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Contends magazine: China's Premier at Beidaihe states ten dangers in economy

Jiang Zemin (left) and Zhu Rongji (right)

According to the September issue of Hong Kong's monthly magazine Contends, Chinese Premier Zhu Rongji gave an over 2-hour report at the Beidaihe meeting on the current situation and development of the mainland economy. Some people speculated that Zhu gave a relatively complete low-down before expiration of his appointment as Premier of the State Council. The sheer length of the report (over 40,000 words) in addition to its contents shocked meeting attendees.

“Ten big hidden dangers” and the economic crisis

Zhu Rongji spent most of his talk detailing the ten dangers in the current economy:

(1) To suppress problems in the economy, administrative measures have been taken usually. However, following the economy’s development and loosening as well as China’s admittance into the WTO, administrative orders and measures have proven harmful.

(2) The internal market continues to weaken. Though the Chinese market is broad, the Chinese economy cannot stand independent of the world, especially with influence from economic changes in countries and regions such as Hong Kong SAR, America, Japan, the European Union, and Southeast Asia. In fact, the degree of its dependence is deepening. Some data indicate that trade between Hong Kong SAR, America, Japan, Korea, and the mainland directly affects the employment of 30 million workers and more than 20% of the gross national economy.

(3) Following promotion of science and technology in industry, and changes in the industrial structure, the unemployment population has been increasing by 5 million annually while the population that needs to be employed increases by 8 million annually. By an optimistic estimate, only 4 million people can be employed each year. Presently, the unemployment population in cities and towns has already reached 30 million.

(4) Not only are there problems in agricultural structure, but the most prominent is liberation of farmers' productivity. There are over 400 million surplus labor forces in the countryside, which not only affects farmers' living standards, but has also become a time bomb in society. Zhu admitted that the Central leadership does not have a set of long-term strategic plans to resolve the problem of surplus labor force in the countryside. However, Zhu admitted that the Central leadership already owes too much to the farmers.

(5) The reform in state-owned enterprise has stagnated, the funds are draining, and the enterprise is sliding into debt. Nowadays, 40% of the state-owned enterprise must still rely on debt to continue on.

(6) The situation of fund outflow remains grave, and there have not been obvious efforts to curb this problem. During the mid-1980's, daily outflow was 20 million. When it came to the mid-1990's, daily outflow reached 100 million. In recent years, the daily outflow has reached nearly 1 billion. Up to the present, more than 300 billion U.S. dollars have been embezzled, diverted, or outflown. Zhu’s comment was that these numbers are frightening.

(7) It has already been verified that the proportion of banks' bad accounts and bad properties has topped 38%, a problem in which the Central leadership has unavoidable responsibility. Basically, the four largest state-owned commercial banks cannot reach the 8% Capital Adequacy Ratio stipulated by the Barsel Accord.

(8) For a long time, the negotiable securities industry has lacked necessary management and has been controlled by individuals. Officials in some local governmental departments and enterprises have colluded with the big shots in the negotiable securities industry. At present, the condition is difficult to change, and it directly relates to the benefits of more than 52 million stockholders. Overall, it is a heavy bomb. To prevent the bomb from exploding, the Central Committee is now suppressing the situation using administrative measures.

(9) The Party and politics departments have illegally established small "state treasuries." Although there have not been any complete statistics yet, an estimated 300 billion plus Yuan RMB sit in these treasuries. Not only is this illegal, but it is the model of corruption in the Party and politics departments.

(10) The foreign loan and internal debt that we are familiar with are still imaginary numbers. The foreign loan is more than $160 billion while the internal debt is over 960 billion Yuan RMB. But the actual numbers could possibly be 20% higher. The bank deposit structure is seriously unbalanced.

Zhu Rongji admitted that the problems in the economy have long gone unresolved. This has gravely affected the confidence and investment will of international investors. Moreover, it has seriously tarnished China's international image, and the confidence and the cohesive force that people have in the government and the social system.

Six major reasons

Zhu addressed six causes of the economic hidden dangers and the crisis:

(1) The present political system has revealed its incompatibility with economic reforms, or has even negatively hindered the economy. This is a fact, but there are still many comrades who do not wish to acknowledge it as the key reason.

(2) The political and professional qualities of the official ranks are very low.

(3) Rule of law along with laws and regulations cannot play a restraining role in the economy. They amount to nothing but an empty shell in a majority of areas and departments, and are overruled by officials abusing power.

(5) Serious deviation has occurred in the implementation of the reform and development policy, which has created incisive conflicts and doubt in, and even repugnance and resistance to, the economic reform policy among the mass of employees and farmers. The solid foundation of support has been lost.

(6) The habit of reporting only the good news and not the bad, practicing fraud, and deceiving the superiors while deluding the subordinates, and so on, have already become the persistent ailment of many bureaucrats in party organizations and government departments.

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