China Moves to Cure Economic Ills, Reverses Market-Oriented Reforms

CHINA'S leaders are tightening state controls over the economy while reversing market-oriented reforms in an apparent attempt to alleviate economic ills that helped fueled massive protests this spring. ``All aspects of the economy will be caught up in the government's attempt to reassert control,'' says one Western diplomat, who requested anonymity.

Beijing is checking growing wage differentials, reimposing state monopolies over the price and distribution of some commodities, curtailing private enterprise, and reasserting vigorous party leadership in factories, according to official press reports and Western diplomats.

The retreat from key reforms signals a victory for central-planning advocates and Marxist ideologues within the Communist Party hierarchy who have long warned of the political risks of China's bold steps toward a market system.

``Above all, we must strengthen [central] planning ... and give it full play,'' wrote a commentator in the official newspaper Economic Daily last week in one of the first such pieces in recent memory. The conservative tilt in economic policy comes despite repeated public assurances by Chinese leaders after the brutal June 3-4 crushing of the democracy movement that reforms would remain unaffected.

It underscores how senior leader Deng Xiaoping's decision to crack down on liberal protesters and purge reform-minded party General Secretary Zhao Ziyang has undercut the free market and open-door policies that Mr. Deng himself had promoted for more than a decade.

``Deng isn't the winner from the crackdown. Chen Yun is the winner,'' said a Chinese journalist on condition of anonymity.

Mr. Chen is a veteran leader and economist who heads an inner-party faction committed to strong central planning.

``The central planners are on a roll,'' a diplomat said.

No formal policy change has been announced.

However, the recent measures seem clearly aimed at appeasing China's 135 million urban workers, many of whom voiced resentment over double-digit inflation, wage inequities, and declining living standards during pro-democracy demonstrations that took place this spring.

Tightening the state's grip on the economy, however, is unlikely to prove a long-term cure for the ills that contributed to an outpouring of discontent in Chinese cities in May and June, say Western economists and diplomats.

``The perils of restoring rigid controls are clear from China's past experience as well as those of other socialist economies. Economic incentives would sag, and economic stagnation return,'' writes Hang-Sheng Cheng in a bank publication. Mr. Cheng is an economist and vice president of international studies at the Federal Reserve Bank of San Francisco.

Still, China's hard-line leaders seem to believe drastic economic measures are needed to forestall more social unrest, as 25.5 percent inflation outpaces wage increases for most urban workers and government employees.

One of the clearest signs that Beijing is rolling back market reforms are recent government moves to curtail the country's small but dynamic private sector, Western diplomats say.

``There is a definite crackdown on private businesses, services, and rural enterprise - all areas associated with [ousted party leader] Zhao Ziyang,'' says one diplomat. Central planners have attacked private industry for consuming scarce energy and raw materials needed by state-run firms while contributing little to government coffers, the diplomat adds.

In an article published Wednesday, newly appointed Communist Party General Secretary Jiang Zemin, accused some private entrepreneurs, or getihu, of indulging ``in a life of luxury.'' ``This greatly hurts the confidence of workers. It has affected social stability and corrupted social values,'' he wrote in the official newspaper, China Daily.

Private enterprises, condemned as ``tails of capitalism'' during Mao's 1966-76 Cultural Revolution, have also been criticized by Marxist ideologues as exploitative since their revival by Deng in the early 1980s.

``Self-employed traders and peddlers cheat, embezzle, bribe, and evade taxation,'' wrote Mr. Jiang, echoing Maoist diatribes against private business.

The state taxation bureau on Wednesday publicized a nationwide drive against tax evasion among the country's 14.5 million private enterprises, threatening ``severe punishment'' for violaters. If enforced, the steep 52 percent tax on private business profits would encourage the businesses, which employ 23 million Chinese, to shut down.

``Private business people, whose wealth is displayed by their private cars, expensive imported clothes, and gold jewelry, play a major role in the phenomenon of `unfair distribution,''' the China Daily reported Sunday.

The mushrooming incomes of getihu have stirred jealousy among workers at stagnating state-run factories.

In a related policy change, at least two provinces have already issued regulations checking the growing wage gap between factory workers and management, while bolstering the power of the Communist Party-controlled trade union in setting wage levels, according to the official newspaper Workers' Daily.

While appealing to the egalitarian values still strongly held by most Chinese, such a dampening of incentives created by reform is likely to further undermine productivity at already chronically inefficient state-run firms.

Another blow to bold reform is Beijing's recent call for strengthening Communist Party organizations in factories.

The shift in policy is likely to erode the decisionmaking powers delegated to factory managers since 1984. Already, factory directors faced difficulty making decisions based on profits and losses without political interference from party officials.

``Strengthening cadres vis-`a-vis managers will have a depressing effect on managers who would have taken reformist solutions to economic problems,'' said a Western diplomat.

Another clear sign of the resurgence of central planning is the government's renewed monopoly over the pricing and distribution of some major commodities. For example, Beijing announced last week that markets where cotton is sold at fluctuating prices would be eliminated. Instead, the state would supply cotton directly to factories at fixed prices. Similar policies exist for grain, steel, and other goods in short supply, according to diplomats.

Chinese leaders seem to be reimposing single, fixed prices in hopes of curbing inflation by holding producer costs down. However, by holding prices at artificially low levels, the policies will only exacerbate the underlying shortages that help cause inflation.

``The leadership is running scared on the inflation issue. They are grasping at straws, falling back on old administrative measures instead of thinking more creatively about solving structural problems,'' says a Western diplomat.

``These administrative controls may look easy and bring some short-term results, but they aren't the answer.''