China’s flourishing stock markets took the news of Deng’s death without missing a beat. Another day, another dollar. Shenzhen went up a bit, and so did Shanghai. If ever there was the economic equivalent of the military flyover–traders of the world dipping their wings in a last salute to one of their own–this was it. Less than 20 years ago the phrase ““China’s stock markets’’ was an oxymoron. There weren’t any, and it was barely imaginable there ever would be. Li Hongbo is a 29-year-old resident of Shanghai who understands well what Deng wrought. He is a fund manager who oversees $50 million worth of other people’s money invested in the Chinese market. His peasant-farmer parents are very proud of him and the money he earns–although they have no idea what a fund manager is.
Deng’s capitalist revolution altered the world economic balance of power. It created, most obviously, an enormous market for goods and services that no chief executive anywhere can afford to ignore. In 1978 there were 1 million TV sets in China. Last year there were 232 million. That’s why there’s a giant, teeming Wal-Mart ““Super Center’’ in Shenzhen, one of Deng’s so-called special economic zones, where his reforms took hold first and most vigorously. If Beijing’s economy were to grow as fast over the next 13 years as it has over the past decade, its GNP by 2010 will be bigger than America’s.
And China is more than just a burgeoning market. It is now a gigantic export platform, as manufacturers–foreign and Chinese–take advantage of a huge pool of cheap and industrious labor. China’s bilateral-trade surplus with the United States is $39 billion and rising, second only to Japan’s. That has caused an increasing amount of trade friction with Washington–even though, as any unemployed South Korean textile worker knows, formerly ““low-wage’’ East Asian countries have lost far more production jobs to China than the United States has.
Deng’s successors understand the power of money. Three and a half years ago, at a meeting of the Asia Pacific Economic Conference in Seattle, Jiang Zemin, now Beijing’s pre-eminent leader, sent a message to Bill Clinton, then the new U.S. president: upon arrival in Seattle, Jiang went straight to the huge Boeing factory adjacent to the airport to visit the workers. Boeing competes all over the world with Europe’s Airbus–but nowhere more bitterly than in China. Clinton had spent the 1992 campaign bashing George Bush for ““coddling’’ the men who had presided over the Tiananmen massacre. Ever the good student, Clinton learned the lesson of Jiang’s Boeing visit. Washington soon uncoupled China’s most-favored-nation trading status from an annual review of its human-rights record.
The economic momentum China now has–and its resulting diplomatic clout–means Jiang will not consider any major repeal of Deng’s reforms. Rather, the new Chinese leader’s task lies in dealing with what capitalism has wrought. For Deng, growth was the first, second and third priority. ““He always wanted the speed to go faster,’’ says Beijing’s vice mayor, Zhang Baifa. But speeding trains can go off the rails. Jiang’s economic agenda urgently needs to be broadened, particularly if he wants to continue to attract the foreign investment that has helped drive China’s growth.
For all its growth, its irresistible allure as a market and as a production platform, China is still an exasperating place to do business. Deng’s growth obsession has meant that much of the infrastructure a capitalist economy needs to thrive over the long haul–rules, regulations and transparent laws–hasn’t been installed. No wonder: doing so would break the party’s monopoly on power. Neither is there yet a competent and corruption-free bureaucracy. Thus, to take one high-profile problem, Microsoft and many other companies are plagued by the theft of intellectual property, despite commitments from Beijing that there would be an effective crackdown on software pirates. How Jiang & Co. deal with these issues will largely determine whether Beijing gets a seat in the World Trade Organization–a prize it covets as a sign that it has arrived as an economic superpower.
But corruption is an even more potent issue within China, and the new leadership knows it. The Deng era spawned a small but all-too-visible class of superrich–known as ““princelings’’–who have acquired wealth and power not because of their business skills but because of their bloodlines. The princelings are the sons and daughters of the communist elite, and they have become so notorious that late in Deng’s life prosecutors felt compelled to scrutinize some of the ailing leader’s own relatives. One of Deng’s nieces was investigated for influence peddling. His youngest son, Zhifang, also was tainted in an anti-corruption probe. Not long ago one of Deng’s daughters burst into tears at a meal with a close friend. ““Will you still treat me like this when my father’s dead?’’ she sobbed to her friend.
The more important question for China is whether new princelings are allowed to flourish as new leaders move up the hierarchy. If he’s wise, President Jiang will remember the extent to which corruption was a catalyst for the Tiananmen demonstrations in April and May of 1989. One joke back then had Deng talking to a deputy, saying he knew exactly how to stop the demonstrations, ““and it only requires killing two people: your son and my son.''
The princelings are a potent issue precisely because, for all of China’s economic success, much of the vast country is still either desperately poor or suffering from the excesses of runaway capitalism–or both. Peasants are migrating from the countryside to the wealthier cities in staggering numbers, threatening to create an urban underclass. Pollution and environmental degradation are appalling. Neglect of industrial safety kills thousands a year in mines and factories. The growing disparities of wealth are creating bitter divisions, triggering unrest from Shenyang to Sichuan.
That reality means that the next critical round of reforms is going to require enormous political courage. Since taking over as head of the Communist Party in 1989, Jiang Zemin has preached the need for ““stability’’ above all. But to solidify the capitalist revolution, more painful dislocation is inevitable. China must reform a dangerously overextended financial system so banks can become real lending institutions, not just funnels of credit to bloated, state-run companies. The textbook solution, of course, is to let inefficient enterprises go bankrupt.
But there are still an estimated 30 million workers in state-owned enterprises in China that probably would not survive in a competitive market. If Beijing is going to let them fall, it needs to create a social safety net. Providing health-care coverage is the most urgent task. Ever since Mao’s revolution, state-run enterprises have picked up the cost of health care for millions of Chinese workers. Beijing’s economic czar, Zhu Rongji, is testing a new arrangement in the city of Zhenjiang, in the eastern part of China. There workers are forced to set aside a percentage of their income into an individual medical account, and community insurance pools are being set up. This year 57 more cities will start similar programs, as the government tries to cut its citizens’ dependence on state-run companies.
Luckily for Jiang Zemin, the overarching economic environment is good. Inflation–critically–seems under control. Growth is strong. Exports are still booming, and the foreigners are still coming. If his successors have anything approaching the guts he did, capitalism may yet deliver the goods sufficient for China to finish off what Deng Xiaoping started.
