Asian 'Miracle' Gone Bust? Not in China

With South Korea, Indonesia, and Thailand in line for international bailouts, Japan in a mini-recession, and Hong Kong flustered by big market losses, can China's be far behind?

It's economy exhibits many of the problems as its neighbors, with falling retail prices - down 0.4 percent in October - and state banks booking billions in bad loans from failing state firms.

But China remains insulated from global forces, thanks to red tape and tough capital controls, measures that normally cause concern. Indeed, bureaucratic hassles foster corruption while currency controls hinder investment.

Yet the controls have been "a blessing in disguise" says Kalina Ip of ABN-AMRO Hoare Gavette Hong Kong. A ban on off-shore loans means Beijing knows, to the dollar, its foreign currency liabilities.

President Jiang Zemin has also pledged to restructure debt-ridden state enterprises and is expected to make economic czar Zhu Rongji prime minister next spring. He gets credit for conquering inflation and growing the economy.

"There's nothing in economic history comparable to what Zhu Rongji has accomplished," says Bill Overholt of Bankers Trust here.

China's success means trouble for its neighbors. When Beijing devalued its currency 55 percent in 1994, manufacturers in search of cheap labor headed to China.

That forced the Asian Tigers, this summer, to cut labor costs by devaluing currencies. Now it could be China's turn again. Market rumors say that Beijing may, again, devalue the renminbi.