China’s Reformers Are Back on the Offensive : Economy: With business humming and growth rising, planners are pushing an ambitious agenda. But rhetoric has shifted faster than reality.

Security guard Cao Weihua, furious at being fired in a state-run bank’s efficiency drive, responded by firebombing the home of his boss. Manager Huang Chuanying, his wife and their two children were seriously injured. Cao was sentenced to death.

Official newspapers, praising Huang as a “daring” reformer, drew a moral for the nation.

“To deepen reform and open more to the world fits the will of the people and the fundamental interests of the Chinese nation,” the Legal Daily declared. “But reform will not be smooth sailing. When individual interests collide with those of the country, some people will fly into a rage . . . and resort to violent treachery against reformists. We cannot treat this lightly.”

After the mid-1989 crackdown on China’s pro-democracy movement, China’s media erupted with incessant, hard-line Communist rhetoric.

But now, over the past few months, state-run newspapers and television have switched their focus to reformist goals. A new mood of hope is in the air. China’s economy is booming, with growth likely to hit 10% this year. Shiny new department stores are bursting with goods, and people are buying. Foreign investment is running at nearly triple the figures of a year ago.

Reformers, back on the offensive, are pushing an ambitious agenda. Their key goals include expansion of stock markets, commercialization of housing, freedom for labor to switch jobs, rationalization of prices and an expanded role for foreign investment in real estate, banking and other services.

Less flashy, but equally important, is an effort to restructure the state enterprise system, with the aim of forcing the inefficient behemoths to sink or swim in the marketplace rather than depend on the dictates of central planners.

But rhetoric has changed more swiftly than reality.

On the one hand, reform never went fundamentally off track in China. The firebombing incident, for example, reported only after Cao was sentenced last spring, took place early last year.

At the same time, myriad practical and ideological obstacles, including disgruntled workers who believe in the “iron rice bowl” of lifetime employment, still impede this country’s modernization drive.

Senior leader Deng Xiaoping, 87, has been traveling China to boost the reformist agenda by sweeping aside obstacles. Early this year, he made pronouncements while visiting booming, reform-oriented cities of south China’s Guangdong province. Most recently he carried the reform message to rusting, state-owned factories in Shenyang, in the northeastern province of Liaoning.

Deng’s key declaration was that excessive “leftism” is a greater threat to China--and to Communist Party rule--than is “rightism.” In his formulation, leftism refers to dogmatic opposition to capitalist-style reforms; rightism refers to attempts to overthrow communism.

Deng’s point: To prevent the kind of political upheavals that ousted Communist governments in the Soviet Union and Eastern Europe, it is vital to do whatever necessary to ensure solid economic growth and to satisfy citizens’ demands for a higher standard of living.

This anti-leftist warning, incorporated into a formal ideological declaration by the policy-setting Politburo in March, has provided reformers at all levels of Chinese society with powerful ammunition to use against hard-line opponents.

“Clearly at the moment we’re in a Dengist high tide,” a Western diplomat in Beijing commented.

Deng’s new guidelines have “suddenly made it possible to advocate just about anything,” the diplomat said. “Whether it’s additional stock markets, whether it’s changes in the way you manage labor practices, whether it’s capitalizing state enterprises through the sale of stock--all these things are now out on the table, being openly debated in terms of their merits, instead of in terms of their (socialist or capitalist) characteristics. That’s an important development.”

The new mood was reflected at a news conference early this month by Liu Qi, vice director of the Beijing City Housing Reform Office. Liu credited Deng’s anti-leftist call with boosting plans to sell more apartments directly to individual families, in place of heavily subsidized housing for all.

Most Chinese city-dwellers are allocated apartments by their employer, paying rents of only a few dollars a month. But this system offers a major obstacle to other reforms in the urban economy. Workers cannot freely change jobs, nor can factories be allowed to go bankrupt, if apartments are owned by factories and are allocated only to employees.

Yet, without freedom for workers to change jobs, and imposition of market discipline on factory managers, it is extremely difficult to develop rational incentives to encourage hard work and efficient use of resources.

“Comrade Deng Xiaoping’s remarks on his trip to southern China, and the recent decision of the Politburo and the State Council to accelerate the ongoing reform, have had a very powerful impact in pushing forward housing reform in Beijing,” Liu declared at the news conference. “They have demanded that we speed up the transformation of housing into a market commodity.”

Liu outlined a complicated formula that included employer-matched wage deductions for a housing fund, gradual rent increases and subsidized apartment prices, linked to resale restrictions. With this package, aimed at making individual purchases of apartments attractive and possible, as much as 20% of Beijing housing may be privately owned by 1995, Liu said.

While Liu spoke of expedited moves, his actual time frame contained an important caveat, indicating that, as is the case for many reforms, “we may take 10 or 20 years to slowly change the housing provision system.”

The process of economic change draws strength from a dramatic upsurge in foreign investment. In the first five months of this year, official figures show, foreign firms signed contracts calling for $10.45 billion of investment, 2.7 times the figure for the corresponding period last year.

U.S. companies are among those boosting their presence here. “At the moment, American business is highly competitive,” the Western diplomat commented. “The dollar is favorable, (the) technology is favorable. . . . The size of the trade deficit with the United States (now) inclines China, all things being equal, to buy American, if it can. So smart American companies are in right now. They see opportunities. They’re winning contracts. It’s probably a more positive picture than at any time since the mid-’80s in terms of investment possibilities.”

The 1989 massacre of pro-democracy protesters in Beijing still has chilling effects on American investment, partly because Congress has not given up efforts to attach human rights conditions to future renewal of China’s favorable trading status. Meantime, many other Western countries have fully resumed business. In the 1980s, the United States ranked No. 2 after Hong Kong in investment in China. Now it runs No. 5 in new investment, after Hong Kong, Japan, Germany and Taiwan.

Beijing is trying to draw investment deeper into the country’s interior, rather than having almost all of it concentrated in coastal regions, as has been the case. This is being done by granting interior cities the right to offer foreign investors some of the relaxed policies and favorable terms once limited to “special economic zones” and “coastal open cities.”

Despite the increasingly favorable atmosphere for reform, switching from a centrally planned system to a market economy cannot be simple, easy or quick in a nation of more than 1.1 billion people. And with Deng again playing a highly visible role in pushing for faster change, no one can be sure what may happen once Deng is gone.

“The question mark in our minds, as always, is that it’s not yet clear how the high tide (of reform) becomes institutionalized,” the Western diplomat said. “That’s tied in with preparations for the 14th Party Congress (scheduled for this fall). And that’s an area where we have the fuzziest possible understanding of what’s going on.”

But Deng recently succeeded in having one of his closest proteges, reformist Vice Premier Zhu Rongji, 63, given wide authority over China’s economic policy as head of the government’s newly created Economic and Trade Office. Many see Zhu’s growing influence as a favorable omen for the reform program.

Zhu is now seen as a leading candidate to replace Premier Li Peng, if he is forced aside at the Communist Party congress (an event held once every five years to revamp the top levels of party leadership) or at next spring’s National People’s Congress (the body that functions as China’s Parliament).

Li is a political hard-liner with a go-slow approach to economic reforms, while Zhu is considered one of the most reformist figures in the top leadership.

“If the Chinese have a choice between going back to class struggle and the policies of the past, or sticking with policies that are raising their living standards at a rapid rate, I think they’ll stick with the latter,” the diplomat said.

“But not everybody’s standards are rising equally,” he added. “You do have dispossessed labor that is unhappy. You do have leaders who are concerned about the ideological implications of borrowing randomly from capitalism. These are the groups that would be given new opportunities, if you suddenly had a change in the power balance at the center. You’d be foolish to predict that they wouldn’t try to take advantage of an opportunity if it were given to them.”