China's New Elite

Chen Xiaoyue was 19 years old the day Red Guards came hunting for "class enemies" at Beijing's Qinghua University. It was 1966, the start of the Cultural Revolution, and Chen's father--a civil engineering professor who had taught at Harvard University and served in the U.S. Navy in World War II--was a prime target. Chen's home was ransacked, and his family was scattered to different corners of China. Chen spent 10 years toiling as a farmer and factory worker in remote Shaanxi province.

It was the seminal experience of his life. After working all day, he spent nights poring over secondhand textbooks to teach himself math, physics, and English. The nightmare of the Cultural Revolution finally ended in 1976, and the following year, Chen was one of the small percentage of people who passed the first competitive university entrance exam held in a decade. Now, nearly 20 years later, Chen is leading a different revolution at Qinghua: As associate dean of the management school, he is shaping its curriculum to prepare leaders for the market economy. "People of my generation will play a very important role for the next century," Chen says. "We have to establish a new business culture."

A dynamic and radically different elite is coming to the fore in China. Its members stand out from both the older generation raised on communist glories and from younger Chinese exhorted to "get rich." This group came of age during the Cultural Revolution, when millions of teenagers became Mao's fanatic Red Guards. In the reign of terror that followed, countless Chinese were denounced as "class enemies" and publicly humiliated, beaten, and murdered. After a few years of anarchy, Mao sent 17 million teenagers to the countryside, denying them education beyond communist propaganda. They became known as the "lost generation," a catastrophic waste of talent that hobbles China to this day.

But through sheer will and effort, a select group has managed to make up for lost time. Call it the Class of '77. Its members were the first students after the Cultural Revolution to gain entry to universities on the basis of competitive exams rather than political connections. Out of 12 million applicants for China's top universities in 1977 and 1978, they were the 5% who earned the highest scores. Fresh from the countryside, the Class of '77 suddenly joined the ranks of the country's educated elite. Now in their late 30s and early 40s, numbering just over half a million, this group holds out great promise for China.

By any standard, they are a special breed. Eager to soak up knowledge, few stopped at bachelor's degrees. Many went on for masters and PhDs in the West, excelling at top schools after arriving with little English, money, or academic prerequisites. Superachiever Qiu Zhizhong, 37, for example, now at CS First Boston in Hong Kong, breezed through engineering programs at New York University and Cooper Union at the same time. Then, he picked up a Harvard MBA. He had learned English from the Voice of America while in the countryside, on a radio he built himself.

Unlike previous generations in communist China, the Class of '77 is cosmopolitan, sophisticated--and wary of rigid ideology. It is already making an impact on every aspect of Chinese society, from business to government to the arts.

STRONG TIES. To understand how China's new elite views the future, BUSINESS WEEK interviewed more than 40 members of the Class of '77 in China and abroad over a period of six months. It is by no means a monolithic group. While its members have formed extensive personal networks based on friendships forged during the Cultural Revolution, they have not created any formal organizations. Highly independent, they hold widely varying opinions on such issues as whether China is ready for democracy and whether Beijing should aggressively privatize China's vast state sector.

But on several key points, there is near-consensus: Most want a China that is more open to the outside world, that tolerates greater debate, that is driven by the private sector, and that is run by modern institutions and the rule of law. While a more liberal China is a lofty, long-term goal, many members of the Class of '77 support a government run by pragmatic technocrats, much like South Korea under the late dictator Park Chung Hee and Singapore under strongman Lee Kuan Yew.

For them, ideology is less important than results. Li Yang, director of the Finance Research Center at the Chinese Academy cf Social Sciences, who labored as a farmer and bricklayer for eight years in rural Anhui province, says many members of his generation support the ideals of socialism. "But we are very practical and want to introduce a good system."

Above all, members of the Class of '77 believe they are the most qualified to lead China, by virtue of their firsthand experience with both rural poverty and modern Western society. With Deng Xiaoping near death and doddering Communist Party career men fading from the scene, members of the Class of '77 are preparing to take the reins.

They will be able to tap into a tremendous network. Alumni are everywhere, from the upper management of most state-owned companies to the Asian units of multinationals such as Kraft Foods, J.P. Morgan, and Goldman Sachs. They are the pioneers in private enterprise, capital markets, and legal reform. Like Chen Xiaoyue, many hold prominent positions in Chinese universities. Also in their ranks are filmmakers such as Chen Kaige, director of Farewell My Concubine, and Zhang Yimou, director of Raise the Red Lantern. And leading dissidents such as Wang Juntao and Chen Zemin, imprisoned after the 1989 Tiananmen massacre, are members of the Class of '77. The '77ers "are the most impressive people I've ever met," says China expert Kenneth G. Lieberthal of the University of Michigan.

They are rising in the government as well. Few hold ministerial or Politburo posts yet, but tens of thousands are at key levels in departments and bureaus in China's massive bureaucracy, where promotion increasingly is based on merit.

NEPOTISM. To be sure, the Class of '77 isn't the only influential group of fortysomethings in China. Far more powerful are the "princelings"--sons and daughters of those who hold top jobs in ministries, state-owned companies, and the military. Many of them also did time in the countryside, but they advanced through patronage and nepotism. Once their parents and patrons die, the princelings are vulnerable to purges.

The '77ers are also far outnumbered by the workers, peasants, and soldiers who had the proper "red" credentials to enter college during the Cultural Revolution. But this group's upward mobility has been stunted by inferior education: Under Mao, scholarly work took a backseat to the class struggle.

The nonconformist Class of '77 is treated with some suspicion by senior Beijing leaders--mainly because they have a history of being outspoken. Many of those who entered college in 1978 became ringleaders of the Democracy Wall movement. At that time, students were encouraged to speak their minds about the government, only to be crushed when they called for political freedoms.

Another liability is that this class dominated the economic and political think tanks that influenced policymaking under reformist Premier and party boss Zhao Ziyang, who was deposed in 1989 after the bloody crackdown in Tiananmen Square. Many of the advisers gave at least moral support to the protesting students and subsequently scattered into the private sector or to overseas universities after the June 4 massacre. As a result, Communist elders may take moves to slow the Class of '77's advancement into sensitive top-level jobs. "The leaders do not trust our generation," says a mainland economist who had been a prominent Zhao adviser. "We have too much self-respect to kowtow to them."

Nevertheless, this generation will not be easily marginalized. For starters, they're very much in vogue. Witness the rising popularity of novels, TV series, and theme restaurants devoted to the experiences of the laosanjie, or "old three classes"--the students who would have graduated from high school during the first three years of the Cultural Revolution.

More important, the Class of '77 is too large and probably too pivotal for China's economy to be uprooted. Take the financial system. The drive to develop modern capital markets, monetary policy, and a commercial-banking system largely is the work of '77ers. They hold key directorships in the Finance Ministry, State Planning Commission, and the central bank.

The China Securities Regulatory Commission, the stock and bond markets' main watchdog, has at least five '77ers in top posts, including chief legal counsel Gao Xiqing, a Duke University law grad. A former professor at Duke who had worked in a munitions factory in the Cultural Revolution, Gao left a high-paying job at a Wall Street law firm in 1988 to take his present post.

Some of this generation's most gifted members serve as a crucial bridge between Wall Street and China's state sector. For example, CS First Boston's Qiu runs the Hong Kong derivatives operation. Shan Weijian, based in Hong Kong as J.P. Morgan & Co.'s vice-president for China, toiled six years in Inner Mongolia as a farmer, horse rancher, mason, and "barefoot doctor"--a rural physician with no formal medical training. He went on to earn a PhD in the U.S., work at the World Bank, and teach at the University of Pennsylvania's Wharton School before moving to J.P. Morgan.

China's progress in building a modern legal system also depends largely on '77ers. At 40, Wang Yun is a judge in the Supreme Court's commercial division, where she handles cases on contracts, bankruptcy, and banking. Wang entered college in 1979, after working in a dyeing plant for seven years. Her seniors had only orthodox communist training in school, but Wang and her classmates were able to study works by such Western theorists as Locke, Montesquieu, and Rousseau. "My generation learned more in law school," says Wang, who is now a visiting scholar at Columbia University.

Since this group suffered so much during the Cultural Revolution, it is determined to build a sound legal system to replace the arbitrary wielding of power. "The Cultural Revolution was lawless," recalls Wang Xinan, director of the legal department in the Ministry of Machine-Building Industry, who spent six years on a farm and several factories in remote Gansu province. "My generation paid a high price, and we don't want later generations to have to as well." Wang now is helping state enterprises establish legal skills so the companies can handle their own problems in the courts, rather than always seeking help from the ministry.

ACADEMIC OVERHAUL. The Class of '77 will probably have its most lasting imprint on the education system. As vice-chairman of the Western Returned Students Assn., which tracks Chinese students who have studied abroad, geneticist Chen Zhangliang says the '77 generation is occupying top posts in Chinese academia. "If you look at every institute and every department at every university, you will see over half are from this generation," he says. "In economics, philosophy, and politics--everywhere--we will see major changes." Chen is overhauling Beijing University's biology program, for example, while academics who have returned from the U.S. are revitalizing the prestigious school's economics and finance courses. "We have to totally change the system," says Hai Wen, one of five American-trained economists from the Class of '77 who have returned home to start the university's China Center for Economic Research.

In the business world too, Class of '77 members are well represented. They run fast-growing property, marketing, and financial companies across China. Li Xiaohua, who spent six years as a horse-cart driver in Heilongjiang province, went on to start Beijing-based property-and-industrial concern Huada Investment Group. The founders of Beijing property group Vantone Industry Corp. and computer pioneer Stone Group are also '77ers.

This generation of businesspeople may become a factor in politics. Many remain bitter about the Cultural Revolution. An executive at a Guangdong hotel company says he has "never trusted the Party" since 1967, when as a teenager he enthusiastically joined the Red Guards. Three months later, he was branded a rightist when a different faction in Beijing took over the movement. One night, he was dragged from his home, blindfolded, driven outside town, and beaten with rifle butts. As a result, he wants to help ensure that educated people like himself determine the political future of China. He hopes that members of his generation will bring about great changes in a few years. "We will fight for our political rights," he says. "This will transform China."

That time hasn't come yet. As leaders jostle for power in the post-Deng era, political reform is in the deep freeze. Even the pace of economic reform has slowed. Beijing has ruled out privatization of the debt-ridden state sector, which employs 110 million workers. And the all-out drive of the early 1990s to expand private stock, bond, and futures markets, complete with a modern Western regulatory system, has been halted in the name of curbing inflation, which is now raging at 23%. Concedes a Class of '77 securities regulator: "This is not the time for great leaps."

LONG GOODBYE. Next in line after President Jiang Zemin and Premier Li Peng are party veterans in their 50s who were educated before the Cultural Revolution. They oversaw the breathtaking economic changes under Deng and now occupy most ministerial posts, provincial governorships, and the top jobs at China's biggest state-owned companies. But with age limits being enforced in more government jobs--a key reform under Deng--most of this group will be pushed into retirement within a decade.

That opens the way for the Class of '77. While no consensus has emerged on how these people will change China, it is clear that they loathe political dogma and extremism--from both sides of the spectrum. Having suffered through Maoist fanaticism, '77ers harbor no illusions about sudden transformations of Chinese society. If nothing else, the Cultural Revolution "taught that in China, political changes are dangerous, unstable, and unpredictable," says Ding Xueliang, a '77er who is now a political science professor at Hong Kong University of Science & Technology.

That hasn't stopped some of them from pressing for political reforms, though. In the past few months, intellectuals in China have sent several petitions to the government calling for change, and members of the '77 generation have had a leading role in that movement. Even '77ers overseas have gotten involved. Wang Juntao, a '77er now in exile in the U.S., says he helped write some of the petitions from Cambridge, where he is studying at Harvard.

If this promising generation is viewed as too threatening, there's a chance it will be bypassed for top government and Party jobs in the future. "They are hot potatoes," says Robin Munro, Hong Kong director of Human Rights Watch/Asia. "The government could skip to the later generation of eggheads who went directly from high school to college and have little social awareness or political savvy."

Whatever the drawbacks of the Class of '77 to Party leaders, there's no guarantee the generations that are younger will be any more submissive. In fact, some studies have shown that educated Chinese in their 20s and early 30s take the Communist Party even less seriously. "They sneer at everything," says Stanley Rosen, a political science professor at the University of Southern California and a specialist on the Cultural Revolution. "They have no respect for authority and are much less obedient." So whoever ends up winning the power struggle "has no choice but to turn to the Class of '77."

Because the '77ers possess the skills needed to run bureaucratic machinery and formulate policy, argues a former Zhao adviser, whatever faction is in control will need to rely on this generation. Any new Chinese leader "will have to prove his ability to solve society's problems," says this '77er. "He will need us to do that."

As the older bosses viciously struggle for power in Deng's wake, expect the Class of '77 therefore to sit back and wait its turn. Meanwhile, it will likely try to change the system quietly from within, gradually strengthening the institutions required for a civil society. If China can get through another decade without major upheaval, it could start resembling the modern economic power that so many await--thanks in large part to the Class of 1977.

The Class of '77 Makes Its Mark

Survivors of the Cultural Revolution who entered China's best schools in the late 1970s make up the Class of '77, an elite group that is becoming more powerful as the country enters the post-Deng era

-- Having risen largely on merit rather than family ties, the '77ers represent some of China's brightest minds

-- They have built up extensive personal networks based on friendships made during the Cultural Revolution

-- After studying and working overseas, '77ers are more open to Western ideas and less bound by communist ideology than the older generation of leaders

-- They fill key positions in the government, universities, and think tanks, and their help will be vital to whoever wins the power struggle after Deng

-- State-run enterprises and Western multinationals alike rely on '77ers to run many operations in China

-- They want the government to tolerate criticism, boost the private sector, and encourage the rule of law

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