Chinese leader on the brink

From Saturday's Globe and Mail



Saturday, May. 3, 2003






Beijing Nobody expected it to happen so fast. Less than two months into his presidential term, Chinese leader Hu Jintao is facing both a career-threatening crisis and a historic opportunity for reform.

The SARS epidemic, with its explosive political implications and its life-and-death anxieties for millions of Chinese, has become the biggest crisis in Beijing since the Tiananmen Square protests of 1989.

The political fallout has already destroyed the careers of a health minister and a Beijing mayor. Social tensions are rising at least one street riot has erupted because of disease rumours and now China's economy is suffering a drastic decline that could see urban unemployment soar to dangerous heights.

"SARS has severely shaken people's confidence in their government and calls the entire political system into question," said Charles Burton, a China scholar at Brock University in Canada.

"Chinese people realize that their government only started to respond effectively to SARS under outside pressure . . . and that China's national reputation has been damaged by their government's mismanagement of the SARS outbreak.

"Hu Jintao and [Prime Minister] Wen Jiabao will likely have to really adopt political reform as their policy focus now, I believe, if they are to maintain the support of the people."

The epidemic comes at a crucial moment for political reform. It has allowed Mr. Hu to consolidate his power, marginalize some of his old-guard rivals and advance a populist agenda that responds to public demands and promotes new openness and transparency in the secretive Chinese bureaucratic state.

Within the ruling Communist Party, the new Hu Jintao faction is already thought to be feuding with the old-guard loyalists of former president Jiang Zemin, who retains much power as the head of the military commission.

Mr. Hu and Mr. Wen seem to be outmanoeuvring Mr. Jiang in the crisis so far. While the former president stayed out of sight, the new leaders visited hospitals and maintained their high profile as champions of the battle against the outbreak of severe acute respiratory syndrome.

Few thought Mr. Hu's political instincts would be put to such a severe test so soon after he became Communist Party chief in November and president in March.

So far, he has chosen openness. Chinese state television gave another live broadcast of a news conference on the SARS crisis yesterday, as it has almost daily for the past two weeks. At each televised event, for perhaps the first time, ordinary Chinese people have been allowed to see their political bosses admitting errors, promising openness and transparency, and struggling with tough questions from reporters.

"I've been very surprised and impressed by it," said Hu Shuli, editor of an investigative financial magazine in Beijing.

"It's very different from the past. The new Beijing mayor isn't trying to pretend that everything is okay he is showing the positive and negative sides. I'm very encouraged by his frankness. The Chinese media are more willing to report on this disease in an objective manner. It's very significant."

Even the dismissals of health minister Zhang Wenkang and Beijing mayor Meng Xuenong last month were shocking. The Chinese have almost never seen their government forced to sack two senior officials for incompetence and deceit.

The changes continued this week, as two newspapers and a magazine published articles accusing the government of mishandling the crisis and urged it to be more truthful and more responsive to the public interest. One article said the crisis showed the need for grassroots democracy and civil society.

For Mr. Hu, the biggest danger may stem from the dramatic economic decline in the second quarter of this year.

Some sectors of the urban economy, especially service-sector industries such as tourism and restaurants, have been brought close to collapse. The entire retail sector is suffering badly. The fragile banking industry is under greater threat, and the enormous level of foreign investment China has enjoyed over the past decade is in doubt.

If overall growth falls below 7 per cent for the first time since the 1980s economists believe China would not be able to create the 20 million new jobs it needs every year to keep pace with a growing work force. Because of the SARS crisis, many analysts are already predicting that China's growth will drop about two percentage points from an expected 8 or 9 per cent this year.

This, in turn, would send the urban unemployment rate increasing to a dangerously high level of 13 per cent almost five percentage points above its current level.

"If unemployment hits 13 or 14 per cent, it will be quite scary for China," said Yiping Huang, an economist at Citigroup in Hong Kong who specializes in mainland China.

"The pressures will get higher. Social stability is probably the key risk that China faces. When you have a crisis like this, people are already scared and angry and they feel lost."

Analysts estimate that retail sales in mainland China will drop by 10 per cent in the second quarter of this year. Computers and cellphone purchases fell by as much as 20 per cent in April.

The crisis could also lead to a slowdown of economic reform, including further delays in the long-overdue restructuring of the banking system, which is heavily burdened with bad loans, and the bloated state sector.

"It's a drastic slowdown," said Dong Tao, an economist at Credit Suisse First Boston. "The SARS epidemic is changing consumer behaviour. People are shying away from crowds. Shopping malls are emptier. The panic is devastating to the consumer sector."

On the political front, China watchers are still debating whether the temporary openness of the Hu government is a harbinger of greater reforms to come. While some are optimistic, others point to the government's blatant deceit at the beginning of the outbreak and its willingness to impose heavy-handed measures in the later stages of the crisis, including the arrest of "rumour-mongerers" who had simply passed on e-mails to others.

"I don't see this crisis as a catalyst for massive political change," said a Western diplomat in Beijing.

"It depends on the lessons the government draws from this, but I'm not optimistic yet. Its methods are still old-fashioned. It didn't want to be open and honest it was forced into it."


Bell Globemedia

2003 Bell Globemedia Interactive Inc. All Rights Reserved.