China Puts Brakes on Reforms

CHINA'S leaders, looking for a fast lane away from centuries of poverty, could go the route of the trucks that barrel along a busy highway in Guangdong Province. Cantonese truckers on the Guangfo Expressway personify to many the haste, moxie, and sheer bounty of market-oriented economic reform. They pound their horns, ram their accelerators, and bound over the blacktop.

The drivers haul bales of cotton, hides of leather, and metal and plastic sheeting down the Pearl River Delta from the provincial capital of Guangzhou. They come hurtling back with jeans, refrigerators, fans, cassette players, televisions, and shoes.

Guangdong is often touted as an example of the success of China's market reforms.

Communist Party hard-liners, however, say that the market principles the Guangfo represents are actually a road to ruin - and they want to slow the mad rush.

Worried that China's economy could burn out with high inflation and headlong growth, the leadership has throttled state sources of credit nationwide and put the brakes on trail-blazing provinces like Guangdong.

The hullabaloo on the Guangfo has quieted somewhat as many companies that use the roadway face the worst downturn since economic reforms began in 1979, say several company managers in Foshan.

But the clampdown on credit and the ensuing slump has also made the province the front line for local officials defending the reforms against conservative national leaders, diplomats and analysts say.

Pragmatic Chinese have found meaning in the vehicular madness of the Guangfo, which links Guangzhou with Foshan.

Reforms transferring many economic powers from state bureaucrats to local officials and entrepreneurs had made the economy of Guangdong one of the fastest growing in the world. The province's gross product had ballooned nearly six fold since 1979, with industry expanding more than 30 percent annually in recent years.

Most of China's provinces lack the invigorating advantages of Guangdong: ties to the neighboring, capitalist dynamo of Hong Kong; a tradition of entrepreneurship; and comparative independence from Beijing.

Before their fall from power in June, reformist leaders often upheld the province's lucrative processing of goods for export as a model for rapid economic growth in much of China.

But orthodox Marxists now at the controls of China's economy frown on Guangdong's free-wheeling ways. While severely cutting credit for Guangdong, the leadership is pressuring provincial officials to give more tax revenues and foreign currency earnings to Beijing, diplomats and analysts say.

``Now Beijing is threatening the very concept of reform by hampering the ability of banks in the province to lend money outside direct state control,'' a Western diplomat says on condition of anonymity.

Broad leeway in finance enabled Guangdong managers to build factories and meet production orders while their counterparts in other provinces were still seeking official seals of approval.

Before retrenchment, local officials in the freest areas of Guangdong could approve investments in light industry of up to $30 million dollars without higher approval. With the pullback, however, Beijing has lowered the cap to $2,700, says Feng Xiaoyun, an associate professor of economics at Jinan University.

To enforce its campaign of austerity and recentralization, Beijing has dispatched ``work teams'' to Guangdong from the Discipline Inspection Commission, one of the party's arms for coercion, the diplomat says.

Otherwise, there is no other overt political pressure beyond propaganda extolling the ``bitter medicine'' of retrenchment and condemning ``decentralization.'' Beijing is relying chiefly on tight credit to close down inefficient or heavily indebted factories and to discredit local officials who have bankrolled unwise ventures, the diplomats and analysts say.

This tight-fisted policy has provoked resentment in Guangzhou, where tens of thousands of jobs hinge on the availability of credit and the level of state taxes. Pay cuts are commonplace and bankruptcies are increasingly prevalent, say many workers in Foshan and Guangzhou.

The retrenchment has also intensified long-standing economic problems stemming from inadequate roads and railroads and shortages in raw materials and energy, the official provincial radio quoted Guangdong Province Vice Governor Yu Fei as saying last month.

Moreover, austerity has strained the province's ties with poor neighboring regions unwilling to supply raw materials at the low, state-set price rather than at a higher price on the free market, the diplomats and analysts say.

Officials and scholars shy from denouncing Beijing outright. But they emphasize that unlike the industrial city of Shanghai, Guangdong has not sought state loans but expended its own sweat and money in turning rice paddies into industrial parks. Consequently, it is not obliged to kowtow to Beijing through higher taxes, they say.

``Unlike Shanghai, Guangdong doesn't have a single big project funded by the central government. We've built up our economy using our own resources and efforts,'' says He Jiasheng, director of the Institute of Special Economic Zones, Hong Kong, and Macau at Jinan University.

The comparison with Shanghai reveals a deep independent streak in Guangdong. Traditionally, Guangdong has saluted Beijing while sidestepping its commands in the spirit of the old saying, ``The heavens are high and the emperor far away.''

Today, Guangdong officials are only doing the absolute minimum to satisfy Beijing while struggling to carry on business-as-usual, says Ezra Vogel, author of ``One Step Ahead in China: Guangdong Under Reform.''

Beijing probably will use nothing more than tight credit and higher taxes to rein in the maverick province, says Dr. Vogel, a sociology professor at Harvard University.

Mindful of how Guangdong's dynamism buoys China, Beijing ``is making an implicit deal with Guangdong,'' says Vogel, who spent several months in Guangdong investigating its remarkable growth.

The leadership ``is saying, `Look, don't get too many resources from the rest of the country, put a little more in the kitty for Beijing, and we aren't going to give you too much trouble,''' Vogel says.

Meanwhile, hundreds of young companies in the delta are languishing in their first recession.

The Foshan Joint Radio Factory in November has sold only 10 percent of the auto cassette tape players that it did in the same month last year. It has laid off about half of its 100 workers and refuses to make any deliveries until it receives full payment, says factory manager Feng Yexin.

``Even if my own father came in, he'd have to pay before he walked out with a tape player,'' Mr. Feng said