Political Shift Stalls Economic Reform in China

China’s former foreign minister, Huang Hua, recently delivered a brief lecture on standard socialist economics to the National People’s Congress, or Parliament.

“We have a planned commodity economy, and we must pay attention to the word planned ,” thundered Huang, who is vice chairman of the NPC Standing Committee.

Others at the Jan. 19 meeting were said to have agreed with him, and his remarks were given front-page coverage the next day in the Communist Party organ People’s Daily and other party newspapers.

Huang’s remarks typified the profound change in economic emphasis that is now taking place in China.

‘Bourgeois Liberalization’

Each day, there are new signs that January’s changes in Communist Party leadership and the ideological campaign against “bourgeois liberalization” will have a serious impact on China’s economic reform program.

For the last several years, China has attracted worldwide attention with its attempts to reduce the role of centralized state planning, to limit the role of the Communist Party in industry, to develop a limited private sector and to give greater leeway to market forces. At least in scope and intention, these efforts have been without precedent for any Communist country.

Now, the great Chinese economic experiment is stalled by political and ideological resistance.

Political analysts say it might be revived later with another shift in the political winds. But at the moment, on virtually every aspect of the reform program, from decontrolling prices to creating independent factory managers, from establishing new forms of ownership to developing a consumer economy, the proponents of economic change in China are in serious trouble.

Official Stance the Same

Officially, China’s top leaders continue to insist that these economic reform policies and China’s opening to the outside world will go forward.

The Communist Party’s new acting general secretary, Zhao Ziyang, said Jan. 18 that the new campaign against bourgeois liberalization “will not affect our reform, the open policy or the economic invigoration.”

Zhao, who has served for the last six years as China’s premier, took over as the head of the 44-million-member Communist Party on Jan. 16, when the party accepted the “resignation” of former General Secretary Hu Yaobang.

Hu stepped down after Chinese leader Deng Xiaoping and other leading party officials reportedly objected to his support for a political liberalization that might have limited the power and authority of the Communist Party.

Zhao, the new party leader, has himself been at the forefront of China’s economic reform program, and analysts, both Chinese and foreign, say there is no reason to believe that he personally wants to change course.

Long Policy Debate

In fact, the sudden leadership change can be viewed to some extent as the result of a longstanding policy debate over the requirements for economic reform.

Hu and his supporters argued that China cannot succeed in economic reform without a Western-style political liberalization that would limit the role of the party. Zhao and his aides contended that China can carry out economic reform without significant political change.

In early January, one of Zhao’s senior aides, Chen Junsheng, published a long essay in which he noted that some of China’s Asian neighbors, such as Taiwan and South Korea, have managed to develop their economies without opening up their political systems.

“South Korea practices autocracy. For the past 30 years and more, Taiwan has enforced martial law,” wrote Chen, who is secretary general to the State Council, the Cabinet-level body over which Zhao presides.

The underlying message: Economic growth of the sort experienced by other East Asian countries does not require political liberalization.

May Cripple Reforms

But, despite Zhao’s own personal commitment to economic change, many analysts here now say they believe that recent political developments will bring about at least a slowdown, and perhaps a long-term crippling, of China’s efforts at market-oriented reforms.

“They’re not even saying the reforms will go on,” one Asian diplomat observed. “They’re saying the reform policy will continue. After all, no government, least of all China, likes to admit publicly it is changing its policy.”

Indeed, in a meeting Jan. 20, Deng, China’s senior leader, discussed the economy at some length without even using the word reform , as he usually does. Instead, he called China’s policy one of “opening to the outside world and invigorating the domestic economy,” according to the carefully worded report by the official New China News Agency.

There were important changes in economic policy or emphasis in January on at least five separate issues affecting China’s economic reforms. They are pricing, factory management, private business and ownership, encouraging a consumer society and opening the way to the West and other foreigners in trade.

Pricing Crucial

Virtually all economists, both Chinese and foreign, consider the most crucial element in China’s reform program to be the attempt to move away from a system of state-controlled prices to one in which prices are determined by market forces of supply and demand.

A first round of price changes for meat and vegetables in 1985 resulted in an inflation rate of 12% in Chinese cities. Early in 1985, the regime said that there would be no major price reforms in 1986. But throughout the last year, Chinese economists said publicly and privately that they would move forward on decontrolling prices this year.

For example, according to informed sources, last summer China told the International Monetary Fund that it would begin adjusting energy prices upward at the beginning of 1987. Chinese consumers were led to believe that prices would be raised on scores of small consumer items early this year.

Suddenly, on Jan. 14, the State Council, or Cabinet, put out a circular pledging that it would not increase the number of goods whose prices are determined by market forces this year and would allow authorities in major cities to set ceilings on the prices of retail food items.

“Commodity prices are a matter of principal concern to China’s overall economic and social stability, which is the immediate interest of the masses,” the circular stated.

Reaction to Demonstrations

That wording suggested that the new edict was a reaction to the recent student demonstrations and the fear that price increases might cause further social unrest, spreading beyond the university campuses.

“They’re now pandering to the urban workers on prices,” one foreign economic analyst said.

Last month’s events demonstrated that lifting state-controlled prices is an explosive political issue on which the regime can be forced to retreat. There have been no Poland-style food riots here, but the threat of disorder gave a powerful weapon to those traditional Marxists who oppose market-oriented reforms.

On the issue of factory management, leading party conservatives, who had previously remained quiet on the policy, feel bold enough in the current political climate to directly challenge the assumptions and underpinnings of the need for independent managers.

For three years, with Premier Zhao in the lead, the Chinese regime had been campaigning to create independent factory managers and to get party secretaries out of the business of running industrial plants.

Direct Attack

Now, Hu Qiaomu, a leading theoretician and Politburo member, feels able to argue publicly, as he did in a December speech amounting to a direct attack on economic reform policies, that “the entrepreneurs of our state-owned enterprises are socialist entrepreneurs.”

“They have the responsibility to serve not only the interests of their enterprises and their staff members and workers but also the interests of the state,” he continued. “They must try to coordinate and take care of the interests of all these three parties.”

Hu said there should be more party members “at the forefront of production.”

Early last month, the Chinese regime announced new rules that require factory directors to “protect state interests” and that tell Communist Party organizations in industry that they should “aid the (factory) directors in exercising decision-making power.”

Foreign analysts here say these new rules will not help to get party secretaries out of economic management. Furthermore, they note, the daily stream of propaganda in China these days about the importance of the rule of the party will not strengthen the hand of factory managers either.

“How does a factory manager view what’s going on now?” one Western diplomat asked. “Does he stand up to the party boss in the current climate? I wouldn’t.”

Limited Ownership Changes

A third issue is private businesses and ownership. One important element of the reforms has been to give a limited role to small private businesses and to consider issuances of stock shares and other methods for changing the ownership structure of industry.

Until now, these changes have not gone very far, but reform-minded economists and theoreticians last fall began talking about bold new moves.

Most of the private businesses in China are tiny operations with fewer than 10 employees. Last September, Su Shaozhi, director of the Institute of Marxism, Leninism and Mao Tse-tung Thought, said his institute was studying whether it would be ideologically justifiable to let private employers in China hire 100 workers or more.

Su, one of China’s leading reformers, also said he believed that issuance of stock and establishment of stock exchanges can be squared with Marxist ideology. “We are still in the early stages of socialism,” he said in an interview. “The only criterion is whether something promotes production and our commodity economy.”

Stay With Socialism

The current ideological campaign calls into question whether any further effort will be made to allow a private sector to function in China or to change the ownership system. The emphasis of current propaganda is on reminding the nation of the importance of sticking to the socialist road.

“China can’t take the path of auctioning off the assets of state-owned enterprises,” the party newspaper Economic Daily said last month. Although a small stock market opened in Shanghai last year, the newspaper warned that China now needs “a cage” to contain the issuance of stocks and bonds.

A fourth crucial issue is that of a consumer economy. In October, 1984, when the Communist Party Central Committee first adopted its program of urban economic reforms, the party gave its official approval to the idea that increasing consumption by China’s 1 billion people is important for the growth of the economy.

“The growth of consumption gives a strong impetus to creation of new social demands, opens up vast markets and encourages production,” said the party in its official 1984 resolution on the economic reform program.

Consumerism Switch

Chinese newspapers launched a huge propaganda campaign to encourage people to stop being so thrifty and to start spending more money.

“Our leading cadres should take the lead to dress more fashionably,” Vice Premier Tian Jiyun said. “How are we going to develop our textile industry if everyone keeps wearing the same garment for nine years?”

Now this policy has been completely reversed. Since early last month, party leaders and newspapers have repeatedly urged the nation to practice thrift and have discouraged consumerism.

“For quite a while in the past, people were encouraged to consume highly, as if our country had already become very rich,” the Economic Daily said Jan. 19. “ . . . People should know that some expensive goods are not even for everyone in capitalist countries. Living in what is still a poor country, how could we enjoy these things?”

In what came close to self-criticism, Deng confessed recently to an official visitor, Prime Minister Robert Mugabe of Zimbabwe, that encouraging consumption under the urban reform program was a mistake.

“Our goals now are realistic and practical,” Deng said. “China’s mistakes committed a few years ago were due to over-demanding and excessive speed, disregarding the country’s realities.”

A fifth issue deals with China’s open-door policies. Deng, Zhao and other leaders have insisted that they want to maintain trade relations with the world and continue to welcome foreign investment. So far, there is no sign of any policy shift in trade and investment.

Self-Reliance Revived

However, analysts note that as part of the new ideological campaign, some Chinese newspapers have revived the theme that China is self-reliant and, when pressed, can survive without outside help.

“We’re full of confidence that socialism is bound to defeat capitalism,” the Economic Daily said on Jan. 14. “In the first years after liberation (in 1949), imperialism blocked us, and the capitalist class doubted our ability to construct. . . .

“Through struggle, setbacks, poverty and the darkness of old China, we changed into new, socialist China. Some people slander us, saying we can’t do anything, that we need to study everything from foreign countries. Such views can only sap the people’s fighting will.”

Some Peking-based diplomats say they believe that the tone of these articles, and the current criticisms of those who advocate “total Westernization,” may cause many Chinese officials at the grass roots to be more careful about close ties or business dealings with foreigners.

“The cadres in charge at the local level are reading all this stuff about bourgeois liberalism, and at least for the time being, I think they will play it safe,” one West European diplomat said. “Why would they put themselves in a position where they can be criticized for being too Westernized?”

Beyond these specific changes in economic approach, analysts here say that recent political developments cannot help but produce a slowdown in China’s reforms.

“All our predictions and hopes about the success of China’s economic reforms assumed continuing political stability and a smooth, orderly succession of power after Deng leaves the scene,” one Western analyst said recently. “Now, those assumptions have been called into doubt.”