A legacy of 'Made in China'

For China, it is the end of an era.

Monday marks the departure of Premier Zhu Rongji - the face of China's epic economic transformation over the past decade, and the man whose policies opened centuries of closed doors, created a vibrant market ethos in a Communist state, and put China into the global mainstream as a member of the World Trade Organization.

Premier Zhu, a Hunanese orphaned at age 9 and twice put in prison for his pro-capitalist "rightist" views under Mao Zedong, took the reins of reform in the early 1990s, a time when China was economically adrift and in deep social uncertainty. By shrewd policy and sheer drive, he transformed a series of local fiefdoms into a high-performance national economy - one that Mao would not recognize, and one poised to adopt such free-market standards as private ownership and modern management of the state banking sector.

In some ways, the glut of cheap fishing rods, toasters, and garden hoses that Americans buy at Wal-Mart are a result of Zhu opening China's cheap labor to the West.

"That China has a national economy is a direct result of Zhu Rongji going out and beating down local officials, and finding a political consolidation here," says a Beijing analyst with a US company. " He is one of a kind."

Mr. Zhu's departure as premier - he is succeeded by Deputy Premier Wen Jiabao - is part of a sweeping set of generational changes that began last fall.

In China, the Communist Party is all-powerful, and last November's Party Congress, which occurs once every five years, the top party slot shifted from Jiang Zemin to the youthful Hu Jintao in the first peaceful transition of rule in modern China.

Monday closed the annual National People's Congress, which oversees state, as opposed to party, affairs - including the economy and other domestic concerns. Zhu, as state premier for five years and the driving force for economic change long before that, received nearly two minutes of applause by the 2,944 delegates - an honor unmatched in the nearly two-week event.

This congress marked the end of a different era as well - the departure of Vice-Premier Li Peng, the hard-line leader most associated with the 1989 killing of pro-democracy student protestors at Tiananmen Square.

In China, the office of president is a state title; it is the protocol designation under which leaders travel as head of state. Until Saturday, the title was held by Mr. Jiang, who relinquished it through an "election" to Mr. Hu. (Hu, the only candidate, scored 2,937 votes, with four opposed, four abstaining).

The president of China is also the top party chief, and while the title is largely ceremonial, its clout depends on the power wielded by its holder.

Therein lies a conundrum among Beijing's current mandarins. While Hu, heir apparent to Jiang for some 10 years, is now chairman of the party and president of the state, he still does not hold either the military or the foreign-policy reigns of China. Jiang Zemin has retained control of the Party Central Military Commission, and he controls foreign-policy matters both through his contacts and his protégé Zeng Qinghong, now a member of the ruling Standing Committee of the Politburo.

Essentially, China now has two "core" leaderships. That has brought much speculation over whether Beijing can "function smoothly" - a term highly prized here - if one of those cores exists outside official circles.

One activist here said that Hu and Zeng would get along amicably, as would Hu and Jiang, because they share interests, and "this is not the China of the 1950s, when Mao and the generals plotted against each other."

A political scientist with China's Academy of Social Sciences (CASS) felt Hu and the younger new leaders are in a position of "learning new consultative skills, and how to handle the details of China's most sensitive issues, much as a son would learn from a father." But another CASS member said this is "what they [older leaders] always say when they want to stay in power."

Jiang is known to prize the good relations he has cultivated with the US, having visited Crawford, Texas, last October. Reports here suggest it is Jiang who is handling China's diplomacy on Iraq, taking calls from the White House as the US looked for Security Council votes.

Hu has been seen in recent months visiting rural villages in Inner Mongolia, mountain towns in Hebei, and developing a profile as a man of the people. Analysts say that, not yet having a solid set of allies in the inner circle, Hu's best move is to build trust in the countryside.

Very few real political changes in China's Communist Party system are planned. But further economic reforms are under way and were showcased at the People's Congress.

One of the key changes is the formation of the State Asset Management Committee. One of Zhu's chief legacies was his tough handling of massive Stalinist-era industries that pumped out steel and machinery, and in recent years have drained state funds. Zhu forced most of these to close if they were unable to turn a profit. But who owns the assets of closed industries, as well as smaller profitable concerns, is in question.

The function of the new committee will be a "sort of one-stop shop" for investors who wish to pick up the enterprises' assets, says Jonathan Anderson, executive director of research for Goldman Sachs in Hong Kong. "The question of ownership has never been solved. You must go through years of red tape and build consensus among players to buy in China. The focus of the committee is to deal with [this]. It is the most exciting thing to come out of the People's Congress, from the investor's point of view. It also sets up the possibility of consolidation and a great run of mergers."

Zhu has made China a manufacturing hub, built up Beijing and Shanghai, forced the economy to hew to international standards through the WTO, and helped China emerge from the 1997 Asian financial crisis with little damage.

Still, there are downsides that must be faced by new economic czar Wen Jiabao. Part of China's success was based on Zhu's focus on urban problems and the creation of mass construction jobs in cities. This has contributed to a partial "hollowing out" of China's rural areas, and created ever-larger tensions among peasants and laid-off state workers, of whom there are hundreds of millions.

Rural education has been ignored, and the gap between the rich and poor is the greatest today in modern China.

China will continue to spend heavily this year to address these concerns, say officials. Also, China still has not faced up to the banking reforms that will allow transparency and private investor confidence. Whether a new Banking Regulation Committee, another product of this week's Congress, will have the political clout to reform is an open question. A number of analysts - both Chinese and overseas - are pessimistic.