Premier Zhu Rongji is expected to fail to meet his ambitious targets to reform the mainland's industry and financial sector by 2000, and as a consequence growth will slow between 2000 and 2010, to an annual 5.3 per cent, according to an Economist Intelligence Unit (EIU) report. Despite repeatedly pledging that the closure of inefficient state enterprises, the streamlining of the mainland's bureaucracy, and the reform of the indebted banking system would be largely complete in less than two years, the report said Beijing lacked the political will to undertake such reforms so rapidly. As a consequence, per capita gross domestic product growth would be much lower in the years ahead, as productivity suffered, the report, China to 2010, said. Instead of rapid reform that had been envisaged following the 15th National Congress of the Communist Party in September, the EIU said Beijing would opt for much more cautious reforms in a bid to limit social and political unrest in areas where high unemployment has been caused by the closure of state enterprises. Under a more cautious approach to reform, the EIU expects GDP to rise year-on-year by only 7.6 per cent between 1996 and 2000, before slowing to 5.3 per cent between 2001 and 2010. In contrast, a rapid reform approach would see GDP expanding by 7.7 per cent per year in 1996-2000, and being largely maintained at 7.4 per cent per year in 2001-2010. The EIU said the need to maintain economic, social and political stability would outweigh any drive to rapid reform that has been espoused by President Jiang Zemin. 'Perhaps the most powerful lesson that the Asian crisis offers the Jiang Zemin leadership is that economic change is politically dangerous, especially if things go wrong,' the EIU said. 'Not only is there an as-yet unaired debate within the Communist Party about the need to undertake political reforms without which the party's long-term survival is not possible, and which in the end may not ensure its continued rule, but there is also, in the meantime, an aversion to provoking the ire of the urban constituency, workers in government and state-owned enterprises in particular, which has traditionally been the privileged elite in the People's Republic.' The cost of these considerations, the EIU argued, would be severe economic underperformance, far below the 7 per cent growth considered necessary to maintain the desirable employment and higher living standards Beijing is seeking to establish for the population. The EIU believes that internal debate about the scope of political reform as the 16th Congress approaches in 2002 will also slow the pace of reform, particularly as the present leadership makes way for more technocratic successors. The drive to dissolve economic disparities between the prosperous coastal regions and the poorer inland provinces would mean that the special economic privileges established by Beijing for the inland areas would also be kept in place, and opposition from sacked industrial workers would also put pressure on Beijing to allow only piecemeal reform. 'Provincial protectionism and misplaced entrepreneurialism by local governments will be prolonged and intensified by the impulse to foster local state enterprises and protect them from competition both at home and abroad.' Beijing's policy of creating ever-larger companies by merging inefficient state enterprises and allowing smaller companies to go bankrupt was also in danger of creating less than optimally efficient companies. This in turn would see the formation of large companies with a voracious appetite for heavy domestic and foreign borrowing, crowding out other borrowers and stunting the structure of the industry. 'While the emergence of several hundred large conglomerates will proceed under the eyes of the central government, the survival of thousands of medium-sized companies under the control of authorities at the provincial level and below will impede the creation of a more integrated national market.'