In China's Shadow Play, The Man To Watch May Be Zhu

When China's banks went on a wild lending spree two years ago, jeopardizing the whole financial system, economic czar Zhu Rongji came to the rescue. A tough manager, Zhu took over as governor of the People's Bank of China (PBOC), where he tightened credit and forced the banks to clean up their acts. Despite howls from China's many credit junkies, including money-losing state enterprises and big-spending provincial leaders, Zhu stuck to his guns. His effort paid off. Things cooled down, and China's bankers became more professional.

Now, Zhu is stepping down as the bank's governor. But he's by no means out. If anything, his tenure at the People's Bank has enhanced his stature in the power structure. While other top leaders have kept their heads down during this shaky transition period, Zhu has established himself as the one Politburo member willing to take risks and get things done. He also used his tenure at the bank to put together a crack team of sophisticated young advisers. "I'm impressed with that whole gang," says Diane Yowell, director of Hong Kong Bank China Services Ltd. "They are putting China on a more stable, rational economic path."

AMONG THE MANDARINS. Zhu's major achievement has been engineering a soft landing for the once overheated Chinese economy. His controls have cooled economic growth down to an 11% pace from 13% two years ago and dropped inflation to the 20% level from nearly 30%. Signs are that the numbers will continue to gradually ease, barring natural disasters. "He has managed the economy remarkably well," says Shan Li, executive director and China economist at Goldman Sachs Ltd. in Hong Kong.

By stepping down now, Zhu may be making an astute political move. While other top Chinese leaders have been consolidating power and making key alliances in preparation for Deng Xiaoping's succession, Zhu has been absorbed in dealing with economic crises. Although that has boosted his standing among ordinary folk in China, it hasn't done much to gain him a constituency among the mandarins. Moreover, the role of a disciplined central banker is a job that tends to make more enemies than friends. "The central bank isn't the path to success in any country," says a Western diplomat in Beijing.

"I'D BE AMAZED." No one believes Zhu is angling to challenge President Jiang Zemin for China's top post. But some speculate that he may be eager to become Premier when Li Peng steps down in 1998, after completing the maximum two terms in office.

Others, however, think Zhu will remain preoccupied with the economy. He still faces the task of dealing with the money-losing state enterprises and boosting flagging agricultural production. Zhu retains overall responsibility for economic management as well as oversight of the banking and securities industries. "In any other economy, I'd be amazed to find a person who does all those things," says Geoff Lewis, regional economist for Smith New Court Securities Ltd. in Hong Kong.

Zhu, 67, will continue to exercise plenty of influence over monetary policy through his successor, Dai Xianglong, 50, a Zhu protege with long experience in both public and private banking. Chinese economists say Zhu relied on advice from the younger Dai when Zhu was Shanghai's mayor in the late 1980s. Zhu is said to have brought Dai to the People's Bank five days after he became governor. Dai has been a vice-governor of the central bank.

With such key portfolios already in hand, Zhu may not see any need to take the risk of battling for higher titles. He already has the commanding role in charting China's economic future.

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