Zhu Rongji and the
Transformation of Modern China, by Laurence J
Brahm Reviewed by Gary LaMoshi
Zhu Rongji is the man behind China's
dazzling economic metamorphosis of the past decade. But
precisely how Zhu worked the levers to create this
miraculous transition from a socialist command economy
to a nearly free market has remained largely a mystery.
Laurence Brahm charts the path Zhu blazed in
Zhu Rongji and the Transformation of Modern
China. Brahm, an economist, lawyer and business
consultant who lives in China, urges developing-world
economic planners to study and emulate the blueprint he
documented. Brahm contends Zhu's brilliance lies in
defiance of the "Washington Consensus" (see interview 'There are no
non-reformers') on building a modern
economy, work that not only changed China but "brought
economic theory into a new epoch". For that, Brahm says,
Zhu's "name should be remembered alongside that of
Keynes".
Zhu's "managed marketization", as Brahm
terms it, combines the tools of free markets and state
control to drive the economy forward. Zhu introduced
capitalist tools, such as interest-rate movements and
modern capital markets, leavening their application with
the "macro-control" apparatus of China's political
system to make them work, plus a deep understanding of
the Chinese collective psyche and a management style of
making impossible demands to overcome bureaucratic
inertia.
The first part of the book highlights
Zhu's response to five crucial issues China faced during
the 1990s: hyperinflation in 1993; the bad-loan mountain
resulting from "triangle debt" between state banks and
state companies; the 1998 shutdown of Guangdong
International Trust and Investment Corp (GITIC); the
Asian economic collapse that began in 1997; and swapping
state economic planning for state control of markets.
These events fall largely, but not exclusively,
during Zhu's tenure as a vice premier after Chinese
leader Deng Xiaoping plucked him from his job as
Shanghai mayor in 1991. Zhu's primacy in economic
matters dates from Deng's southern inspection tour of
1992, when the patriarch of economic reform lamented,
"The current leadership do not know economics," adding,
"Zhu Rongji is the only one who understands economics."
The second part of the book concentrates on
reforms Zhu introduced during his term as State Council
premier, scheduled to end next month. These reforms
include some topics covered in the first part, plus
efforts to cut the bureaucracy and the drive for World
Trade Organization (WTO) membership. The book presents
an economic history of China since 1990 with a focus on
Zhu, rather than a biography.
Detailed accounts
of the shifts in policy Zhu initiated trace his
implementation of Deng's "socialism with Chinese
characteristics". Drawing upon his two decades of work
experience in China, Brahm has created a comprehensive
record of key speeches and statements guiding the
transition accessible to general readers in English, as
well as outlining some of the high-level political
jousting behind the transition. Unfortunately, the book
has neither a bibliography nor footnotes to document the
sources of this information.
Brahm is no maestro
when it comes to controlling the inevitable overlaps in
his categories and presenting clear chronologies.
Moreover, while identifying the detailed shifts and
nuances in policies, several pieces of the big picture
get lost or remain fuzzy.
The book presents
overwhelming detail on Zhu's reform of China's banking
system, reshaping the People's Bank of China as a modern
central bank and transforming other state banks to
perform commercial banking functions. Brahm also
painstakingly tracks the evolution of policy toward
state-owned enterprises (SOEs), the behemoths that
stagnate economic growth and feed corruption. Even Zhu's
most ardent admirers must admit that the measures he
employed to ameliorate the SOE problem failed to
rehabilitate these key institutions. That is a task left
to future premiers.
In contrast to banking and
industrial reform, the agricultural sector remains a
puzzle. Brahm describes Zhu's concern about sufficient
grain production and his price-guarantee program for
farmers. But how these programs, plus a free market for
farmers to sell their production in excess of state
quotas, have left China's farmers dirt poor is
unexplained.
Similarly Brahm gives only passing
nods to foreign investment until he discusses Zhu's push
to finalize China's long-simmering WTO membership.
According to Brahm, a meeting with US Federal Reserve
chairman Alan Greenspan convinced Zhu that WTO
membership would open the floodgates for foreign
investment to produce jobs and competition to push
Chinese companies to higher standards.
That begs
the question of the impact the enormous quantities of
foreign investment - US$120 billion in the past three
years alone - on China's economy during the Zhu years.
Brahm does not examine how Zhu's policies relate to
foreign investment, such as shaping inflows to fit
China's economic agenda. For the developing economies
that Brahm urges to emulate the Chinese model, there's
no discussion of the policies that encouraged this flood
of international capital that now accounts for half of
China's exports and a quarter of its industrial value
added.
Perhaps Brahm shies away from the
foreign-investment issue because it would detract from
his portrait of Zhu as a maverick against the
"Washington Consensus" of multilateral institutions and
think tanks. Zhu's policies have proved far more
successful than World Bank/International Monetary Fund
prescriptions. Many framers of the infamous cabal's
advice for the former Soviet bloc, such as Jeffrey
Sachs, long ago admitted their errors there. However,
Zhu's "macro-control" formula relies on a degree of
state compulsion and economic domination with limited
applicability outside the Middle Kingdom; Fidel Castro's
successors should take careful notes, as Vietnam
apparently has. It's difficult to envisage how China's
example can help Asian basket cases such as Indonesia
and the Philippines, and Brahm doesn't offer any hints.
However, Brahm misses few opportunities to bash
the "Washington Consensus" and the US government,
sometimes absurdly. The book portrays Zhu standing up to
the West by refusing to devalue the yuan in the wake of
the 1997 Asian economic collapse; in fact, Western
policymakers were fearful of a Chinese devaluation that
could set off a further wave of regional devaluations
and torpedo the defanged tigers' strategy to export
their way back to stability. Brahm also characterizes
the tragic North Atlantic Treaty Organization bombing of
the Chinese embassy in Belgrade in May 1999 as a
deliberate US attack on China.
Such passages
foster the impression that Brahm may stand too close to
his subject for perspective. Chapters begin with
ponderous quotes from former premier Zhou Enlai or Zhuge
Liang, "the nation's most unassuming and profound
strategist" who lived nearly 2,000 years ago, because
Zhu used words echoing theirs at his inaugural news
conference as premier in 1998. That technique may seem
perfectly logical to Brahm and Chinese readers, but it
adds to book's sense of examining selected trees in
great detail without seeing what, for most outsiders,
remains China's dense and forbidding economic forest.
Zhu Rongji and the Transformation of
Modern China, by Laurence J Brahm, John Wiley
& Sons (Asia), 2002, Singapore. ISBN:
40-470-62063-2. Price: US$27.95. 295 pages.
Zhu Rongji is the man behind China's
dazzling economic metamorphosis of the past decade. But
precisely how Zhu worked the levers to create this
miraculous transition from a socialist command economy
to a nearly free market has remained largely a mystery.
