China's economic house looks sound

China's economic house looks sound

By Mure Dickie

BEIJING (Reuter): The grand architect of Chinese reform is dead but the economic house built by Deng Xiaoping in the last 18 years of his life has sound foundations and is in no danger of tumbling, analysts and diplomats said yesterday.

Deng's very success in turning a backward Stalinist nation into an emerging economic superpower had left his heirs with little room for maneuver, they said.

"China's reform policies will continue, the alternatives are almost non-existent," said a Western diplomat.

"The economic policies that Deng helped to establish are irreversible," agreed analyst David Mahon of Mahon Associates. He said continuity was a matter of survival for Deng's political heirs.

"The Chinese Communist Party depends on economic reform to sustain its own mandate," he said.

"Nobody and no group of people can reverse that without tremendous cost, and the cost would be to the government if they tried. Their mandate would be withdrawn."

Analysts said Deng, who launched China into market-style reform in 1978 when the nation was just climbing out of the shambles of the 1966-76 ultra-leftist Cultural Revolution, had left little more than the speed of future change in doubt.

China reined in its runaway economic growth to an estimated 9.7 percent of gross domestic product in 1996, down from 10.2 percent in 1995 and a fiery 11.8 percent the year before.

Officials have predicted economic growth in 1997 at around 10.5 percent, but Jason Kwok, chief China economist at Citibank in Hong Kong, said the growth rate could fall if Deng's demise made an already cautious leadership even more risk averse.

"The government... might adopt a more cautious approach in carrying out reforms to ensure social stability," he said.

"Economic reform may slow down a bit and that would probably have some impact on the growth of the economy this year or in the years ahead. It's just a matter of faster or slower," he said. "The underlying economic fundamentals... are very solid."

Deng's death is likely to trigger fierce jockeying for position among Chinese leaders ahead of a key party congress in October, but the analysts said such infighting would bring little economic risk.

"Deng's success was so overwhelming that he created a consensus on the basic direction of economic policy, foreign policy and Hong Kong policy," said William Overholt, managing director of Bankers Trust, Hong Kong.

"None of those things is under challenge and we are going to see policy stability in China," he told Reuters Financial Television.

The Western diplomat predicted that, despite their many factional and political differences, none of China's senior officials would push ambition to the point of risking turmoil.

"There is a consensus among the leaders that stability is the over-riding priority," he said.

Deng's death had also given China an opportunity to boost foreign confidence by demonstrating how far Deng had brought the nation, the analysts said.

"With his dying, anyone that doubted that China was held together effectively has a chance to see," said Mahon. "That's important for foreign business in China."