Legislature to Solidify China's Move to Market

PRESSURED by a world trade stalemate and economic demands at home, China's ruling Communists are starting to formalize much-promised reforms.

As China barrels down the path of market reform and eyes membership status under the General Agreement on Tariffs and Trade (GATT), the rubber-stamp National People's Congress is poised to enact legislation and constitutional changes that, despite perfunctory approval, could have far-reaching impact, Western and Chinese analysts say.

Constitutional amendments, which will enshrine a shift from socialist planning to reliance on market forces, include recognition of partly foreign-owned and privately owned companies alongside state enterprises; more management autonomy in state firms; replacement of central planning with the so-called socialist market economy; acknowledgment of a system of leasing family farm plots that would block any moves to recollectivize.

Planned legislative measures will broaden company law to cover limited liability corporations and foreign subsidiaries and amend trademark law to protect imported brand names and contain the rash of forgeries damaging China's investment climate, Western observers say.

"Only if we steadily deepen the reform and open wider to the ... world can we resolve deep-seated contradictions in our social and economic activities and promote economic development," Prime Minister Li Peng said in an opening speech yesterday.

Internationally, Beijing is being pushed along by its six-year quest to enter the GATT trade mainstream and bolster an international image sullied by the 1989 military suppression of democracy protests.

Negotiations with the United States, a crucial link to GATT, resumed earlier this month after a four-year lapse but immediately hit a roadblock over conditions US officials want to attach to China's membership. Beijing is resisting Western demands for free-market pricing and safeguards against surges in exports.

The impasse will prevent China from achieving its goal of contracting status with GATT by the year's end, US officials say. But, anxious to keep up the momentum for change, China labeled the recent talks "fruitful" and is pushing ahead in resumed talks in Geneva this week.

"From our talks, we get the impression the United States wants to block China's entry into GATT," says a Chinese economist and policymaker.

As Washington shapes a new trade policy toward China and the rest of Asia, US policymakers also remain unhappy over Beijing's failure to stop prison-made exports to the American market, continued human rights abuses, and arms sales.

President Clinton must decide by June whether to recommend renewal of China's most-favored-nation trade status, which a number of congressmen want to make conditional on those concerns.

The Communist regime is also under pressure at home to put its rhetorical backing for market reforms in action and begin enacting a legal foundation for its transformation to an essentially capitalist economy. Western analysts say at its current growth rate, China could surpass the US as the largest economy just after the turn of the century.

Although the country's economic revolution has faced opposition from Mr. Li and other conservative ideologues, paramount leader Deng Xiaoping has prevailed in urging China toward faster growth policies.

With a 12.8 percent growth rate in China last year, many Western economists concur with Li's warnings about too rapid growth and reigniting inflation. The Chinese prime minister is closely linked to the Army crackdown four years ago.

Repeatedly, some Chinese leaders and many economists have cautioned about an overheated economy driving up investment in fixed assets too quickly, straining infrastructure, boosting bank credit and currency in circulation too rapidly, and creating shortages.

Haunted by the inflation that stoked the 1989 political discontent, China's leaders fear another inflationary surge will trigger new turmoil.

But with Li expected to continue in office, the premier fell in line behind Deng's reform plan and yesterday endorsed raising the five-year planned growth rate from 6 percent to 8 or 9 percent.

Although noting "a constant threat of inflation," Li left open the possibility that the increase in China's gross national product could even exceed the five-year-plan figure set through 1995.