Can Jiang's Reforms Lead The Chinese To Prosperity?

President Jiang Zemin moved fast to consolidate his power after Deng Xiaoping's death in February. Following a month-long conclave of Chinese Communist Party brass at the Beidaihe seaside resort, Jiang's position is much stronger. With the crucial five-yearly Party Congress due to begin in late September, Jiang blocked efforts by leftists to spike his pro-market and privatization reforms.

Jiang succeeded because he is offering hard-liners a vision they like: an authoritarian society promising the economic success that has always eluded communist China. "The model they like very much is Singapore," says one Western diplomat, "where the economy runs well and you have very limited democracy."

DOMESTIC BACKLASH? Still, Jiang does not yet feel home free. The party propaganda machine, which he now controls, lauds his policies. But it also issues dire warnings on the danger of halting economic reforms, as if he fears a resurgence of the leftists. In one typical interview, for instance, leading Propaganda Dept. theoretician Li Junru recently said: "The fruit of reform could be destroyed in one moment."

Such warnings appear to be intended mainly to bolster popular support for Jiang and head off a domestic backlash against his plans. Urban unemployment, already 15% in some areas, could soar as his mandates for widespread restructuring of state-owned industrial behemoths result in mergers or the closure of bankrupt companies. Labor unrest is already growing. In July, for instance, several thousand workers in Mianyang in Sichuan province took to the streets in some of the largest known demonstrations in years, after their factories went bankrupt. "There is widespread discontent about the marketization of China and the corruption and lack of public morality that go with it," says a Chinese academic.

All the same, Jiang is now confident enough to push an agenda to build closer ties with the U.S. He travels to Washington in October for the first U.S.-Chinese Presidential summit since the 1989 Tiananmen Square massacre. He told U.S. National Security Adviser Samuel R. Berger, who visited with him in Beidaihe, that he wants to develop "a long-term, stable, and healthy relationship [with the U.S.]."

International recognition--and concessions from the U.S.--would play well at home and help Jiang further cement his position as China's top leader. He is looking principally for help to strengthen his economic reforms. In Washington, he will argue, for instance, that China now deserves early entry into the World Trade Organization, a bid the U.S. is currently blocking. Admission would give China permanent most-favored-nation status. He will also ask the U.S. to relax controls on exports of high-tech and nuclear power plant equipment.

Politically, Jiang wants Washington to reaffirm its "one China" policy and to slow down arms sales to Taiwan. That would please hard-liners in the People's Liberation Army. Jiang, with no significant military experience, finds it hard to deal with the army. But during his eight years as head of the Central Military Commission, he packed the PLA's top ranks with people he trusts, naming several hundred generals. He is now trying to edge his supporters onto the key seven-member Politburo standing committee, the supreme policymaking body for both the party and the state.

Friends in high places are important. But Jiang's position depends ultimately on delivering prosperity, not shuffling personnel. Jiang and economic czar Zhu Rongji, his reformist ally, have engineered a soft landing for China, while the rest of Asia faces economic meltdown. The next takeoff---and staying aloft--will matter more.

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