TOWARD A NEW ASIAN ORDER : A WORLD REPORT SPECIAL SECTION : National Agenda : Beijing Wants Open Market but Closed Society : Meanwhile, the Chinese people wonder what future lies beyond their hard-line octogenarian leaders.

The May Day scene in Tian An Men Square was idyllic. The plaza swarmed with camera-toting Chinese tourists. Spoiled children stomped unrestrained across the vast expanse. Incredible dragon kites with whimsical heads and scalelike body parts soared above the portrait of Mao Tse-tung on the Gate of Heavenly Peace.

Only the most naive, however, could miss a darker reality. Olive-uniformed paramilitary police marched on patrol. At one side of the square, buses and army trucks held another 750 fighting men. Hundreds more waited in buildings nearby.

One of Mao’s most famous dictums was that political power grows from the barrel of a gun. More than four decades after his revolution, it still does.

The rule of old men has not yet ended. A few octogenarian comrades still hang on to power, waging a fateful contest of longevity as they maneuver to boost rival proteges. All China waits uneasily for their passing, unsure what the future holds.

Meanwhile, repression ensures that cheerful May Day crowds do not suddenly rise in revolutionary anger. However fractionalized and ideologically confused, the Communist Party is united by a determination not to be overthrown.

While split on some economic issues, all the elders, including senior leader Deng Xiaoping, 87, are political hard-liners who bitterly oppose multi-party democracy. Liberalization is impossible as long as they retain power, a point they proved with bloody finality on June 4, 1989, by calling in the army to crush the Tian An Men Square pro-democracy protests.

Last month, near the start of the third anniversary of the seven-week-long pro-democracy movement, the official newspaper People’s Daily issued a blunt warning that it said came from Deng himself: “If it is necessary in the future, the moment that factors of disorder appear we must not hesitate to use whatever methods we need to quickly eliminate them. We can impose martial law or use even more severe means.”

But within this framework of repression, China is gearing up for new market-oriented economic reforms that should bring enhanced prosperity and stronger links with other nations, especially Asian neighbors.

The more smoothly and rapidly this process moves forward, the more firmly China can be integrated into a stable regional order. Success in the economic sphere may someday bring political relaxation. Failure could leave China with festering problems of poverty and political instability for decades to come.

Deng, the most reform-minded of the ruling elders, seems to be in better health than most of the others. Apparently taking advantage of this, Deng re-emerged from the shadows early this year with a highly publicized trip to coastal areas of southern China that have led in capitalist-style reforms and in opening to the world.

Deng used the trip to push for a speedup of reforms and to attack “leftist” opponents of his policies, thereby laying political groundwork for moving more of his own choices into high positions.

“Deng’s speeches have given us hope,” commented a liberal-minded professor at Beijing University, who spoke on condition of anonymity. “One word of Deng’s is worth 10,000 of mine.”

Reformists are now pushing for expansion of the country’s fledgling stock markets, more rapid commercialization of urban housing, expanded niches for foreigners in real estate development and banking, and greater freeing of prices.

Even hard-line Premier Li Peng, who advocates a cautious approach to reform, is pushing for state-owned enterprises to run with more autonomy in a market environment, rather than depending on central planning and government allocation of resources.

China’s leaders are still divided on such ideologically charged issues as stock markets and privatization. But the government appears united behind many other policies, such as a push to develop the Pudong area of Shanghai into a modern financial and industrial center through use of foreign investment.

Since coming to power in 1978, Deng has transformed China with his non-ideological focus on economic growth. There can no longer be any turning back. In a recent interview given just before leaving Beijing for another post, Roy D. Morey, resident representative of the U.N. Development Program, made this point by comparing early reforms to the freeing of horses from a corral.

“Years ago, there was an attitude that you should simultaneously release a number of the horses from the corral and let them run,” Morey said. “The horses have run. It’s true, some have run faster than others. But they certainly have run. The notion that you’re ever going to put these horses back in the same corral you had 15 years ago is nonsense.”

The harsh political climate of the past three years has not prevented China from improving ties with its neighbors. Beijing normalized long-strained relations with Indonesia in 1990 and with Vietnam last November. Investment and tourism from Taiwan has grown significantly. Japan initially joined Western sanctions against Beijing in retaliation for the 1989 massacre of pro-democracy protesters. But it also led in moving to end those sanctions.

In the British colony of Hong Kong, scheduled to revert to Chinese sovereignty in 1997, the real estate and stock markets--barometers of confidence in the future--have hit repeated new highs. Economic integration between Hong Kong and neighboring Guangdong province has raced forward.

China’s links to the outside world--diplomatic, economic and people-to-people--are more extensive now than at any time since the 1949 Communist revolution. Deng’s reforms have accomplished enough that this trend toward greater openness is virtually guaranteed to continue after he is gone.

It is not that no one resists the changes. But they are being inexorably swept aside.

Vice Premier Tian Jiyun, in an April speech to high-level Communist Party officials in Beijing, made a bitingly sarcastic attack on leftist critics of China’s open-door policy. Tian had kept a relatively low profile since the mid-1989 ouster from power of his political patron, former General Secretary Zhao Ziyang, for allegedly supporting the student protests.

Tian’s speech included a tongue-in-cheek proposal for creation of the leftist equivalent of China’s “special economic zones,” which were set up to experiment with capitalistic practices.

“Let us carve out a piece of land where policies favored by the leftists will be practiced,” Tian declared, according to a report in the Hong Kong-based South China Morning Post. “For example, no foreign investment will be allowed, and all foreigners will be kept out. Inhabitants of the zone can neither go abroad nor send their children overseas. There will be total state planning. Essential supplies will be rationed, and denizens of the zone will have to queue up for food and other consumer products.”

Tian then questioned whether advocates of leftist policies would be willing to live in this special zone. The speech was broken with “round after round of thunderous applause,” the South China Morning Post reported.

The new forthrightness of radical reformers such as Tian has clearly been encouraged by Deng, who is maneuvering in preparation for a key Communist Party congress scheduled for this fall.

Such congresses come once every five years, and they normally revamp the Central Committee, Politburo and Central Military Commission, which are the party’s top organs of power.

If Deng is still in good health this fall, it is likely that the party congress will have a strongly upbeat reformist tone and that promotions will go to leaders who are relatively acceptable both to the Chinese people and to foreigners. If Deng dies or falls seriously ill before the congress, other elders less enthusiastic about reforms might use the occasion to boost hard-line leaders within the successor generation.

The congress may settle the case of Zhao, 72, who remains under a mild form of house arrest. Hard-liners are pushing for some formal punishment, while reformists want his name cleared. It is possible that Zhao could eventually be restored to a position of influence.

This year’s congress should give signs of either strengthening or undercutting Deng’s designated successor, General Secretary Jiang Zemin, a technocrat who supports Deng’s twin policies of economic reform and party dictatorship but whose personal power base is weak.

It may also give indications whether Li will get another term as premier. That decision would need to be endorsed by next spring’s annual session of the National People’s Congress.

It is not clear, however, whether anything can really be settled until all the octogenarian power-holders die and a younger generation sorts out for itself who shall take control.

If infighting at the top erupts into open splits as the succession process unfolds, this could provide the opportunity for another outburst of anti-government sentiment.

China’s leaders thus remain frightened despite a superficial calm--and even happy prosperity--that seems to have settled over Beijing.

Shiny new department stores burst with goods, and ordinary Beijing residents are buying. Markets are full of meat and vegetables. Inflation is moderate, although it shows signs of accelerating as the economy moves into another fast-growth cycle.

Fancy tourist hotels have sprouted like mushrooms. A new World Trade Center complex has opened, and Chinese can wander through its boutiques and Western-style supermarket. McDonald’s recently opened its largest store in the world a stone’s throw from Tian An Men Square.

Yet the Communist Party reveals its fear in innumerable ways.

Tight controls remain on Chinese intellectuals and dissidents, including efforts to keep them from making contact with foreign reporters and diplomats. Western journalists often are followed in Beijing.

The phones of foreign journalists and diplomats are tapped, and only the bravest Chinese dare to visit their homes. Foreigners’ residential compounds are surrounded by armed guards and patrolled by plainclothes security agents. Surveillance cameras sweep the grounds and stare from elevator ceilings.

China’s rigidly controlled press remains excruciatingly boring for all but those skilled in the arcane art of tea-leaf analysis.

Students have lost all faith in communism. The 1989 massacre, in which the army shot its way into Beijing against crowds trying to block its path, left an indelible mark.

“The Communist Party can no longer be seen as representing the people,” said an economics major at Beijing University, traditionally the most prestigious school in China. “June 4 was a setback for the party, a watershed that demonstrated that the rule of the party is indeed a dictatorship.”

Students seem too cowed, however, to rise against even a superficially united government. “There is one security agent for every student on this campus,” explained another Beijing University student, with a bit of exaggeration.

Among students today, “no one dares” to protest, commented a 1989 protester who is now engaged in business.

Workers are even less likely to protest, he added. “Ordinary people have jobs, families and a whole host of practical problems restricting them,” he noted.

The Communist Party thus appears to have won one more chance to try to modernize China under its leadership.

But it has not resolved a fundamental dilemma: Basic changes needed to rationalize China’s economy, such as imposition of bankruptcy on money-losing firms, the firing of redundant workers and a rise of prices to reflect true values, carry the threat of social instability that could threaten its rule. Even success in building a more efficient market economy undercuts the party’s dictatorial powers by giving people more economic choices in their daily lives.

Deng’s paired policies of economic reform and political dictatorship have brought China successes enough that they may continue for years to come. But it is not likely they can be forever reconciled. Deng has planted the seeds of freedom.

One of China’s great mysteries is whether Deng himself realizes this.

“In his ideas of social order, he is quite clearly a totalitarian,” commented a Western diplomat, who spoke on condition of anonymity. “What I myself cannot understand is how far he himself sees the effect that really rapid economic reforms will have on the social order in this country. Does he really believe that a country like China can be managed like Singapore, meaning a strict social order combined with economic modernization?

“From our point of view it cannot be possible that someone really thinks we can have a very modern Western-style economic state in this country but at the same time have a totalitarian social order. From our point of view, that’s impossible. Everybody must be clear about that. Deng Xiaoping must see that. But maybe he doesn’t.”