Superman Zhu goes back to the future
VERY strange things are happening to China's economic policy. First we have Zhu Rongji's statement last weekend that everything was shipshape: according to the script of the czar-turned-superman, the growth and inflation rates will both be contained within 10 per cent this year.
Then comes the intriguing article in Monday's edition of the pro-Beijing Hong Kong daily, Wen Wei Po, that the Communist Party's Central Committee would later this year hold a fourth plenum to in effect rectify the pro-market resolution of the third plenum of just six months ago.
A dialectical materialist, particularly a reformist one such as Deng Xiaoping, would spot this contradiction: if everything in the economy is in order, as Mr Zhu claims, it's time for another leap forward in reform, not retrenchment, which seems to be the theme of the fourth plenum.
Let us first examine the feel-good campaign that Mr Zhu and his cohorts, including senior cadres in the State Economic and Trade Commission (SETC) and the People's Bank of China (PBoC), have waged since the spring.
While visiting Tokyo in March, Japan's favourite Chinese politician waxed eloquent about the success of China's price reform. ''Price reforms are necessary to shift towards a market economy,'' Mr Zhu said. ''Once price reforms are in place, inflation should fall to around 10 per cent this year and six per cent next year.'' He made even more sweeping assertions in his meeting with a Hong Kong business delegation last week. The vice-premier contended that state-owned enterprises had turned the corner: profit levels of the dinosaurs leaped 40 per cent in the first four months of the year.
SETC minister Wang Zhongyu, Mr Zhu's troubleshooter, astonished domestic and foreign economists by maintaining twice recently that barely 10 per cent of China's state enterprises had either stopped operations or were operating below capacity.
''If we analyse the situation with a practical mind, we will discover that these [state-owned] enterprises are developing in the right direction,'' he told an economic planning conference late last month.
No less audacious was the claim by Mr Zhu's deputy at the PBoC, Zhou Zhengqing, that ''the reform of China's monetary and financial system has been going on smoothly''.
This series of morale-boosters does not seem to square with the facts. Let's turn first to inflation, the scourge of the nation.
There is no solid evidence to show that the spirals have been depressed. The latest statistics show the year-on-year increase in the national retail prices for April was 21.7 per cent, which was only down a mere 0.7 percentage points from the comparable figure for March.
Meanwhile, fixed-asset investment, a major contributor to inflation, is tipped to exceed the government-fixed ceiling of 1,300 billion yuan by 15 per cent this year, which was itself 13 per cent more than the 1993 figure.
By May, such outlays by 14 major provinces and cities had overshot the state limit by 60 billion yuan.
The claims by Mr Zhu and Mr Wang about state enterprises going in the ''right direction'' contradict scores of reports by government statisticians, the official media, and Western diplomats and businessmen that the government-owned sector is mired in distress.
In an unusually frank dispatch last week, the semi-official China News Service reported that while addressing the economic conclave, Mr Wang was confronted with official figures showing that losses incurred by state firms had increased by 80 per cent and that at least 45 per cent of them were dripping in red ink.
All that the SETC minister said was: ''This is a misunderstanding.'' Western financiers have cast doubt on Mr Zhou's contention about the success of monetary reform, the main thrust of which is to depoliticise the banking system by predicating credit policy on economic norms, not executive orders.
However, as senior economist Dong Fureng said last month, a major factor holding back the commercialisation of banking is that up to 40 per cent of loans are tied up by so-called ''triangular debts''.
In fact, it was Mr Zhu who, as PBoC governor, gave personal orders early last month to prop up the anaemic dinosaurs.
Apparently oblivious of the anti-inflation campaign, the czar asked bankers to continue lending to money-losing concerns - ''provided the funds are being used for the production of goods that can be sold''.
Largely taking the cue from Beijing, the banks boosted loans by 75 billion yuan in the first four months of the year. The big question: why the concerted effort to paint a rosy picture? One explanation is that to better position themselves for the post-Deng power struggle, Mr Zhu and his followers cannot afford to come across as losers.
The second reason is also political. The central government cannot withstand pressure from two of the potentially most destabilising forces in society: state entrepreneurs and the unemployed.
By giving the impression that inflation is coming down and state enterprises are on the mend, Mr Zhu hopes he can defend his anti-market policy of lifting the tight-money regime in favour of the country's least efficient sector.
That the economy is not under control is evident from the disturbing measures being taken to ''boost macro-level adjustments and controls''.
Conspiracy theorists have already termed the forthcoming fourth plenum as an anti-Deng schema.
As the Wen Wei Po put it, ''The third plenum of the 14th Central Committee posited a structural framework for a socialist market economy. What the fourth plenum needs to tackle is new management problems for such a new framework.'' Translation: the pro-market initiatives of the third plenum, which bore Mr Deng's imprimatur, need to be contained by the proverbial bird cage of centralised control.
Didn't the propagandists hail the third plenum's 15,000-character Resolution on the Socialist Market Economy as the Magna Carta for liberalisation? Analysts say it is rare for even a Communist Party to practise such radical revisionism so soon after the fact.
Vice-Premier Zou Jiahua confirmed the conservative twist in policy when he indicated on Friday that price reform, about which Mr Zhu boasted so wholeheartedly in Tokyo, would on a de facto basis be put on hold.
Speaking somewhat contradictorily, Mr Zou pointed out that ''there will be [state] control of prices in the midst of opening them up''.
The fear among China economists, however, is if Beijing's lily-livered efforts at market reforms fail to accomplish what Mr Zhu has claimed, neither will a return to the tried-and-untrue formulae of the past.