AUGUST 9, 1999 VOL. 154 NO. 5

Beidaihe: Tense Times for Zhu

Ahn Young-Joon/AP
Hot Seat: The Premier will be on the defensive at the confab.

By TERRY McCARTHY Shanghai

CNN, TIME, Asiaweek and Fortune examine China at 50

Mao Zedong liked to swim. So, every summer, China's Communist Party moved its headquarters to the shady seaside resort at Beidaihe on the eastern Bohai Gulf. Here, the Great Helmsman swam, met foreign dignitaries and presided over a conference that stamped out government policy for the coming year. At critical junctures in the party's history, leaders rose and fell during the highly secretive gatherings. Mao's successors have kept up the tradition, and in the coming weeks they will again haggle over policies and their futures. The man in the hot seat this time? Premier Zhu Rongji.

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There will be a lot of weighty issues to wile away the seaside hours this year: the crackdown on the Falun Gong sect, how to respond to Taipei's claim of a "special state-to-state relationship" with Beijing, tense Sino-U.S. relations, membership--or not--in the World Trade Organization (WTO) and the little matter of a troubled economy. Not exactly a day at the beach.

Not for Zhu, anyway. Earlier this year the Premier became so discouraged by the opposition to his economic reforms that he reportedly offered to quit at the end of June. Rumors of his resignation caused a minor panic on the Hong Kong stock market, and China's Foreign Ministry was forced to make an unusual statement confirming Zhu was staying.

Nobody expects to see Zhu lose his job this summer, since that would send further negative signals about China's economy to the outside world--the last thing the fragile investment climate needs. But many fear his program of reforms will be further eroded: since he failed to gain WTO entry for China during his U.S. visit last spring, Zhu has announced no new economic measures and is backtracking on existing ones, giving conservatives like Li Peng an opening to reduce his stature further. "Zhu Rongji started his economic reforms with great enthusiasm," says Dong Tao, senior regional economist for Credit Suisse First Boston. "But he's facing a tremendous roadblock resulting from the Asian financial crisis, slowdown of domestic demand and political worry about massive unemployment leading to social unrest." And that doesn't include the recent declines in exports and foreign investment. "There is no one to replace him anyway," says a Chinese businessman in Beijing. "Who would want Zhu's job?"

As the economic misery grinds on, the leadership will also have to rule on the use of military means to respond to Taiwan's "state-to-state" declaration. Jiang is under pressure from the military to act forcefully against that perceived assertion of independence, but economic concerns argue against a repeat of China's 1996 missile firing over the Taiwan Strait (though China did seize a Taiwan ship there late last week). And the decision over whether or not to push harder for WTO membership is another hot potato--it will mean patching up relations with the U.S., but the nationalist sentiment aroused by the bombing of the Chinese embassy in Belgrade is still running high, putting Jiang in another awkward position. Perhaps the only thing Jiang can take comfort in as he plunges into the sea is that he does not have Zhu's job.

With reporting by Hannah Beech/Hong Kong and Mia Turner/Beijing