Political legacy of Zhu Rongji

Kenichi Ohmae, President, Ohmae & Associates, Project Syndicate

As China's new leadership team emerges, the world's attention has focused on President Jiang Zemin's successor. But this is misguided, for perhaps the most significant moment in China's recent history of boom and transformation was the 1998 appointment of Zhu Rongji (pronounced "Joo Rong-jee") as premier of the State Council, a position once held by Deng Xiaoping. Given the obvious importance of the post in recent years, the choice of Zhu's replacement may be of even more significance than President Jiang's departure from center stage.

Even before he became premier, Zhu, as the president of China's central bank, was known as the architect of China's 8 percent annual economic growth in the 1990s and the mastermind of its successful fight against inflation. Zhu has been China's Jack Welch, the tough-minded, longtime CEO of the American conglomerate General Electric -- a man celebrated for his candor, his global sophistication, and his insistence on performance. Indeed, Zhu was renowned for punishing those who fell short of his expectations. As mayor of Shanghai, he once disciplined his tourist bureau officials by making them scrub the city's public toilets themselves.

A few months after his appointment as premier, Zhu delivered his "three promises" speech, in which he pledged to make three bold moves to secure a more vibrant, self-sustaining economy. First, he would overhaul the 300,000 state-run national corporations that still conducted an overwhelming amount of China's business and accounted for the bulk of its economic activity. More than 70 percent of such companies were unprofitable and were propped up by government subsidy.

Just as Welch promised to "fix, close, or sell" nonperforming divisions of General Electric when he took over the company, Zhu threatened to fire chief executives of Chinese firms that lost money for more than two consecutive years, and then either to shut them down or sell them. This forced national corporations to be privatized and go public or to be overseen by provincial governments, a change that proved to be a major impetus for a sudden decentralization of China's governance structure -- another key legacy of Zhu's tenure.

Second, Zhu said he would wipe out the many bad debts of China's banks and "international trust companies." Many of these had contributed to a softening in China's economy by routinely lending money to insolvent corporations. At the time, there were 245 such trust companies, which had such a poor record of repayment that overseas investors were beginning to shun China entirely. Reforming them would take 10 years, he said.

Third, Zhu said he would streamline the central government and take on one of China's most pernicious problems: High-level corruption in government agencies. He would propose measures including, for example, cutting links between government and organized crime, and making it more difficult for bureaucrats to accept bribes.

Politicians often make bold promises but rarely keep them. On July 1, 2001, at the celebration of the 80th anniversary of the Chinese Communist Party, Zhu assessed his progress. His appraisal of his record in office is notably accurate, and stands as a convincing testament to the effectiveness of his leadership.

Zhu told the assembled Communist leadership that he had fulfilled the first promise: many of China's public corporations had become profitable private entities or had been shut down. Those that were still operating were given stringent profitability targets, were allowed to choose the people they hired, and were encouraged to raise money on private stock exchanges, which effectively propelled them into the private sector as "red chip" corporations.

As for the second promise, more than 50 heads of financial institutions had at that point been fired (more followed), and reforms had changed the investment climate dramatically. Instead of fleeing the country, capital was flowing in more rapidly than ever before.

Zhu's record concerning his third promise was more mixed. While the size of the central government fell dramatically, with employment at the State Council halved from 34,000 to 17,000, corruption continued to fester.

Despite Zhu's efforts, opposition from vested interests throughout the government -- particularly at the highest levels -- impeded reform. Nonetheless, Zhu Rongji's reforms created the kind of level playing field and rule of law on which a vibrant capitalist system depends. That is a political legacy second to none in modern Chinese history.