The Dragon Paces

REPORTS from China indicate more and more internal dissatisfaction with China's economic performance since the 1988 retrenchment from free-market principles. Economic growth and profits in most provinces are down. Cash is tight. Mid-level officials are voicing concern - and interest in free-market ideas. Some easing of state control is occurring: There are fewer restrictions on small industry. A tiny stock exchange is opening in Guangdong.

But in fact, very little is actually changing, or likely to change, in China. Not until the leadership issue is solved, anyway. There may be a deep and real desire for reform - not only economic, but political and cultural - in the minds of the Chinese people. But without the kinds of policy switches that can come only through a major change in the Beijing gerontocracy, the country will continue in a hard-line holding pattern. Few leaders understand how radical the needed democratic reforms are. Stalemate at the top must be broken.

Foreign investment in China dropped 22 percent in 1989. That may turn around slightly. Japan is offering 5 billion in loan credits. The World Bank offers humanitarian aid. The US didn't cancel China's most-favored-nation status. Beijing is trying hard to present an improved image overseas. But diplomats looking past the Potemkin efforts at human rights reforms and the picture of an improved social climate in China aren't fooled.

What's obvious to many China watchers is that China's economic woes can't be solved separately from what might be called the spiritual renewal of the Chinese people and their system. Tiananamen Square, student reeducation camps, propaganda and countless messages of conformity, have had a chilling effect. Purchases of goods such as washing machines and refrigerators are down. People don't want to seem Western. Such trends were common during the Cultural Revolution in the late '60s when people hid TVs under tablecloths to affirm Maoist values.

China needs reform. This Deng Xiaoping understands. He said recently of Tiananmen: ``We preserved political power, but lost the faith of the people.''

The jockeying to succeed Deng is intense. Deng is leaning against hard-line Li Peng, whose fate may be a bellwether for China's future. Justice would be served if Premier Li Peng became a political casualty of Tiananmen. This would open the door for moderates such as Jiang Zemin and Shanghai mayor Zhu Rongji. The release of Gen. Xu Qinxian from a 10-year sentence for not ordering troops into Tiananmen is favorable, as is the release of former Party chief Zhao Ziyang.