In his famous essay On Liberty, the 19th-century British philosopher John Stuart Mill warned of the fate of states such as China or Russia, where the bureaucracy is all-powerful. 'No reform can be effected which is contrary to the interests of the bureaucracy,' Mill observed. To him, that was even the case when there was a revolution and a new dictator took the throne. 'He can send any one of them to Siberia, but he cannot govern without them or against their will.' It is beginning to look true for Premier Zhu Rongji, whose plan to cut the mainland's sprawling bureaucracy in half and transform the state-owned enterprises in just three years has been derailed. His final card, accelerating China's entry into the World Trade Organisation (WTO) as a means to force change, has been played and failed. Mr Zhu tried to bypass the bureaucracy when he made a tempting offer in Washington during his April visit, and is now sidelined - so much so that United States Treasury Secretary Larry Summers left China empty-handed after meeting Mr Zhu in Lanzhou over the weekend. Even the direct phone call President Bill Clinton made to President Jiang Zemin on October 16 made no difference. Mr Jiang is touring Europe but nothing new is emerging from his talks with European leaders. Nor are the talks between mainland and European Union negotiators in Geneva producing breakthroughs. Hopes of movement in the next few weeks are still alive but by late November Beijing would be shut out of the next round of WTO negotiations. A result now appears to depend on capitulation by the US. Washington would have to agree to Chinese terms far less substantive than those offered by Mr Zhu in April. Just how unsatisfying that may be has become obvious through a recent string of proclamations which have caught investors off-guard. Beijing has just shut foreigners out of the telecommunications industry by telling them to withdraw from the second telecom company Unicom, in which they had invested nearly US$1.4 billion (HK$10.8 billion). Beijing has also shut investors out of Internet business, treated investors in the bankrupt Guangdong International Trust & Investment Corp with contempt, banned market surveys, and seems to be retreating from share offerings which would have given foreigners a stake in lucrative monopolies like the petrol industries. Such steps might have led to overseas shareholders being able to influence local managers. Western governments are by no means discouraged by these signs. They and many business leaders are convinced opportunities await them if they can only win concessions from Beijing. It is not unlike the situation a century ago when Western powers competed to 'carve up China like a melon'. In most sectors, especially services, China's state-owned enterprises (SOEs) would collapse if foreign companies were allowed in under a WTO deal. SOEs and the bureaucrats who run them have already proved hopelessly inadequate in countering the challenge posed by both foreign and domestic competitors. However much money has been thrown at them, most lose money. Since the autumn Party Central Committee meeting, the press has been full of proposals to keep state enterprises afloat by, for instance, closing down rival rural enterprises or taking away foreign investors' tax privileges. A level playing field would be a fine thing for everyone and welcomed. Despite the absence of any WTO deal, Beijing still wants to attract foreign investment, especially high-technology projects: regulations lifting restrictions on banking or investment in inland areas are in the pipeline. China naturally fears that since foreign investment has slumped 10 per cent this year, there will be no pick-up without a WTO deal. Goods such as cars, motorcycles, televisions and shoes are in over-supply and there is vast over-capacity, so no new investment is expected in these areas. Capital would only be spent in new areas or in state spending, so Mr Jiang has promoted the prospects of buying planes and trains. Without the commanding personality of Deng Xiaoping, Mr Jiang acts in the belief that political stability is the greatest priority and that now means slowing bureaucratic reform and SOE privatisation. Some analysts believe he wants to stretch this out over 10 years to allow firms to prepare for competition. Western diplomats suspect if Mr Jiang's greatest concern was bolstering investment inflows, he would have tried harder to persuade Western leaders to accept China's position on WTO. To make this more palatable, he could have sounded a softer note on Taiwan, Tibet or human rights. Instead, the opposite happened. In the past few days, harsh sentences were handed out in Hangzhou to founder members of China's Democracy Party and there were further arrests of dissidents and Falun Gong supporters. In the past, Mr Jiang always timed the release of prominent political prisoners to smooth relations and give his hosts some face so they could claim credit for improving China's record. This time China was confident that such gestures, which border on the insulting, were not necessary for the banquets in Buckingham Palace or the Elysee presidential palace. The praise and support Mr Clinton or British Prime Minister Tony Blair gave over the past three years has not been withdrawn. It may be that Western leaders believe that whatever Mr Jiang may say, he will be forced to open the mainland's markets. Some analysts in Beijing even claim he is manoeuvring to strengthen his position to do just that - retreating to gather himself for a leap forward. Among ordinary Beijingers, the understanding is different. Many feel outraged at seeing Mr Jiang feted at home during the costly 50th anniversary celebrations and then on tours abroad. 'All he cares about is being praised and flattered. He should be here dealing with problems,' was one comment from a taxi driver, reflecting a shared feeling at the way Mr Jiang was presented on the television news. Despite public sympathy for Mr Zhu, he is handicapped by his inability to reach public support. With no popular mandate, he has had to rely on the bureaucracy to push through the downsizing programme he outlined with such vigour 18 months ago. He is rumoured to have clashed with Mr Jiang and threatened to resign. His impetuous style is even reported to have led him into arguments with former premier Li Peng, whom he charged with tolerating corruption at the Three Gorges Dam project. Mr Li also tried and failed to reduce China's bureaucracy, as did Mao Zedong during the Cultural Revolution. Everyone, whatever their ideological bent, now agrees it must be done. Deep cuts must be extended beyond the central government departments where it started last year. China could dismiss 10 million pen-pushers and it would make little difference. In rural China, where one billion live, the state provides virtually no function because health and education are almost entirely privatised. In the state industrial sector, however, Mr Zhu's call for urgent reforms threatened the privileged status of too many incompetent managers, who have fought back. The burden on the finances of central and local governments is so heavy that change seems inescapable.