China: Zhu Is Taking A Broom To The Bureaucrats

China's economic czar, Zhu Rongji, summoned the country's 60 top bureaucrats to a crucial meeting last fall. He asked the ministry bosses to justify their jobs as the country shifts from a planned to a market-driven economy. "This round, you talk and I won't," he warned. "Next time, I'll talk and you won't." Now, Zhu is ready--and many of the mandarins won't like what they're about to hear.

The hard-driving Zhu is expected to announce the biggest shakeup in decades of China's state ministries. At the National People's Congress, due to start in early March, Zhu will replace the wooden Li Peng as Prime Minister. He is expected to shutter or merge some 10 ministries. Some will be converted into holding companies, while many companies once run by ministries will be spun off into separate, self-governing entities.

Zhu is facing tremendous resistance; from a roster of 10 million officials, 2 million jobs are in jeopardy. Debate on details of the reforms still rages behind closed doors at Zhongnanhai, the leadership's headquarters, as intricate power games are played out. The Electronics Ministry, for instance, swings between becoming the hub of a new superministry for information technology and telecom--or disappearing altogether. Many government officials blame Zhu personally for the upheaval.

"ON ITS OWN TERMS." As the Congress nears, though, it's clear Zhu is prevailing. While the redundant mandarins may hang on to their perks, such as housing and health benefits, they have largely lost their battle against early retirement or transfer. Beijing's leaders recognize that the central government badly needs a massive overhaul.

So far, China has managed to escape most of the financial devastation that has shaken other Asian nations. But there are ominous signs that Beijing is not immune. Growth this year could fall below 8%, the level that sets alarm bells jangling in Beijing. Foreign investment, too, is expected to drop for the first time in 20 years, with export growth slowing to just 5% from 22% last year.

With Asia's economic meltdown rattling the Beijing leadership, Zhu and his supporters now have a powerful argument that China must get its own house in order to prevent meddling by the International Monetary Fund or other outsiders. "China wants reforms carried out on its own terms," says a Western diplomat in Beijing.

Paring down China's top-heavy government is key to speeding reform of state enterprises. Zhu plans to hive off companies that were under the thumb of ministries. He also wants to reduce the conflicts of interest facing ministries that are both regulators and competitors. The Post & Telecommunications Ministry, for example, regulates the industry and also controls China Telecom and regional phone companies. Analysts say it may lose all its operating businesses to become just a regulator.

Zhu is looking for other efficiencies as well. Some analysts say the Ministries of Labor and Personnel will be merged. The same fate may await the Culture Ministry and the Radio, Film & Television Ministry. Meanwhile, the Internal Trade Ministry will likely become part of either the Foreign Economic Trade & Cooperation Ministry or the State Economic & Trade Commission.

But Zhu's transformation of China will require at least one new ministry--for social security. Already, as many as 12.5 million workers are unemployed as state enterprises go belly-up, estimates researcher Hu Angang. By 2000, an additional 10 million jobs will disappear.

Zhu must avoid a social explosion as he steers an unwilling bureaucracy toward mending its ways. If he can implement his reforms fully, Zhu will indeed have the last word.