The Road To Market: A Talk With Zhu Rongji

Sipping coconut milk, a relaxed Vice-Premier Zhu Rongji fielded questions with ease at Zhongnanhai, a government compound in Beijing. He spoke for two hours with BUSINESS WEEK Managing Editor Mark Morrison, Hong Kong Bureau Chief Joyce Barnathan, and Beijing Correspondent Lynne Curry.

Q What kind of economy are you trying to build?

A What we want to achieve through reform is to adopt the operating mechanism of a market economy, which is the same as you have in your economy. The only difference is that your economic system is based on private ewnership, while our market economy will still be based on public ownership.

Q How are you going about trying to create this new model?

A Mainly, we will conduct reform in three areas: fiscal policy, the banking system, and state-owned enterprises. Fiscal reform will be aimed at adjusting the relationships between central and local governments. Now, we have a new system under which revenue tax is shared between the central and local governments--similar to the system you have between federal and local government. The aim of banking reform is to establish an independent financial system. Lastly, we will change the relationship between the state and its enterprises.

Q Won't you meet strong resistance?

A We have had a long process of preparation. A consensus was built between central and local governments, and between the government on the one hand and enterprises on the other. So some agreement was reached.

We are glad to see that the general situation in the country and in all industries has been stable. No big problems have cropped up, and this has greatly boosted our confidence. These reforms also must have the Chinese people's understanding, support, and acceptance. That is by no means easy.

Q In changing the tax system, haven't you and the provinces had a pretty fierce struggle?

A It's true that last year we did a lot of work with local and provincial governments to convince them. It is not possible to take money out of the pockets of another person without that person's resisting. But the measures we introduced are not so drastic. They are actually quite moderate.

Q Right now, your economy is growing by 13% a year. What is your target?

A My target is 9% to 10% for this year. It is not possible for us to achieve 7% because that would create a major disruption to the economy. In addition, that kind of fluctuation would lead to social instability.

Q Are you comfortable with the level of foreign investment in China?

A In 1992, we saw an unprecedented level of direct foreign investment in China--some $11 billion worth. It is a good phenomenon.

Q Would a U.S. decision to revoke most-favored-nation (MFN) trading status cripple your economy?

A It is not correct to think that it would be a terrible thing for China if MFN were withdrawn. I think that it's the American public--the general American consumer--who would suffer the most. Therefore, I sincerely hope that trade relations between China and the U.S. will continue to develop and that there will be no large fluctuations.

Q Are you concerned about U.S.-Chinese relations?

A Ever since the Seattle meeting took place between President Jiang Zemin and President Clinton, a new stage in friendly relations between the two countries has been ushered in. High-level exchanges between the two sides have been on the increase. Therefore, I am optimistic about the future of such relations.

However, we hope MFN will not be linked with human rights. And we are sure the human-rights situation in China will continue to improve, and we are certain to see more progress in this regard.

Q On a personal note, can you tell us how you manage such a vast portfolio of economic policies?

AWithin the State Council, I am the chief assistant to Premier Li Peng. And within the party, I am a member of the Standing Committee of the Politburo responsible for economic work. But when it comes to making decisions, all issues have to be subjected to the collective leadership of the Communist Party's Central Committee and the State Council. No decision has been my personal one. That's why I'm not that fond of being described as an "economic czar." My title is Vice-Premier.

Before it's here, it's on the Bloomberg Terminal.