Canada NOTES

December 14 1998

Canada NOTES

December 14 1998

Laid off and bitter



The new arrivals, bent over under the weight of the bags piled high on their backs, steadily stream out of Beijing’s main train station. Soon, they will join dozens of others on a nearby street corner, where people start lining up at 5 a.m. in an impromptu labor market. Many have pinned pieces of paper to their jackets describing their professions—chefs, teachers, laborers. China’s drastic economic reforms have forced the closure of hundreds of state-owned companies and pushed the number of unemployed to 150 million. Like millions of others who roam the country, those near the station will spend most of the day in a futile search for work. As he paced the sidewalk, Gao, a former translator, told Maclean’s he was laid off when the Korean company he worked for went under after the Asian financial crisis hit. Unable to find a job, he often gets drunk, he said, adding bitterly: “I am so depressed.”

The anger—and hopes—of millions of unemployed people like Gao are focused squarely on China’s remarkable economic czar, Premier Zhu Rongji. Operating more like a capitalist CEO than a communist cadre, Zhu has taken charge of China’s economy and propelled it into the only high-growth domain left in crisis-ridden Asia. But the risks of Zhu’s high-powered drive are growing at the same rate as the wrathful unemployed. If he fails, senior Chinese officials fear that a country where everything happens on a huge scale could face unprecedented social unrest.

Taking on formidable challenges is nothing new to the man once known as “OneChop Zhu.” As the mayor of Shanghai in the late 1980s, Zhu wanted to rebuild the economy of the ancient port city. He needed foreign investment to make his plan work, but bureaucrats often stood in his way. To get around them, Zhu, who is described by many diplomats in Beijing as tough and uncompromising, let nothing stand in his way. He quickly set up a single office through which foreign investors would receive a simple stamp or “chop” of approval.

Zhu’s success at rebuilding Shanghai helped him soar up the ranks of the Communist party. Last March, he became premier, the second most powerful position in the country. “Zhu is China’s first real economic leader,” says Howard Balloch, Canadian ambassador to China. “He did not make the Long March, he did not rise through backroom politics. He is the first

Chinese leader to come to power with the credentials of an economic leader.”

Even so, none of the obstacles Zhu faced in Shanghai can compare to what he now faces as he steers his country of 1.2 billion people towards a free market. Even with most of Asia gripped by a severe recession, Zhu last week said he would press ahead with his bold plan to reform the economy by closing hundreds more government-owned companies next year. While he is gambling that the emerging private sector will absorb the legions of unemployed, Zhu must also introduce a tax system that would generate enough money to finance a Canadian-style social safety net, paying pensions, welfare and unemployment benefits.

As he institutes the reforms, Zhu is walking a tightrope between the promise of future growth—and political instability created by mass unemployment. To buy time and keep as many people working as possible, he has authorized a massive

spending program to build roads, bridges and other public works. That may turn out to be a shrewd move that will help China leap ahead in development. “These guys are good Keynesians,” says Balloch. “The test will be in the bridges they build and transmission lines they lay. We have seen dumb spending, but also evidence of smart spending.”

Zhu has also surprised many economists by ordering the nation’s banks to keep lending to many near-bankrupt state firms, instead of shutting them down as planned and laying off workers. But he may have little choice, given the cry for jobs. “The Chinese economy is like a bicycle,” says Wei Li, an expert on Chinese business at Duke University in Durham, N.C. “If you don’t keep peddling and grow fast enough, many people will fall below the poverty line.” The social and political problems that come with high unemployment have already taken root beneath an overpass in Beijing where a jobless worker named Zhang

and about 40 other people are camped out —their peasant backgrounds made obvious by their poor attire and ruddy complexions. They spend most of the day scavenging for bottles, shining shoes and selling fresh flowers. At night, they play cards and finally fall asleep on bamboo mats covered with dirty Chinese quilts in temperatures that last week plunged to -8°C.

Even if they do find work, most will be forced to live in run-down dormitories or hotels and will receive just subsistence wage. They blame the government for their plight and, although rarely reported in the state-controlled media, groups of unemployed workers have staged demonstrations across the country. So many people have lost their jobs that the Chinese simply refer to the dispossessed as the xiagang, or laid off.

‘Xiagang is a pretty word,” said Zhang as he stood under the bridge. “In your country, they call it unemployed.

Here we just say laid off.”

Zhu looks determined to stay the course on reforming the Chinese economy, but he has shown little interest in political liberalization.

Last week, Beijing risked a new round of international condemnation by arresting five campaigners for the China Democratic Party, including two leading dissidents, Xu Wenli and Qin Yongmin. The arrests dealt a major blow to the first serious attempt to establish an opposition political party since the 1949 Communist victory. The detentions came as Li Peng, boss of the National People’s Congress and the most conservative of China’s senior leaders, released remarks assailing the opposition’s efforts, criticizing Western democracy and defending his role in the 1989 Tiananmen Square crackdown on student demonstrators. The actions underscored that even with economic reforms, the Communist party will continue to deal harshly with threats to its power—especially at a time of unrest over joblessness.

Continuing his delicate balancing act, Zhu last week toured the province of Liaoning, one of the centres of China’s heavy industry. Once again, he called on managers of state-owned companies to become efficient enough to compete with private firms—even if that means more people will join the ranks of the xiagang. With typical directness, Zhu said that managers of state firms that lose money for two years in a row would be sacked.

As he often did when he was the no-nonsense mayor of Shanghai, Zhu complained on his tour of Liaoning about corruption and waste. Upright and austere, Zhu was raised by an uncle in relative poverty in Changsha, the capital of Hunan province— the same home town as Mao Tse-tung. Trained as an engineer at Qinghua University in Beijing, he joined the Communist party but was purged as a “rightist” in 1957 and again in 1965 for criticizing government policy and Mao’s teachings.

China’s reform czar acts more like a capitalist CEO than a Communist cadre

Zhu rejoined the party in 1979 and in 1988 was named mayor of Shanghai. His success in getting Western businesses to locate in Shanghai brought him to the attention of paramount leader Deng Xiaoping, who promoted Zhu to vice-premier in March, 1991. “He is a focused and determined leader,” said Balloch. “He does not like to have problems covered up, and when there are problems he wants them fixed right away.” As industrial growth exploded in the 1990s under Deng’s reforms, Zhu saw a brewing financial crisis. Banks were lending money like water, real estate and stock speculation was rife, and inflation soared to 24 per cent. Zhu immediately cut off credit and personally took control of the central bank, warning other bank officials he would “chop off their heads” if they failed to fall into line. Under Zhu’s guidance, China’s economy grew by more than 10 per cent a year from 1991 to 1996 and inflation tumbled to just one per cent. Now Zhu has an even more difficult task. He will have to keep China’s

economy growing at something near its target of eight per cent a year, or risk even higher unemployment. Currently, the official figure is 7.6 per cent.

As long as China’s economy is expanding by at least seven per cent annually, many analysts say it can tolerate the 150 million jobless people nov oaming the country. But Duke University’s Li says if growth slides below five per cent—and some experts think the true figure may be dwindling towards that now—the unemployment rate will skyrocket and political problems will mount. “Below five per cent you will effectively have a recession,” says Li. “That means people going on to the job market won’t find employment at five per cent.” Still, many economists say that even if growth slips slightly, China will have avoided the worst of the economic downturn that has savaged its neighbors. It also means, says Li, that China will not have to devalue its currency in 1999, a move that could destabilize the fragile economic recovery now under way in the region. Canadian businessmen are also banking on Zhu to steer China safely through the Asian financial crisis. In November, he met with Prime Minister Jean Chrétien. Zhu lauded I expanding trade between § the two countries and also raised diplomatic eyebrows when he described Canada as China’s “best friend.” He later told a group of Canadian businessmen that China would not devalue next year, and jokingly promised to “compensate” speculators who are betting the renminbi will drop in value.

Even so, more make-or-break challenges loom for Zhu. Some experts are fearful of the high amount of lending to failing state enterprises, just to keep people working. In throwing so much good money after bad, they argue, China risks a banking crisis that could parallel the meltdowns elsewhere in the region. Others focus on the urgent need for health coverage and old-age pensions for people who used to be taken care of by state-owned firms. “My main concern is not that there is too much money going to enterprises that cannot pay their debts,” says one Western diplomat, “but whether they are taking steps to create a safety net.” Until they do, Zhu will have to weigh the speed of his economic revolution against growing social unrest across China.