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Adrian Brona  5 grudnia 2021

Zhu Rongji. The forgotten hero of China’s economic success

Adrian Brona  5 grudnia 2021
przeczytanie zajmie 7 min
Zhu Rongji. The forgotten hero of China's economic success 尧智 林 / Unsplash

A reformer and pragmatist, a proponent of opening up to the West. Within a decade of Zhu Rongji’s governance, he carried out a major reorganisation of the Chinese economy. He empowered the central bank, reformed state-owned companies, optimised bureaucracy and brought China into the WTO, making it the ‘factory of the world’. He was uncompromising in his actions, and his work paved the way for the next two decades of rapid economic development. Why then do we in the West know so little about China’s former Prime Minister?

Chinese politics can be perceived in many different ways. It could be a story about the Chinese Communist Party’s (CCP) methods of maintaining power, the struggle for influence by different factions, and the manifestations of seeking the subjectivity of societies in an authoritarian regime. One of the more popular paradigms is also to view politics through the influence of prominent figures who have left their mark on the trajectory of China’s history. The personal influence of figures such as Mao Zedong, Deng Xiaoping, and contemporary Xi Jinping is often analysed in this context. But apart from them, there was a whole array of first-rate Chinese politicians who have almost been forgotten in the wider public debate. One of the most intriguing characters among them was Zhu Rongji.

Turbulent beginnings of his career

Zhu Rongji was born in 1928 in the Hunan province in central China. He came from a family of intellectuals and landowners. He studied electrical machine manufacturing at the prestigious Tsinghua University in Beijing. Before he had time to complete his education, the CCP won the civil war, and Mao Zedong proclaimed the founding of the People’s Republic of China (PRC) in 1949. During this time, Zhu became involved in the youth communist movement and joined the party.

An elite four-year university degree and political involvement allowed Zhu to start his career from a reasonably high position. He became deputy head of the planning office in one of the ministries of industry, which had jurisdiction over Manchuria, at that time the most industrialised part of the country. After just one year, he was transferred to the State Planning Commission, where he held deputy director positions in several different offices.

However, his promising career crumbled rather quickly. During the Hundred Flowers Campaign (1956-1957), when Mao encouraged evaluation and criticism of the achievements of the „New China” to date, Zhu Rongji expressed his positive attitude towards the reforms of the socialist system in Yugoslavia and Hungary. He probably did not realise at the time that after a brief period of greater freedom of expression, a new campaign would be launched – this time, against the „rightists”. The campaign’s goal was to identify and get rid of anyone who dared to express views contrary to the line of the party, which, for example, supported the intervention of the Soviet Union in Hungary in 1956.

Zhu, identified as a „rightist”, was demoted, expelled from the party and then sent to work as a teacher at a school that prepared future cadres for the planning commission.

At the same time, Mao Zedong announced the ‘Great Leap Forward’, which was to lead to the almost immediate industrialisation of the country through mass industrial plants located in the countryside. The results were drastically far from the objectives. The consequence was a great famine which, according to research by Yang Jisheng, a former journalist with the Chinese news agency Xinhua, claimed 36 million victims.

In 1959, Mao agreed to hand over direct management of the economy to Liu Shaoqi and Deng Xiaoping, who began a gradual process of rehabilitation of cadres. One of those reinstated to work at the State Planning Commission was Zhu Rongji, although this happened as late as 1962.

Also, this time the period of tranquillity in his life was abruptly terminated. In 1970, during the Cultural Revolution, he was sent to a work camp for bureaucrats (the so-called May Seventh Cadre School). There he spent five years, during which he was forced to work as a farmer. In a wave of subsequent cadre rehabilitation, he was reassigned to government work. During this time, a period of reforms and opening-up began in China, and Zhu was reinstated as a member of the CCP.

Rise to power

The 1980s were a very specific period in the functioning of the regime. On the one hand, many young people enjoyed rapid promotion, but on the other hand, the generation of „party elders”, often persecuted or marginalised during the Cultural Revolution, was regaining influence and power. The whole situation was under the control of Deng Xiaoping, who, through his authority and command of the army, had the final word in decisions taken by the party.

Zhu Rongji found himself in this new situation perfectly. He had already developed a reputation as an effective and uncompromising bureaucrat, and the situation of the 1980s allowed him to make the most of his opportunities. In 1979, he was assigned to the State Economic Commission. Within eight years, he was promoted to its vice-director before being unexpectedly transferred to the post of mayor of Shanghai.

It was during that time that he came to be more widely known by the public. Despite spending only four years in the city, his career is often described through the prism of these experiences. Between 1987 and 1989, he developed a pragmatic but uneasy in terms of competence, relationship with Jiang Zemin, then secretary of the CCP committee in Shanghai. In 1989, their policy led to a relatively peaceful resolution of the demonstrations in that city. This was well received by Deng Xiaoping – Jiang was immediately promoted to the post of General Secretary of the CCP, giving Zhu a free hand.

During his governance of Shanghai, Zhu Rongji made a name for himself as a skillful reformer who promoted local business while ruthlessly fighting corruption. He was also known for his strict adherence to party discipline. After sanctions were imposed on China in 1989 by Western powers, he travelled with a delegation of local authorities to the United States, where he tried to persuade politicians and businessmen to normalise economic relations.

Among other things, a development plan was prepared for the Pudong district, which is nowadays famous for its international airport, Disneyland and one of the most recognisable skyscraper skylines in the world. The distinguishing feature of the then CCP secretary in Shanghai was pragmatism. This was reflected, for example, in the promotion of subordinates on the basis of merit rather than party seniority.

During his office in the „Pearl of the Orient”, a pro-market attitude was particularly evident. The success of Zhu’s commercial reforms must have made a big impression on Deng Xiaoping. In 1991, he transferred Zhu Rongji from the post of Shanghai CCP secretary to the post of deputy prime minister.

„Economic Czar”

The period of 1989-1992 saw a heated discussion within the party about the future course of economic reform. Ultimately, Deng Xiaoping’s intervention prevailed in further opening up the Chinese economy. The mood in the party changed and Zhu Rongji was included in the elite Politburo Standing Committee. In 1993, the Parliament elected him as First Vice-Minister, responsible for the economy. Zhu was given an almost free hand in introducing economic reforms. He was nicknamed „Economic Czar” by the Western press.

One of his first challenges was to curb inflation. To do so, he took up the post of governor of the central bank. He stabilised the situation within two years and then handed over the control of the bank to one of his protégé economists. His next steps included streamlining and reducing central and local bureaucracy, reforming the financial system and stimulating entrepreneurship. His policies favoured large urban centres, which were quite neglected during the first wave of reforms in the 1980s. He saw the potential of China’s metropolises, which had not been fully realised in the first decade after 1978.

When he was appointed prime minister in 1998, he launched a comprehensive plan to restructure state-owned enterprises, which was abbreviated as „grasp the large and let go the small” (zhua da fang xiao 抓大放小). Through it, the Chinese economy was to be prepared for possible accession to the World Trade Organisation (WTO). Zhu realised that economically inefficient businesses were unable to withstand competition once the Chinese market opened up to foreign products, and the state simply could not afford to support every business.

The result of the plan was to streamline governance and strengthen control over around 200 large state-owned enterprises, whereas smaller businesses were transferred to local authorities, privatised or simply closed down. This involved massive redundancies and widespread unemployment in the cities (estimated at 10-20%), which was, however, mitigated over time. The removal of the „iron rice bowl”, the system of social benefits guaranteed by the employer, also began in the state-owned enterprise sector. One element of this was the privatisation at low prices of the accommodation that workers received from their employers. This started a boom in China’s property market that lasted until the autumn of 2021 when several large developers began to have problems repaying their debts. In the same year, the situation of employees of state-owned companies who were enfranchised in the 1990s was one of the arguments against the introduction of the cadastral tax. Many of them own flats quite close to the centres of large cities, where the price of property has increased several times in the last two decades. They would not be able to pay the tax calculated on the value of the flat, which currently runs into millions of yuan.

It is noteworthy that at the turn of the century, government intervention in specific branches of the economy reached its minimum. Only a few selected industries (e.g. automotive) were supported at the time. Instead, the focus was on improving the quality of higher education so that, with a better-skilled workforce, productivity would increase evenly across the entire economy over time.

Zhu’s efforts at administrative reform were also continued. In 1998, the Parliament passed Zhu’s programme to reduce and optimise bureaucracy, which was supposed to lead to a halving of administrative staff. At that time, the number of ministries was reduced from 40 to 29. The implementation of a system for evaluating staff on the basis of their performance was also started.

Despite these changes, Zhu did not appear to be in favour of fundamental political reforms. It can be said that he was more eager to make the CCP more open to talented people than to allow them to be politically active outside the party.

Zhu was a clear advocate of economic integration with the West, greater openness to foreign capital and the abolition of trade barriers. He is, therefore, best known abroad for his role in the PRC’s accession to the WTO. It was largely due to his persistence that China was admitted to the organisation in 2001, from which it has undoubtedly benefited over the years.

It must be noted, however, that not all of Zhu’s efforts were successful. These include the Great Western Development plan (xi bu da kaifa 西部大开发) launched in 1999. Its aim was to close the gap in economic development between the western part of the state and the coast. The problem of uneven growth in the 1990s became serious enough to attract the interest of Beijing. In the end, however, the measures taken did not succeed in closing the development gap, and the problem is only getting worse today.

Lack of care for legacy

Since Zhu retired in 2003, there has not been another Chinese politician who would be so successful in implementing economic reforms. However, he can be seen as a politician who failed. China has not fully implemented the economic opening-up commitments it was obliged to make after joining the World Trade Organisation. The reforms have lost their momentum and the economic situation has become far from ideal, despite the high growth rate. His successor, Wen Jiabao, admitted in 2007 that the biggest problem of economic growth in China is that this growth is unstable, unsustainable, uncoordinated and impossible to maintain. Almost 15 years after these words were uttered, some of these problems still remain; others have been covered up by a gigantic crediting action.

From this perspective, perhaps Zhu’s biggest mistake was to disregard his rivalry with other politicians to create his own faction within the party that would look after his legacy. During his career, he promoted many skillful financiers, including Dai Xianglong (central bank governor 1995-2002), Zhou Xiaochuan (central bank governor 2002-2018), Lou Jiwei (finance minister 2013-2016) and Guo Shuqing (current chairman of the Banking and Insurance Regulatory Commission). However, his protégés have never had a strong position in the provincial governments, where the centre of gravity of Chinese politics currently lies. Without them, the reformist zeal in China slowly faded and the CCP’s policy shifted the emphasis from transforming the economy to increasing social control through forceful solutions.

Polish version available here.

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Public task financed by the Ministry of Foreign Affairs of the Republic of Poland within the grant competition “Public Diplomacy 2021”. The opinions expressed in this publication are those of the authors and do not reflect the views of the official positions of the Ministry of Foreign Affairs of the Republic of Poland.