally an important constituency in China, are
likely either to become corporate executives, or to get left out of the new
system altogether if they cannot adjust. 

Many officials argue that despite the planned changes, the state may remain
the main owner in China for some time, since in many cases the shift to a
share-holding system will transfer ownership to shares controlled by a
specific government-run organization or company. 

Since the plans have not yet been announced in detail, it is unclear
exactly what role the state will play. Yet a vast sale of state assets will
sharply reduce central control over large enterprises. 

At greatest risk may be tens of millions of urban workers whose jobs are at
stake. Yet leaders seem to think their best hope is to brave layoffs, which
are inevitable, at a time when the overall economy is growing fast and some
labor can be absorbed by non-state companies that are expanding. 

After all, China's recent economic history has confounded most experts,
domestic and foreign. 

Not long ago, it was inconceivable that ordinary people in China would be
able to buy and sell shares of stock freely, or have access to almost any
consumer goods on the world market. Or that such choice would be
accompanied by a significant loosening of government control over daily
life, like choosing a job or where to live. 

Perhaps the greatest paradox in China Thursday is the way its enormous
economic and social change over the past decade has seen virtually no
corresponding alteration of the political structure, which is still
dominated by Communist Party officials. 

"There is no real point in talking about political reform at this point,"
said a Chinese political scientist in Beijing. "Leaders will not change the
system themselves; they will only respond to demands from society. So
ownership reform is very meaningful in that it gives ordinary people a
voice." 

In recent years, though the private sector of China's economy has grown
fast while the state sector atrophied, leaders seemed stymied about what to
do with state industries, which have always been described as the
unshakable core of China's economic system. Before launching any bold
initiatives, it seemed, leaders were waiting for Deng's death, which came
this year on Feb. 19. 

Jiang broached the topic of ownership reform in May in a speech at the
Central Committee's Party School, winning consensus from other leaders over
the summer. 

On Sept. 2, the New China News Agency carried an authoritative report
specifying that more than 10,000 of the nation's 13,000 large and
medium-sized enterprises would be "encouraged to switch to various forms of
public ownership." 

"The financial dilemma of the state sector continues to be the outstanding
problem of the Chinese economy," the news agency said. "But hope returned
when Chinese President Jiang Zemin called for a powerful change in economic
reform." 

The same dispatch was accompanied by a spirited rejection of any suggestion
that Jiang might be endorsing privatization, which has always been a bad
word in Communist China's political lexicon. 

"The share-holding system has nothing to do with privatization," said Wang
Jiaqiu, vice president of the Party School, the news agency reported. "The
system only provides a method to achieve public ownership and will bring no
change to the present economic structure where public ownership is in the
leading position." 

Stressing "public ownership," while selling state industry, recalls other
Chinese slogans like "a socialist market economy" or "socialism with
Chinese characteristics," each of them justifying a capitalist economic
necessity by invoking socialist ideology. 

A key role in Jiang's efforts to push through approval of a share-holding
system will be played by the man most likely to carry it out: Deputy Prime
Minister Zhu Rongji, a rising star who is widely expected to become prime
minister next year. 

Sometimes called "China's Gorbachev" by Westerners who see him as a
no-nonsense manager and visionary, Zhu is said to hate the name, worrying
that it makes him vulnerable to accusations that his leadership might lead
to the undermining of the party. 

A former mayor and party chief of Shanghai, where he battled an entrenched
bureaucracy and launched a stunning economic transformation, Zhu moved to
Beijing in 1993 to take the seemingly impossible task of bringing order to
China's economy. Inflation had surged to 24 percent and raised fears that
it would provoke unrest among China's low-paid factory workers. 

Zhu dismissed the head of China's central bank, assuming the job himself
and instituting a strict credit policy that was deeply unpopular with
factory heads, who were used to getting whatever subsidies and loans they
needed. To virtually everyone's surprise, Zhu stuck to his position, and
inflation fell to 2 percent in this year's second quarter, without
hampering China's overall economic growth rate. 

Now Zhu has pledged that he will attack state-owned enterprises with the
same vigor to achieve their reform within three years. 

"The key problem in China's industry is that ownership is unclear," said He
Yang, a former official who now runs his own investment company. "People
say 'the state,' but who is that? The central government? A certain
ministry? A local government? Everyone wants to exert authority, and take
profit, but no one wants to take responsibility when there are losses."

Copyright 1997 The New York Times Company




     --- from list marxism-international-AT-lists.village.virginia.edu ---