Bold Economic Measures : China's Optimism Dims Amid Faltering Reforms

Times Staff Writer

In the last half of 1984, China found itself in a period of buoyant optimism.

China's Olympic team had surpassed all expectations in Los Angeles; its diplomats had succeeded in negotiating an agreement for the return of Hong Kong from Britain; its army had paraded its latest weapons before the world on the 35th anniversary of the People's Republic; its grain harvest was the largest it had ever known.

Most of all, China was embarking on a bold new plan to transform its economy. In a series of reforms approved by the Communist Party Central Committee, the nation's leaders agreed to reduce the role of centralized state planning, to let many prices be determined by supply and demand and to open the way for a measure of private enterprise within the socialist system.

At one point last fall, the country's top leader, Deng Xiaoping, told West German Chancellor Helmut Kohl that the new reform program should be considered "a kind of revolution."

Chinese officials and the state-controlled press urged the nation to discard obsolete ideas, to begin dressing more fashionably and to spend more money on consumer goods.

Now the atmosphere has turned to one of hard realism, even disillusionment, as the problems increase.

Trying to create a market economy in a country where prices and supplies have long been determined by the state has created wild price fluctuations and shortages. And attempting to carve out a role for a private sector in a Communist country virtually without a merchant class has led to widespread corruption.

Other Communist nations had come to look upon China as a trailblazer and possible model for emulation. Visitors from other countries, among them North Korea and the Soviet Union, have been studying China's economic changes and visiting places like Shenzhen, the special zone across the border from Hong Kong that has been the testing ground for many of the reforms.

In the West, many government officials and business leaders see China as a budding economic power that will eventually develop in the manner of its East Asian neighbors. "This place reminds me of Taiwan in the 1950s," an American official here said.

Yet within China, the view these days is much less sanguine. The Utopian vision of revolutionary change has been discarded. For the past few months the official press has been emphasizing the themes of caution, discipline and lowered expectations. In literature and in private conversation, the view is expressed that the reforms do not add up to much and that China is not changing to the extent that had been expected.

'Doonesbury' China

The movement toward rapid adoption of Western styles and values has slowed considerably. The so-called Doonesbury China that captured the imagination of American cartoonists, a China suddenly opening up to rock music and nude models, is little in evidence here this summer.

Last month, the chairman of the Chinese Musicians' Assn. called for a ban on pop songs from Hong Kong and Taiwan, songs he described as "the products of capitalist societies."

China decided not to broadcast the "Live Aid" show that raised money for famine victims in Africa, and a concert planned in Peking by Hong Kong pop star Connie Mak was shelved. In June, the authorities called off an unofficial exhibit of abstract paintings, and in July the Ministry of Culture announced that licenses will have to be obtained for theatrical and all other public performances.

The cultural chill is a reflection of uncertainty about the economy.

"The economic front has not been good," a Western diplomat observed. "Too many things have gone wrong too quickly."

Over the last two months, there have been several signs of the difficulties China is encountering and of the efforts by Deng and other leaders to foster a period of retrenchment. Among them:

--In June, less than a month after lifting price controls for vegetables in Peking, city officials reimposed state subsidies on cabbage, cucumbers and tomatoes in the face of shortages and a doubling in prices. The city acted after Premier Zhao Ziyang and other national leaders living in Peking reportedly expressed concern about the public backlash.

The vegetable supply has improved now and prices have dropped a bit. But in July there was a severe shortage of eggs in Peking and huge stockpiles of pork and beef. New prices set in May had increased the cost of beef by 120%, of pork by 37%, of eggs by 18%.

--The authorities in Peking have cracked down on local Communist Party and government officials in the biggest scandal that has come to light since the reform program was announced. The officials were said to be involved in a scheme under which bank loans of about $1.5 billion were illegally obtained to set up private companies. The firms imported tens of thousands of cars and television sets into Hainan Island, which has duty-free status, and then resold them on the mainland for huge profits.

--The Statistics Bureau reported recently that industrial output for the first half of 1985 was up by 23.1% over the level of a year ago, a rate so rapid as to strain the transportation system, raw materials and energy supplies. Authorities said they will try to slow the rate of growth for the rest of the year.

--In large part because of the rush to buy television sets, refrigerators and other consumer goods, China ran up a trade deficit of more than $3 billion in the first half of this year and its foreign exchange reserves dropped sharply. As a result, imports of consumer goods are being restricted.

--Last year, China opened 14 cities along the east coast to foreign investment. Now the government has announced that it will seek to attract funds primarily in the four biggest of those cities, Shanghai, Canton, Tianjin and Dalian, and will slow its effort in the other 10.

'Can Draw Lessons'

Deng's rhetoric has changed noticeably in the past two months. At the end of June, he was talking of Shenzhen, the precursor and laboratory for the economic reform program, as an experiment. "We hope it will succeed, but if it fails, we can draw lessons from it," he told a group of Algerian officials.

By early August the idea had been taken a step further. "China's entire policy of opening to the outside world is also an experiment," Deng told a group of Japanese officials. Last fall, he said that the open-door policy would be indispensable to China through the first half of the 21st Century.

Western analysts here say that one of the problems is the Chinese leaders' lack of experience in running a decentralized economy. Ironically, although China's economy has been centrally planned for decades, some of the methods of national economic regulation that are taken for granted in liberal Western economies have not taken hold here.

For example, Premier Zhao has acknowledged that in the early stages of the reform program the regime failed to keep track of bank credit and increases in the money supply. The authorities found belatedly that China's banks were vying with one another to make as many loans and to get as much money in circulation as possible.

Another major obstacle, diplomats say, is the lack of a clear ideology. Since China remains committed to a socialist system in which the Communist Party is paramount, no one is sure what private businesses can or should do and how far party officials should go in regulating them.

Since businesses must generally look to state enterprises for supplies, energy and outlets, entrepreneurs are highly dependent on their connections with party leaders.

"Who's going to get out there and do business?" a Western diplomat said. "It's the people with the contacts, the cadres (officials) or their friends."

The problems are compounded by China's lack of modern transportation and communications systems and by its sheer size. While other Communist countries, notably Hungary, have experimented with market-oriented economic reforms, and while other East Asian countries--South Korea and Taiwan, for example--have managed rapid economic development, none of them is as big or as difficult to change as China.

Some Chinese writers have recently started to portray ways in which the supposed changes in China are being exaggerated in the official press and subverted at lower levels.

In "Peking Man," by Zhang Xinxin, an entrepreneur--depicted in the official party-controlled Guangming Daily as having become a millionaire by breeding rabbits--admits that the entire venture was a flop. And in a short story called "Windows on the Street," author Lu Wenfu describes how an old cadre under pressure to retire succeeds in finding a young official to do his bidding and to keep a tight rein on cultural affairs.

In the face of the problems, Chinese leaders are urging the people to be patient. They regularly note that the rural reform program begun in the late 1970s, under which the communes were broken up and peasants were allowed to till their own land, took several years to be judged successful.

"Deng is pleading for time," a European diplomat observed. He sees the change in Deng's rhetoric as being designed in part to prevent any political opposition to the reforms from building up on the eve of a nationwide conference of Communist Party leaders to be held here next month.

For the present, however, the reform program is being viewed with much more pessimism and cynicism than it was last fall. A few days ago, a lower-level official was asked what changes could be expected at the September conference, and he replied, sighing:

"China will still be China after September."

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