In China, The Party Is The Problem

Progress demands that Jiang curb the Communist elite

It wasn't the type of public display Chinese television viewers are used to seeing from their taciturn leaders. Speaking at a eulogy for Deng Xiaoping, who died on Feb. 19, President Jiang Zemin openly sobbed as he praised the Communist Party patriarch and vowed a "deepening" of the reforms Deng launched 18 years ago.

Whether it was heartfelt or merely political theater, Jiang's emotional performance conveyed the enormous strain he will face in living up to his promise to "make greater contributions" than his predecessor. It's true that Jiang, 70, has amassed the most powerful titles in China, including head of the party, state, and military. But it is unclear whether he can tackle the biggest challenge of all: reforming China's Communist Party and easing its iron grip on power.

COLLISION. Beijing's reluctance to reform its stifling political system affects much more than the freedom to dissent. The party wields enormous economic influence through powerful ministries, and cadres and their children hold posts in state and local enterprises. The upside is that many influential Communist leaders now have a vested interest in preventing any big rollback of market reforms. "Everybody who has any power supports reform for selfish reasons," says Shan Li, Hong Kong-based executive director at Goldman, Sachs (Asia).

But the interests of the cadres often collide with the interests of the market. The courts now play a bigger role in mediating business disputes, but fairness quickly disappears when a well-connected official is involved in a controversy. People are free to start small shops and buy stocks, but they are forbidden from organizing an independent chamber of commerce or publishing an unapproved financial newsletter.

The party's pervasiveness also impedes the privatization of state enterprises. Some leaders, eager to preserve one of socialism's last bastions, want to bolster the state sector rather than shrink it. Furthermore, cadres running these companies do not want to lose power or perks. State dinosaurs account for about 40% of industrial output and have run up $240 billion in bad loans.

The party's supremacy meanwhile places limits on the reform of China's arbitrary legal system. Lately, there has been some progress, such as a new criminal procedure law that limits the time suspects can be held without charge. But an independent judiciary would undercut the party's control.

As leaders jockey for power in the runup to the 15th Party Congress, some may seize on these issues. The chairman of the National People's Congress, Qiao Shi, has been calling for a greater rule of law. And on a recent trip to Shanghai and Jiangsu Province, Qiao declared there must be a "sense of urgency" in reforming state enterprises. Jiang and other politicians are vulnerable to attacks from hard-liners as well. Days after Deng's death, Maoist ideologue Deng Liqun (no relation to Deng Xiaoping) bitterly attacked Jiang and Deng for undermining the state sector and veering from Marxist doctrine.

PLAYING SAFE. There are legitimate reasons for the party to worry. One is fear that workers will take to the streets to protest job losses and revolt against party and government leaders. Diplomatic sources say that as many as 60% of workers at state companies in the northern industrial city of Shenyang have not been paid for months. Similar problems are arising in Tianjin, a city not far from Beijing.

Keeping the economy churning is especially important because, with the demise of Marxism as a credible ideology, there is little other justification for the party's dictatorship. But rather than float big new ideas for running China now, Jiang is sticking to safer themes. One is his ongoing call for a "spiritual civilization," a combination of nationalism and traditional Chinese and socialist values that apparently is meant to fill the ideological void.

The risk is that social pressures will explode, perhaps because of a sharp economic downturn. That would force the party to come up with a new justification for retaining control. But if Jiang has his own grand vision, so far he has not articulated it. To survive in the long run, Deng's heirs will need to demonstrate more than an ability to look out for No.1.

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