Greenspan in China for firsthand look at economic reforms

October 26, 1994|By Ian Johnson | Ian Johnson,Beijing Bureau of The Sun

BEIJING -- In an effort to assess China's shaky reform program, Federal Reserve Chairman Alan Greenspan is in the midst of a five-day tour of Beijing and Shanghai.

The head of the U.S. central bank is meeting his Chinese counterparts, as well as senior Communist Party and government leaders.

Mr. Greenspan did not make public his impressions of the meetings, but a source in his delegation said the purpose of his trip was twofold: to demonstrate U.S. support for the capitalist-style economic reforms, which some observers feel are in danger of derailing, and to assess the economic prospects of the world's most dynamic -- and potentially most chaotic -- economy.

Mr. Greenspan's interest in China's economic future is more than academic.

China has become one of the world's biggest magnets for foreign capital. Besides private investors, who have been flocking to mutual funds and investment deals that aim for a piece of China's double-digit economic growth, China has become the No. 1 recipient of World Bank loans and the prime focus of lending efforts by the U.S. Export-Import Bank.

If China's reform program does sputter to a stop while inflation and unemployment soar, instability could put those loans and investments at risk.

Although independent of the Clinton administration, Mr. Greenspan is the fourth top Washington official to visit China in the past eight weeks. He follows Commerce Secretary Ronald H. Brown, Defense Secretary William J. Perry and U.S. Export-Import Bank Chairman Kenneth Brody.

But while the administration officials have been here as cheerleaders of warmer U.S.-Chinese ties, Mr. Greenspan is thought to be casting a more objective glance at Beijing's efforts to develop a free-market economy.

"He wants to know whether China's potential instability in any way will affect American interests and whether China's leaders are serious about reform," said a source who met Mr. Greenspan in Beijing.

Yesterday, Mr. Greenspan met Chinese Premier Li Peng, who said he hopes the Fed and the People's Bank of China will increase cooperation. Mr. Li also briefed Mr. Greenspan on efforts to restructure China's 100,000 state-owned firms and to control inflation, which is roaring along at 27 percent in major cities.

The link between the state-run firms and inflation is no accident: Half of China's budget deficit goes toward supporting state firms, while the deficit itself is partially financed by printing money.

Economists say China will not be able to bring inflation under control until it bites the bullet on state-enterprise reform. Either thousands of firms will have to go bankrupt or they will require bold reforms -- capital infusions, layoffs and new management -- the likes of which will make General Motors' painful restructuring seem easy. Either way, mass layoffs seem unavoidable.

Chinese leaders have been toying with enterprise reform for about a decade. They made it a top priority again this year, only to see it delayed again over fears that layoffs would result in social unrest.

Although China's reforms are not entirely stuck in the mud -- the government, for example, moved earlier this year to make its currency partially convertible and is working to make the People's Bank of China more independent -- reforms are not moving along at the pace that was loudly advertised a year ago.

"Enterprise reform remains the key to China's reforms. It must be the top priority next year," said Wu Jinglian, an economist and government adviser.

Besides meeting Mr. Li, Mr. Greenspan also met Jiang Zemin, China's president and head of the Communist Party. Mr. Greenspan told Mr. Jiang that he believed China's reforms were on track, according to the official New China News Agency.

Monday night, Mr. Greenspan met with Zhu Rongji, China's vice premier and the governor of the Bank of China.

Mr. Zhu is widely seen as the most vocal proponent in the government of faster reforms, such as those favored by China's paramount leader, Deng Xiaoping, But as Mr. Deng has become sicker and dropped out of public view, Mr. Zhu has been upstaged recently by Mr. Li and Mr. Jiang.

Mr. Greenspan's tour continues today in Shanghai. He leaves the country tomorrow.

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