Seldom has such a major policy been reversed in so short a time. The formation of shareholding companies and co-operatives was touted as a panacea for state-owned enterprises (SOEs) at the 15th Chinese Communist Party Congress last September. Less than six months later, gufenhua ('going joint-stock') is hardly mentioned in the national media. This about-face testifies to the expanding clout of economic tsar Zhu Rongji, a well-known skeptic about stocks and shares - and other attempts at quasi-privatisation. Barely a fortnight shy of being confirmed prime minister, Mr Zhu has made it known he alone calls the shots in the economy. After all, the shareholding formula was the darling of President Jiang Zemin, still the head of the party Central Committee's Leading Group on Finance and Economics, the nation's highest organ on economic decision-making. Billed as the centrepiece of the 15th Congress, which was convened just weeks before his landmark visit to the US, the gufenhua experiment was also Mr Jiang's way of showing the West that he could push Deng Xiaoping's reforms to new heights. In recent speeches, however, Mr Zhu and other senior cadres have recommended more traditional methods, such as bankruptcies and mergers to retool SOEs. Sources familiar with the vice-premier's thinking have cited the following reasons why he has downplayed the shareholding scheme. First, companies that have gone down the gufenhua road have hardly become more efficient. Often, while cadre-mandarins from the ancien regime have donned new hats called chairman of the board or managing director, they operate the new companies in much the same way as before. Particularly in poor areas, the shareholding format has often been used to milk workers of their savings. Employees have been given the Hobson's choice of either being laid off or making contributions of up to 20,000 yuan (HK$18,600) to become 'shareholders' of their concerns, which in many cases have no hope of being turned around. Worst, since at least in theory, SOEs that have been converted into shareholding concerns are only answerable to shareholders, Beijing's control over the economy has been weakened. Mr Zhu and fellow neo-conservative cadres are worried that owing to lack of legislation, particularly those concerning corruption and money laundering, gufenhua has allowed the new bosses to engage in questionable practices, including the reckless raising of funds. At a time when the leadership is preoccupied with preventing the Southeast Asian financial turmoil from spilling into China, the central government wants more authority over the SOEs. While the latest twist in the fate of the gufenhua experiment highlights the growing influence of Mr Zhu, it raises disturbing questions about the prospects of reform. There is first of all the issue of transparency. No senior official has yet openly explained why the shareholding formula, which suddenly came into vogue in the run-up to the 15th Congress, was as abruptly dropped. Still fresh in mind were Mr Jiang's words last summer, to the effect that since joint-stock companies were not the monopoly of capitalist economies, 'we must be bold in going about gufenhua '. However, soon after the 15th Congress Beijing was abuzz with rumours that Mr Zhu had criticised Jiang protege and head of propaganda Ding Guan'gen for 'making excessive publicity about the shareholding experiment'. Up to now, no official documents have been issued on gufenhua's future. Sensing the direction of the wind blowing out of the Zhongnanhai party headquarters, however, most regional cadres have stopped mentioning joint-stock companies and co-operatives in their speeches. Even more important than transparency and accountability, however, is the fact that buffeted by the aftershocks of the Asian crisis, China seems bereft of a direction for the reform of SOEs, the nation's worst problem. Apart from ordering a slow-down on forming shareholding entities, Mr Zhu has yet to come up with new strategies for pushing government-run businesses to the marketplace. This wishy-washy attitude also informs the other famous 1997 slogan on enterprise reform: zhuada, or pumping national resources into several hundred elite SOEs in the hope that they will be turned into 'flapship' conglomerates and multinationals. Much has been written about the fact that since the zhuada concept is based on the South Korean model of developing chaebols, Mr Zhu has urged a revaluation of this approach after the Seoul-based behemoths hit the rocks late last year. During marathon sessions of soul-searching, Mr Zhu crossed swords with President Jiang and Vice-Premier Wu Bangguo over how many SOEs should qualify for the zhuada treatment - and which SOEs should be selected. While Messrs Jiang and Wu wanted to nurture as many as 800 super-SOEs, Mr Zhu opted for only 500. According to Beijing sources, a 'compromise figure' of 620 was reached earlier this month. Mindful of the goal of slashing the mountain of bad debt sustained by state banks, Mr Zhu also wants to slap restrictions galore on the SOEs' priority access to state loans. While a policy vacuum seems to exist at the top, regional bureaucrats and state entrepreneurs have gone on forming conglomerates partly to maximise the amount of benefits they can wangle out of Beijing while the going is still good. At the 15th Congress, the leadership exuded a gung-ho spirit that 1998 would be a banner year for reform - that the economy was mature enough for more market-oriented measures. As Mr Zhu is about to put the finishing touches to his new cabinet, however, the emphasis has shifted from liberalisation to something more mundane: preventing deflation and ensuring that enough jobs be created to defuse social unrest. To convince Chinese he is Deng's true disciple, Mr Zhu must come up with policies to show that instead of being an impediment, hard economic realities should steel the leadership's resolve on reform.