Beijing Identifies a Scapegoat For China's Economic Troubles
Central bank head is forced out as scandals, inflation fuel uncertainty
CHINA is struggling to address widening financial disarray and forestall a looming economic crisis.
Confronting runaway inflation, supercharged growth, and a plummeting currency, the government is expected to announce later this week that Li Guixian, governor of the central People's Bank of China, is being removed and held responsible for the country's deepening economic troubles, according to the pro-Chinese press in Hong Kong.
On Wednesday, Wen Wei Po, a Chinese-language newspaper in the colony, reported that Zhu Rongji, a vice premier and custodian of China's market-style reforms, will also head the central bank, a move that will boost his political clout. Chinese officials refused to comment.
The shake-up comes as Beijing communists seem unable to rein in an exploding economy and free-wheeling local officials speculating in industrial real estate development. The resulting inflation is fueling discontent among cash-strapped farmers and inflation-hit urbanites.
The financial uncertainty has prompted many Chinese to hedge their savings against the soaring inflation by investing in gold. Since the beginning of the year, gold sold on the open market in China has jumped 50 percent, gold dealers in Beijing say.
Awaiting opportunities in bonds and stocks in China's emerging financial markets, many Chinese are withdrawing or withholding money from banks. That has alarmed the government and set off a scramble to raise badly needed funds.
This week the government ordered Chinese to buy badly subscribed treasury bonds, setting a minimum of $30 per worker no matter what his salary. "The whole family will have to live on tap water next month," says a college teacher whose entire salary will be used to buy the bonds.
The New China News Agency reported that the government plans to call a national economic conference in an effort to deal with unruly local and regional officials. "Beijing is getting panicky about its failure to discipline the provinces," says an Asian diplomat. "The officials are very worried about the situation."
Inflation "will get worse before it gets better," predicts a Western economist who asked not to be named. "They can probably slow down the economy, but they can't alleviate the price pressure."
"Prices are exploding in Beijing," following the deregulation of food prices this spring, says a government employee. Food prices increased as much as 25 percent.
At the root of the problem, Western and Chinese analysts say, is rampant, unauthorized borrowing by provincial officials acting outside the purview of the central government. Under China's economic reforms, the central government has dispensed economic powers to the provinces, hoping to spur streamlining and economic efficiency among state-owned enterprises, most of which are controlled at the local level.
According to government figures, informal lending by local banks for real estate development and fund-raising by profiteers and loss-ridden state enterprises is about $20 billion, more than half of all outstanding bank credit in China.
In the first quarter of 1993, infrastructure investment by provincial governments was up 81 percent over the same period in 1992, while fund-raising by selling stocks and bonds almost doubled from 1992.
Since May, the government has tried to tighten credit to curb inflation, which is running at a 17 percent annual rate in the cities. Still, the cash money supply is growing at about a 50 percent annual rate, according to Western economic estimates, and the value of the renminbi, China's internal currency, has fallen 25 percent since the currency was freed of official controls.
Amid the confusion surrounding Beijing's efforts to set up a capitalist system, two major fraud cases broke in the last week and underscored the corruption now widespread in China, Western analysts say.
In one instance, Shen Taifu, chairman of the Beijing Great Wall Machinery and Electronics Group, was arrested for masterminding a fraud ring that robbed investors of more than $175 million in four years. According to a report in the official English-language China Daily, Mr. Shen lured investors with promises of high interest rates.
"They don't want to kill the goose that lays the golden egg," says a Western economist, explaining that the government doesn't want to cut off some of the benefits that controlled growth can bring. "They are trying to engineer a soft landing."