China Leans Heavily on Trouble-Shooter : Politics: Vice Premier Zhu Rongji’s assignment is to cope with economic troubles, corruption, rural anger.

Confronted with a range of economic and political crises, China’s aged leaders seem to have seized upon a new, surprising and singular solution:

So, the peasants are rioting in the countryside? Call in Zhu Rongji, the blunt-talking former mayor of Shanghai, now serving as vice premier.

Lending and inflation out of control? Well, give Zhu the central bank to run too.

Are provincial officials ignoring Beijing’s orders? Zhu will send out enforcers.

Is Premier Li Peng sidelined with heart trouble? Hmm, let Zhu function as acting premier.

How Zhu, 64, copes with the herculean tasks now assigned to him will go far to determine whether China faces a smooth or rocky road in the months and years ahead, analysts say.

Experts note that the problems Zhu has now been saddled with are so serious and intractable that it is almost tempting to wonder whether his growing accumulation of power is the work of his friends or enemies: If things go well, Zhu will grow even stronger, and China’s market-oriented reforms should be further strengthened. But if the economy falters, Zhu may be the most obvious potential scapegoat.

All signs are that China’s new economic czar and trouble-shooter nonpareil, feisty as ever, is plunging into his latest assignments with zest.

A fluent speaker of English and viewed as one of the most competent and open-minded of China’s top leaders, Zhu has enjoyed the clear support of increasingly frail senior leader Deng Xiaoping, 88. He also appears to have a satisfactory working relationship with President Jiang Zemin, 67, who holds at least titular authority over Communist Party and military affairs.

Zhu will need all the political clout he can muster to deal with the troubles ahead in China’s economy. It grew 12.8% in real terms last year, according to official statistics, and even faster in the first half of this year.

But as urban life grows richer, rural envy rises. As the Chinese economic expansion hits unsustainable speed, everyone worries about what comes next. As the economy becomes freer, inequality and graft proliferate. Inflation, now running at about a 20% annual rate in major cities, threatens to burst out of control.

Zhu’s assignment is to somehow cope with an interlocking web of financial disorder, corruption and rural anger.

In China now, the inefficient state industries soak up subsidies, which are covered by printing money, which, in turn, boosts inflation. Local officials divert funds earmarked for grain purchases or rural services to ill-conceived industrial schemes, construction projects or luxurious living by the powerful. They then try to make up shortfalls by boosting local taxes or issuing IOUs to peasants at grain-purchase time.

Extraordinary scandals are striking near the heart of China’s power structure. A Beijing banking official recently drew a suspended death sentence after he was convicted of trading loans for bribes. A prominent company president has been jailed for allegedly running a 1-billion-yuan ($174 million) investment scam.

Graft and rural unrest resonate with special irony in China, where the Communist Party rose to power by organizing the peasantry against a corrupt elite. Rioting by peasants cuts at the very core of the party’s legitimacy. Success in coping with these troubles could give the Communist Party a renewed grip on power, even as its ideological nature fades away. Failure could lead to its fall.

Internal Chinese government documents have recorded 200 or so incidents of rural rebellion in the last eight months, most involving demands that IOUs be cashed, or refusal to pay taxes, according to reports in Hong Kong media.

Some clashes have been openly acknowledged. The official China Daily reported in early July on troubles in at least 11 provinces after rural post offices issued IOUs to peasants trying to cash money orders from relatives in more prosperous areas.

A dramatic case of rural upheaval came in Renshou County in central China’s Sichuan province. Simmering anger over heavy taxes and the lavish lifestyles of local leaders finally erupted into open defiance early this year when officials demanded “donations” for highway construction. The protests escalated in late May to include vandalism of government buildings and leaders’ homes, the official China News Service said.

About 2,500 angry farmers protesting new fees blocked an intersection for 10 hours on June 1. Police cracked down four days later, arresting protest leaders. A mob of perhaps 1,000 peasants freed one woman as she was being led away in handcuffs, residents later told visitors from Beijing.

Zhu has orchestrated a two-pronged response to such rural unrest. On the one hand, local police and paramilitary forces still have orders to crush any disturbances.

But at the same time, Beijing has taken steps aimed at cutting excessive taxes and ensuring that peasants are paid cash for their grain. Zhu recently repeated an earlier threat to “cut off the heads” of officials who issue IOUs, according to the Hong Kong-based South China Morning Post.

He is now pushing a broad program aimed not just at coping with peasant anger but also at restraining the overheating economy and bringing money supply growth under control. He has launched new measures to enforce discipline on financial markets and to rein in bank credit.

The Beijing-controlled Wen Wei Po in Hong Kong reported further rules set down by Zhu for bank officials: no more use of bank funds to speculate in real estate or on the stock market; no more bribe-taking or gift-giving for personal gain, and no more hiding of problems from one’s superiors. “Offenders, including those in leadership positions, will be severely punished,” Zhu warned.

Coinciding with Zhu’s July 2 appointment as governor of the central bank, the People’s Bank of China, official media reported that eight senior banking officials had been convicted of accepting 14.4 million yuan ($2.5 million) in bribes for illegally arranging 74 million yuan of loans. One official, Wang Qisheng, was sentenced to death, with a two-year suspension during which the sentence could be reduced.

“Zhu Rongji ordered the crackdown and publication of (news on) the trial to send a firm message to corrupt bank officials,” said an intellectual with high-level contacts. “But the government is unlikely to publicize any more trials, because it doesn’t want outsiders to know how prevalent corruption in banking is, and doesn’t want to give the impression that China’s economy is unstable.”

A major financial scandal played a direct role in Zhu’s assumption of authority over the central bank: the case of Shen Taifu and the Great Wall Machinery & Electronics Scientific & Technological Industry Co.

Reports in the official media have portrayed Shen’s activities as a classic scam that raked in 1 billion yuan ($174 million) from 100,000 credulous investors in 17 cities. The scheme was built on promises of 24% annual interest, far above returns available elsewhere.

Shen launched a bond-issuing drive in May, 1992, “under the pretext of developing energy-efficient motors,” the official New China News Agency reported. He then “squandered investors’ money by renting six hotel suites in Beijing, frequenting dance halls and recreation centers, and hiring bodyguards for himself and his son.”

Official accounts published here have tended to ignore the involvement of high government employees in the scam. But Hong Kong’s Wen Wei Po reported that 120 “high-level cadres of bureau level or above have been detained or suspended from work pending investigations” in the case. Those detained included a vice director of the State Science and Technology Commission, the newspaper said.

Shen’s scheme collapsed in March, after the People’s Bank of China issued an order declaring that Great Wall Machinery & Electronics had not followed proper legal procedures to issue bonds. Authorities froze the company accounts, and Shen was soon arrested. By that time, at least half the money collected had disappeared, authorities say.

While the central bank eventually took action against Shen, it appears that Zhu and others in China’s top leadership believed that moves to cope with such financial shenanigans were too slow. The ouster of former central bank chief Li Guixian and his replacement by Zhu came after details of the scandal were released in the official media.

Rumors have circulated in Beijing that Premier Li and his wife, Zhu Lin, have been tainted by some sort of involvement in the case. Two Hong Kong newspapers, the English-language Hong Kong Standard and the Chinese-language Wah Kiu Yat Po, reported recently that President Jiang recently told a gathering of Chinese diplomats that Premier Li had personally approved the issuing of bonds by Great Wall Machinery & Electronics.

As for Vice Premier Zhu, he has a long history of trouble-shooting, including efforts to ease bureaucracy for foreign investors in Shanghai, where he served as mayor from 1988 to 1991.

Born in south China’s Hunan province, Zhu joined the Communist Party in 1949 and graduated with an engineering degree from Beijing’s prestigious Qinghua University two years later. He worked in state industry until 1957, when he made critical remarks that resulted in his being purged in that year’s sweeping “anti-rightist” campaign.

After the radical Cultural Revolution erupted in 1966, Zhu was sent to the countryside, where he spent five years planting wheat and rice, raising pigs and herding cattle.

In 1975, Zhu was reinstated as an engineer in the Ministry of Petroleum Industry, and from there he began his climb to power.

For Zhu, the blunt speaking and tough conduct that once got him in trouble have contributed to his rise. One story circulating about him, for example, says that he improved Shanghai’s tourism prospects with a surprise meeting of local bureaucrats.

“How is Shanghai expected to attract 900,000 foreign tourists if they can’t find a clean restroom?” he asked the officials. He then ordered them to scrub every public toilet in town.

The cleanup was launched, but, more important, Zhu had made his point about hands-on action, according to this account.

At a Beijing news conference in 1986, Zhu won respect by offering an exceptionally frank acknowledgment that China needed to improve its treatment of Western investors. “Some of our comrades are always thinking of taking a bite at joint ventures, and even sucking them dry,” he confessed.

After returning to Beijing as vice premier, following his stint in Shanghai, Zhu was put in charge of solving a “triangular debt” crisis among state-owned enterprises. Many firms owed debts they could not pay, and at the same time were owed money they could not collect. Zhu was credited with succeeding in working out acceptable solutions.

Zhu has always shown little tolerance for fools, and he still has a tendency to shoot off his mouth when others would remain silent.

Zhu launched his anti-IOU campaign by making threats last winter to “cut off the heads” of any local officials who issued such slips rather than cash for grain purchases.

Asked about the IOU problem at an April news conference, Zhu noted these reports, then deadpanned: “I cannot acknowledge here that I said that. Wantonly cutting off heads is a violation of human rights and against the law. If this appears in the press and is noticed by some people outside China, I’ll get into lots of trouble. . . . But I at least have to say that we are determined to wipe out this phenomenon of issuing IOUs.”