China's Leadership Transition

Premier Wen's rule overshadowed by predecessor Zhu's bold reforms

Unlike his predecessor Zhu Rongji, who boldly paved the way for various reforms, Premier Wen Jiabao, with his cautious personality, will probably be remembered more for his words than actions

PUBLISHED : Thursday, 13 September, 2012, 12:00am
UPDATED : Monday, 01 October, 2012, 1:53pm

While former premier Zhu Rongji is credited with introducing bold measures that set the mainland's financial system on the path of reform, his successor Wen Jiabao may be remembered more for his eloquent speeches than strong action when he steps down from his position early next year.

Zhu, 83, published a set of books late last year aimed at explaining the economic and financial reform process during his 12 years as vice-premier and premier until Wen took over in 2003.

The books quickly won praise from the public, who still hold Zhu in high regard.

Political analysts and, privately, even many mainland officials often compare Wen unfavourably with Zhu.

Wen, 69, has even been dubbed "China's best actor", with critics accusing him of speaking too much while doing too little and reacting too slowly in important matters.

At one point, according to a leaked cable from the US embassy in Beijing that was released by WikiLeaks late last year, Zhu could not hold back his famous temper and complained to others that Wen might have reacted too slowly to the 2008 global financial crisis.

People close to Zhu's family told the South China Morning Post that Zhu, who now lives in Shanghai, rarely met Wen after the changing of the guard in 2003. Zhu was Shanghai's mayor for about four years before his promotion to vice-premier in 1991.

When Wen once tried to pay Zhu a courtesy visit, he was rebuffed by Zhu, according to those close to Zhu's family, who declined to be identified because of the sensitive nature of the matter.

Steve Wang, head of research at Reorient Financial Markets in Hong Kong, said: "Unquestionably, Wen and his more toned-down, consensus-reaching approach was a drastic departure from that of his predecessor."

He said Wen's strength lay in his ability to touch ordinary people with kind words and that was why he maintained a high popularity rating throughout his two terms as premier.

Wang said: "Some of Premier Wen's populist policies can be expected to deliver management headaches for the incoming premier to deal with."

The new government leadership - to be officially formed early next year - will inherit some difficult economic baggage, including overcapacity in steelmaking and excessive fiscal reliance on real estate development, he said.

Since Wen became premier, local governments have become increasingly reliant on revenue from land sales, while the public have struggled to keep up with runaway home prices, which have jumped more than tenfold in major cities like Shanghai.

In 2003, Wen signed off on a cabinet notice that defined the mainland's property sector as a "pillar industry" - a move some analysts blame for the present asset bubble.

In more recent years, Wen pledged to cool property prices in an effort to please the public, but his policies appear to have had limited effect.

China Index Academy's research last month revealed that the average price of new homes in the 100 mainland cities it tracks had gone up by 0.33 per cent to 8,717 yuan per square metre in July, higher than the 0.05 per cent increase in June.

Some analysts say Zhu made more efficient and effective decisions on the economic front because of his deep knowledge and self-confidence in the field.

Wen, on the other hand, has more expertise in the fields of agriculture and geology, which are his main working and academic background.

Liu Ligang, chief China economist for Australian bank ANZ, described Wen as a "three-F premier" - based on his policy priorities. "When Wen became the premier, his top policy priorities were the 'three Fs' - farming, farmland and farmers," he said.

"If you examine his records in these areas, Wen has done a very good job. Chinese farmers now no longer pay any agricultural taxes and rural incomes have gone up sharply under his rule."

Zhu made his reputation by helping Shanghai launch and develop its Pudong New Area - now known as China's Wall Street - from the late 1980s.

He was also the key man behind China's entry into the World Trade Organisation in December 2001, which came after about 15 years of negotiation and eventually led to more financial industry reform.

In June 1998, just three months after he was appointed premier and in response to the 1997 Asian financial crisis, Zhu set up a new Central Financial Work Commission, directly led by the State Council, China's cabinet.

Wen, then the vice-premier, was named the commission's head. He set up new financial industry regulators, including the China Banking Regulatory Commission, which prepared the way for the next stage of reforms in the banking industry.

Some analysts say that banking reform has been one of Wen's major achievements on the economic front. But others argue that the reform was initiated when Zhu was in power and that sheer momentum made it inevitable. It was also part of Zhu's greater plan to enter the WTO.

Part of the plan was to reform China's four big national lenders and raise them to international standards.

At the end of 2003, Beijing gave two of the big four - Bank of China and China Construction Bank - capital injections of US$22.5 billion each to clear their heavy debt burdens and get them ready to go public. The huge injections into the two banks, signed off by Wen, announced the beginning of the mainland's banking reform.

In July 2010, Agricultural Bank of China became the last of the big four - after the Industrial and Commercial Bank of China in October 2006 - to go public. The bank raised US$22.1 billion in the world's largest initial public offering.

Liu said: "Wen pushed through the IPOs of major Chinese commercial banks, which had been decided by Zhu and [then president] Jiang [Zemin]."

When Zhu was in office, the government issued 270 billion yuan in bonds to help state-owned banks boost their capital. He also initiated a plan to set up four state-owned debt-clearing companies to help big banks dispose of their bad assets.

After Wen took over, he became more cautious and the reform started to lose steam.

In Guangdong Development Bank's stake sale in 2006, then vice-premier Huang Ju, who was in charge of financial matters, initially suggested that a foreign bank, such as Citigroup or France's Societe Generale, be given a chance to acquire more than the regulatory maximum 20 per cent stake. It was part of the push to open the mainland's financial sector to more foreign investment following WTO accession in 2001.

But Wen retreated from the bold initiative at the last minute, partly due to opposition from some state-owned enterprises (SOEs) who were afraid of increased foreign competition, people involved in the deals said.

Wu Jinglian, a leading mainland economist who was also a key economic adviser to late paramount leader Deng Xiaoping, said economic reform had slowed significantly in the past decade. He blamed widespread corruption and money politics, saying many "special interest groups" had linked their businesses with political backing.

Reform was also interrupted by the global financial crisis triggered by the Lehman Brothers' collapse in September 2008.

Before the crisis, the trajectory of the mainland's financial development had been tracing the well-established path of Western countries. But after the crisis, the Western banking and financial system was left in chaos and its intellectual premises faced unprecedented challenge.

Voices questioning whether China should follow the Western model of finance and banking development started to grow. Another legacy of the crisis was the increasing credit gap between the SOEs and private companies.

In response to the crisis, Wen announced a four trillion yuan stimulus package in late 2008.

But most of the money flowed to the big SOEs or government-backed investment vehicles, further increasing the credit imbalance between the SOEs and private companies. The private companies, which Zhu had tried to support, are now a main contributor to employment.

The spending binge also encouraged speculation in the property market.

Wu blasted the stimulus plan in an interview with the Post this year, describing it as "ridiculous".

Now just months away from retirement, it is questionable whether there is much, if anything, that Wen can do to restart the much-needed reform.

Liu said: "I believe the remaining tough financial sector and SOE reforms will be left to the new administration to address, and such solutions will no longer be based on a piecemeal approach."

Wang said it would be up to Wen's successor, most likely Vice-Premier Li Keqiang, to think how to push ahead with economic and financial reform.