CHINA: SOCIALISM DIES, AGAIN

Evolution is revolution in today's China, as the great transformation of the communist system proceeds in the painful effort to create a system that works. Last week Jiang Zemin was the latest leader to order a retreat from one of the ideology's sacred tenets: state ownership of industry. Although he cloaked his decision in the semantic cant of "socialism with Chinese characteristics," the change he has ordered is nothing less than the last major step toward Chinese-style capitalism. Beijing will sell off the bulk of the nation's virtually broke state enterprises. Call it what they may, that's still privatization.

The government will keep control of a few strategic industries like steel and armaments. But it will otherwise relinquish the common ownership of production that has underpinned the Communist Party's claim that China is still a socialist nation. However much elders of the party might flinch at the crumbling of their faith, Jiang is sure to win endorsement from the 15th Party Congress, meeting for seven days in the capital to set the country's agenda for the next five years. The inefficient and money-losing businesses have become such a burden that the leadership can no longer put off reforming them, hazardous though the political consequences might be.

Even though this sharp turn toward free enterprise, seven months after the death of paramount reformer Deng Xiaoping, had been rumored for weeks, it was still greeted with wonder. "It's breathtaking," said Charles W. Freeman Jr., a former U.S. diplomat. "Nothing on that scale has ever been attempted." Others saw the change as a risky move. "Jiang is doing what Deng did not dare do," says a Chinese political analyst in Beijing. "He's putting the bankrupt state sector on the block even at the risk of social instability."

In presenting the new program, Jiang, 71, was careful to pay rhetorical obeisance to Mao Zedong and insist that the government would continue to "oppose bourgeois liberalization." He never uttered the politically incorrect word privatize, explaining that the new shareholding system is simply a modern form of "public ownership" that "can be used both under capitalism and under socialism." But few were fooled by the verbal acrobatics. "It's a deep change," says Wang Shan, a political commentator in Beijing. "The industrial worker who used to rely on the state will be thrown into the marketplace."

More than half of China's 125,000 state industries are hamstrung by outmoded management. Though the factories employ 110 million workers, they can barely pay them, and while these businesses soak up 90% of loans from state banks, they account for only a third of China's total industrial output. But Beijing has always been afraid of the social turmoil that could be unleashed if millions of those workers were dismissed.