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Preparing for Change
with Promises of Continuity

Jiang Zemin managed to maintain his
centrist position at the 15th Party Congress

H. Lyman Miller

The 15th Congress of the Chinese Communist Party was a major milestone in China's domestic politics in a year of significant turning points. Last February, Deng Xiaoping, the architect of the sweeping reforms that transformed China's domestic landscape and interaction with the world economy, passed from the scene. His death inaugurated a new era amid intense international speculation over China's future direction and political stability. On July 1, Hong Kong's reversion to PRC sovereignty kept international attention focused on China. In mid-September, the Chinese Communist Party convened its 15th Congress. And most recently, in late October, the state visit of Party General Secretary and PRC President Jiang Zemin to Washington restored routine top-level dialogue between the United States and China after nearly a decade's lapse. For both China's domestic politics and international relations, 1997 will stand as a defining year.

In this challenging context, some observers might have expected the 15th Party Congress to maintain an essentially conservative focus, consolidating the hold on power of the Party leadership built around Jiang Zemin, and avoiding policy initiatives with the slightest possibility of inflaming intra-Party controversy or broader tensions in Chinese society. To a certain extent, such expectations were met. The congress strengthened Jiang's position at the helm of the Party, if not as Party "helmsman" with the stature of Deng Xiaoping or Mao Zedong, and ended the process of post-Deng leadership succession. The congress also reinforced the outlook and policies of Deng Xiaoping by rewriting the Party constitution's preamble to declare "Deng Xiaoping Theory" the "Marxism of China today."

In laying both short-term and long-term foundations for major change in China, however, the congress revealed that the direction the leadership intends to take is anything but conservative. The congress gave Deng Xiaoping's legacy a decidedly liberal twist by using it as a platform authorizing pathbreaking reform. In particular, the congress laid a strong ideological foundation for an aggressive approach to dismantling State-owned enterprises (SOEs). Long stalled by intra-Party controversy, SOE reform, which promises serious social unrest, was deemed the focus of the leadership's attention for the next three years. Adjustments to the Party's top leadership at the Congress conform with this platform of change. The personnel changes completed a profound generational shift in which the last of the social revolutionaries who established the PRC have been replaced with younger, better-educated, and more cosmopolitan technocrats. For the foreign business community, this platform and the leadership changes portend subsequent reforms that should open up China even further.

Defining Deng's legacy

Party congresses, held every five years in the post-Mao era according to Party statute, do not ordinarily inaugurate departures on specific policies as much as they tend to lay the political groundwork in very general but highly authoritative ideological terms for specific policies. The 15th Congress, held in Beijing on September 12-20, addressed this task primarily in the course of assessing the legacy of Deng Xiaoping.

In paying tribute to Deng, the congress imparted a strongly reformist slant to his legacy. The congress's revisions to the Party constitution defined Deng Xiaoping Theory according to the hallmark reform themes of "emancipating the mind" and "seeking truth from facts." In his long political report to the congress, Jiang spelled out the central tenets of Deng Xiaoping Theory in unmistakably pragmatic and flexible terms as a readiness "not only to inherit the achievements of predecessors but to also to break with outmoded conventions" and to adapt the Party's enduring principles to changing Chinese realities. Jiang also classified China's present level of development as only in the "initial stage of socialism," reiterating a judgment first made in 1981 and used continuously since the 13th Party Congress in 1987 to justify the abandonment of Stalinist economic institutions and practices in favor of a market-based economy. China "cannot jump over" this stage of market-driven industrialization, Jiang declared, predicting that it would take "at least a century" to complete.

In step with this strongly reformist orientation, Jiang Zemin reaffirmed as the Party's "general task" during this prolonged period maintenance of the "one center and two basic points"--foremost concentration on economic development, and economic reform and opening up under the direction of the Party. Jiang also specifically affirmed the correctness of the Party line set forth by the 14th Congress in 1992, which authorized relatively fast-growth economic policies, established marketization of the economy as the Party's goal, and laid the political foundation for 1993 reforms in taxation, banking, foreign trade, and SOEs.

Toward reform of the State sector

Although the insistently reformist thrust of Jiang's interpretation of Deng Xiao-ping's legacy is intended as a platform for potential change in all sectors, the immediate target is SOEs. That Beijing was gathering momentum to attack this Gordian knot of economic reform was clear well before the congress convened. In 1993, the Party leadership adopted the sweeping "50 Points" plan to initiate reforms in the banking, taxation, and foreign trade systems, in addition to the State-owned sector. Beijing inaugurated the plan in 1994, with a new two-track national and local tax system. But steps in the other sectors were suspended in 1994 when China's cities confronted the worst inflationary hike since 1949. Over the next two years, the leadership--Executive Vice Premier Zhu Rongji in particular--struggled to use monetary and credit controls to bring prices down. It was not until the December 1996 conference on economic work that the leadership announced a "soft landing" of the economy and declared the time ripe to push ahead with key reforms.

Under the 50 Points approach, the State planned to retain ownership of, and strategic control over, 2,000-3,000 large enterprises in key industry and infrastructure sectors and make them the "lifeblood" of the economy. The remaining large and medium-size enterprises were to undergo "corporatization" through the public sale of shares and the selling off outright of the roughly 300,000 small SOEs. In the summer of 1995, Jiang Zemin began touring heavy-industry SOEs in Shanghai and the northeast provinces, while the Party newspaper, People's Daily, featured regular front-page summaries of his remarks on SOE reform. At the same time, trial reforms in selected enterprises and cities began under the supervision of Wu Bangguo--one of Jiang's Shanghai colleagues, who had been elevated to the central leadership in September 1995. Meanwhile, Zhu Rongji addressed problems of SOE triangular debt--firms' inability to pay suppliers and lenders because of high accounts receivables. National People's Congress (NPC) Chairman Qiao Shi continued to lay the legal framework for SOE reform, overseeing the adoption of a revised bankruptcy law, which attempts to minimize the negative effects of bankruptcy and allows bankrupt SOEs to sell off most of their assets; and a company law, which provides a framework for restructuring SOEs through incorporation.

Once the leadership was confident of its success in taming inflation, a major push on SOE reform was clearly in the offing. In April 1997, a State Council circular laid out, with unprecedented specificity, provisions for expanded SOE reform, including regulations for disposing bankrupt enterprises' assets and the creation of "re-employment centers" to aid laid-off workers. Replicating an institutional device used in such instances as the sweeping 1985 reform of China's science and technology sector, the circular also established a supraministerial "leading group" under the State Economic and Trade Commission, with corresponding steering groups at the provincial level, to guide the forthcoming initiatives. And in a May 29, 1997, speech at the Central Party School, Jiang Zemin identified SOEs as a critical sector in which the leadership intended to make a "breakthrough," foreshadowing the emphasis of his report to the 15th Congress.

SOE reform obviously presents the Beijing leadership with the tremendous dilemma of reconciling divergent economic, social, an d political demands. Calling for swift reform are the financial drain of failing SOEs on the State budget; the inflationary impact of government lending to SOEs; the strangulation of bank reform by such lending; and the need to end SOE subsidies to secure China's World Trade Organization (WTO) accession, while also making SOEs commercially competitive. On the other hand, genuine reform will entail massive lay-offs among the SOEs' 120 million workers. Beijing estimates 15 million SOE workers, or 12.5 percent of all SOE employees, will be terminated, an action that could lead to social unrest in China's cities (see The CBR, September-October 1997, p.4). Thus, neither the readiness of the Jiang leadership to revitalize SOE reform, nor the fact that such reforms have been politically sensitive and controversial, are at all surprising.

Jiang's remarks on SOEs at the 15th Congress did not mark a new tactical approach to the problem, but nonetheless carried political significance. By redefining Chinese "socialism" to permit the continued shrinkage of the SOE sector's share in the overall economy, Jiang licensed a flexible and pragmatic approach to the reforms. Provided the "public sector"--SOEs, collectives, including township and village enterprises, and other "mixed" shareholding forms of ownership--remains the dominant player in the economy alongside private forms of ownership, Jiang declared, "even if the State-owned sector accounts for a smaller proportion of the economy, this will not affect the socialist nature of our cou ntry."

By ratifying this redefinition of socialism, the congress brought an authoritative close to an intense, longstanding debate within the Party over how far the State-owned sector--regarded by conservatives as the irreducible core of the socialist system in China--may decline as a proportion of the overall economy. Since the 14th Congress in 1992, Party conservatives have argued strenuously that the State sector could never be allowed to shrink to a less than predominant position in the overall economy, which they define as at least half of all industrial production. After Jiang and other Party leaders began, in 1995, to take the first steps toward implementing SOE reform, articles in such ideologically conservative journals as Pursuit of Truth and Contemporary Tides of Thought warned that China's credentials as a socialist country were in jeopardy. Although these articles did not appear to reflect the views of anyone in the Party's top leadership, they undoubtedly indicated the existence of a significant conservative constituency within the Party's middle and lower ranks. Though this constituency can be expected to voice strong opposition as SOE reforms proceed in earnest, Beijing's plans should continue unaffected.

The endorsement by the 15th Congress of Jiang's declaration that further reduction of the State-owned sector does not endanger China's "socialist" credentials puts the Party's most authoritative imprim atur on the Jiang leadership's approach to SOE reform. Thus the leadership now has political latitude to pursue reforms that will be exceedingly complicated and require all the pragmatic flexibility the leadership can muster. Jiang bluntly described the impact that reform would have on workers in particular. Sounding more like the editors of the Wall Street Journal than the head of a communist party, Jiang warned that workers faced with the prospect of unemployment in a market-driven economy "should change their ideas" about work and make themselves more competitive. Though the controversy over SOE reform is not over, the congress has provided the Jiang leadership with as strong an authoritative platform as possible to rebut any critics in the Party as the reforms proceed.

The open policy

In addition to SOE reform, Jiang Zemin's report to the congress underscored that Beijing's "open" approach to the international economy remains "a long-term basic State policy." But beyond broad pledges to "lower the general level of tariffs," "deepen reform" of the trading system, and "expand the power of enterprises to handle their own foreign trade," Jiang gave few specifics of what the leadership may be contemplating regarding reform of China's trade regime. He reaffirmed an "active" approach to regional trade and WTO accession. Absent more concrete moves, the pace of SOE reform will likely be a strong indicator of Beijing's readiness to address changes necessary for WTO membership.

Jiang's terse remarks on the role of foreign investment appear to reaffirm the selective approach that Beijing has adopted in recent years of guiding foreign investment into specific sectors. He promised that Beijing would "open the service trade step by step" and would extend to foreign-funded enterprises "the same treatment as their Chinese counterparts." In pledging to "safeguard the economic security of the country," Jiang indicated that Beijing will remain cautious about expanding China's reliance on foreign markets for grain and other foodstuffs.

Leadership changes

Changes in the Party's top leadership both consolidated Jiang Zemin's overall authority and conformed with the reformist orientation of the agenda adopted at the congress. The congress reconfirmed Jiang as Party general secretary and Central Military Commission chairman. Within the key seven-member Politburo Standing Committee, the retirement of Qiao Shi assures that Premier Li Peng will replace Qiao as NPC Chairman at the Ninth NPC this spring. Zhu Rongji will likely succeed Li as premier. Zhu, who as premier would attend to broad foreign policy as well as domestic affairs, will likely cede primary responsibility for managing the economy to former Ministry of Foreign Trade and Economic Cooperation chief Li Lanqing, who was also appointed to the Politburo Standing Committee (see p.14 ).

Qiao's retirement and the reshuffling of top State posts do not appear to alter the overall political balance around Jiang Zemin. The 1992 14th Congress placed the relatively liberal NPC Chairman Qiao Shi opposite conservative Premier Li Peng, with Jiang Zemin between the two. Under the new appointments, conservative Li Peng is counterbalanced with the tough but relatively liberal Zhu Rongji, again with Jiang in the middle. Since 1992, this intermediary position has enabled Jiang, like Deng in the 1980s, to pursue centrist tactics, leaning left or right depending on issue and circumstance. The new power balance at the top suggests that he will be able to continue this course.

Li Peng's pending replacement of Qiao Shi as NPC chairman may not diminish the increasingly active role of that body in debating policy and appointments put forward by the Party leadership as much as the Hong Kong and Western press has speculated. The relative independence that the NPC has shown did not originate during Qiao's tenure. Under Peng Zhen's conservative leadership in the mid-1980s, the NPC occasionally obstructed reform measures proposed by reformist Premier Zhao Ziyang. In the late 1980s, under the leadership of Wan Li, the NPC moved in the opposite direction, backing relatively liberal reforms against conservative opposition. These frequent deviations from rubber-stamp unanimity under Peng, Wan, and Qiao have appeared more as ref lections of intra-Party debate projected onto the NPC rather than of increasing NPC autonomy. During his tenure as chairman, Qiao pushed scores of new laws through the NPC to lay the legal foundations for market-oriented reform. In this respect, Qiao was a collaborator, not a competitor, with Jiang and other leaders in their efforts to renew the impe tus behind the reforms. Moreover, his statements, widely publicized by foreign and Hong Kong media, on behalf of instituting a "rule of law" are not unique to him in the leadership. Thus, Qiao is not the democratizing liberal he has at times been made out to be.

While still broadly conservative on a range of issues, Li has moved strongly into the reform camp in recent years on the issue of SOE reform. Not surprisingly, the congress gave no indication whatsoever that the Party leadership is contemplating any significant liberalization in the political arena, given its focus on SOE reform and the accompanying prospect of social unrest. Under these circumstances, the appointment of Li as NPC chairman may reassure Party conservatives and also signal that the Party leadership expects discipline within the NPC on the issue of State-sector reform.

Other appointments to the decision-making Politburo and policy-implementing Secretariat, particularly of technocratic reformers from coastal areas, follow a trend that began with the 14th Party Congress. Among the 24 leaders appointed to the two bodies by the recent congress, 17 have engineering or technical backgrounds; 12 of the 22 appointed by the 1992 congress had similar educations. Eighteen of the leaders appointed at the 15th Congress either are from or have spent considerable portions of their careers in the coastal provinces, compared to the 15 appointed in 1992.

Appoin tments to the 193-member Central Committee also reflect such trends, as well as a clear transition to a younger membership. With a few exceptions, nearly all of the Central Committee's members are under age 65. The large-scale Central Committee membership turnover reflects an extensive shake-up among military, provincial, and State Council posts since the 14th Congress. Among China's 31 provinces, for example, 29 provincial Party chiefs and 27 governors have been replaced since 1992. Among the new Central Committee membership are 30 of the present provincial Party chiefs, 26 of the present governors and 12 of the 14 commanders and political commissars of the PRC's seven military regions. The appointment of these officials to the Central Committee bodes well for stability in these posts, since these officials now have the leadership's stamp of approval.

On the State Council, the Party announced replacements for only 30 of 41 minister-level officials, which suggests that this spring the NPC will fill the remaining posts, including important ministerial positions in the State Planning Commission, State Education Commission, Ministry of Labor, Ministry of Electronics Industry, and possibly the Foreign Ministry. Likely candidates to succeed Qian Qichen as foreign minister include Vice Foreign Minister Tang Jiaxuan and the State Council's Foreign Affairs Minister Liu Huaqiu, who both now serve on the Central Committee.

The importance of these trends in elite appointments is twofold. First, the relative youth of the new Central Committee, the Politburo, and Secretariat indicates completion of the transition to a post-revolutionary generation of leaders that began under Deng Xiaoping. The vast majority of the new leadership is too young to have participated actively in the revolution that brought the regime to power in 1949. Most of its members have been educated in the PRC itself or in the Soviet bloc and have spent their careers rising through the ranks of the PRC's bureaucratic hierarchies. With engineering and technical backgrounds and administrative experiences, these officials tend to take a problem-solving approach toward political issues. Such tendencies contrast sharply with their predecessors' propensity toward the ideology of social revolution.

Second, the personnel changes of the 15th Congress reveal a detectable trend toward institutionalized politics. In Deng's last years, the Party instituted an internal rule that the Politburo should include no leader older than 70, except the "core" leader. All seven leaders who retired from the Politburo and Secretariat, including Qiao, were over 70 years old. The only member of that age cohort not to do so was 71-year-old Jiang, the core leader. Nearly all members of the new Central Committee appear to have been elected according to a comparable rule that no member 65 or older be appointed. Further evidence of the trend toward institutionalized politics is the political controversy surrounding Qiao Shi's retirement and Li Peng's pending appointment as NPC chairman. This controversy derives directly from the Party's commitment to abide by a provision in the 1982 PRC Constitution that limits an official to two five-year terms as premier. Li's second term ends this spring.

The institutionalization of personnel rules starkly contrasts with the anti-institutionalism of Maoist politics. Under Mao, the Party simply rewrote prevailing constitutions and rules to suit circumstance and power, or ignored them altogether. The current trend toward institutionalized patterns was strongly promoted by Deng Xiaoping, who personally initiated the retirement of aging leaders. Qiao Shi's retirement is only the latest indicator that China's political processes are becoming increasingly regular and predictable.

On solid ground--for now

Whether these trends will endure remains to be seen. The cohesion of the collective leadership Deng put into place at the 1992 congress in his declining years remains impressive, despite the apparent controversy over the retirement of Qiao Shi and the differences in policy outlook and political predilection that undoubtedly continue to divide the top leadership. The readiness of the post-Deng leadership to address the daunting challenge of true SOE reform attests partly to the genuine dilemma the regime faces in this task and to the realization of leaders on both sides of the spectrum that a united front is needed. Their readiness also reflects the leadership's abiding cohesion. Their solidarity of purpose and political cohesiveness will undoubtedly be tested severely as the leadership moves ahead with SOE and other reforms. After the Deng leadership crushed its leftist opposition in the late 1970s and early 1980s, political fissures soon began to divide the reform coalition. A similar process of political division may emerge in the post-Deng collective leadership built around Jiang Zemin over the next two or three years. But for the moment, the prospects for leadership stability appear good.

H. Lyman Miller is associate professor of China Studies at Johns Hopkins University, Paul H. Nitze School of Advanced International Studies.