Experts praise reforms of Chinese leaders, past and present

It was unusual for a gathering of pundits in Washington to heap praise only on a Chinese leader. Yet that was the case on Jan 9 at the Brookings Institution when they talked about former Chinese Premier Zhu Rongji.

Cheng Li, director and senior fellow of the John L. Thornton China Center at Brookings, described China's groundbreaking economic reform instituted by Zhu during 1998- 2003 as "critical in setting the stage for China to emerge as an economic powerhouse".

"The current leader's bold agenda, whether on anti-corruption, effi cient SOEs (Stateowned enterprises), financial liberalization or greater economic integration with the world economy, can all be traced back to Premier Zhu's remarkable efforts in these years," Li said at the opening of the talk, a day after the book: Zhu Rongji on the Record: The Road to Reform: 1998-2003, was published by the Brookings Institution Press.

It was the second volume of the series. The fi rst volume, covering the period from 1991 and 1997, was published on Aug 20, 2013.

Zhu, 86, was Shanghai mayor from 1987 to 1991, and China's vice-premier from 1991 to 1998. He was premier from 1998 to 2003.

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, believes that the reform of the SOEs is one of Zhu's main legacies and certainly one setting the foundation for China's rapid growth in the 2000s.

The SOE reform in the 1990s and early 2000s involved the laying off of millions of Chinese workers in inefficient SOEs and the disbanding of many of them. In Shanghai alone, an estimated 1 million workers were laid off, half in the textile industry. While many later found new jobs, the compensation for the workers at that time was minimal compared with today.

As a result of the reform, return on assets, productivity and capital effi ciency of SOEs have all climbed, according to Lardy.

"These reforms were very far reaching," he said. "These massive transformations happened in a very smooth manner from a political point of view."

Justin Yifu Lin, a Chinese economist and former chief economist and senior vicepresident at the World Bank, praised Zhu for the fi nancial sector reforms.

Lin reminded the audience that Chinese banks were just a branch of the Ministry of Finance in the old planned economy, and it was Zhu who tackled the huge amount of nonperforming loans in major state banks.

He recalled that nonperforming loans in four major state banks reached 47-48 percent during the Asian fi nancial crisis. Now such non-performing loans in the sector have been reduced to 2-3 percent at most.

"A powerful country must have powerful banks," said Lin, describing himself as one of the brain trust of Zhu.

He said that because of Zhu's reforms, the four banks are now all among the Top Ten banks in the world.

Kenneth Liberthal, a senior fellow at the Brookings, said Zhu understood that if certain changes were not made in China, the country would be in deep trouble in the fi rst decade of the 21st century.

"In a sense, it resonates with where China is at now," said Lieberthal, who served as special assistant to the US president for national security aff airs and senior director for Asia on the National Security Council from 1998 to 2000.

Lin, the economist, described the environmental degradation in China in those years as more a stage-of-development issue and regulatory enforcement issue, especially at the local level.

He also explained that many of the fi nancial reforms to be carried out in the coming years could not be done in the old days because China was still a low-income country and the risk of economic collapse could be real if certain reforms were made in a drastic way back then.

Lin believes Zhu also leaves a legacy for China and the world of investing in infrastructure under fi nancial crisis in the late 1990s. China successfully did it again in the 2008 global fi nancial crisis.

"I also recommend it to other countries," he said.

While some people in the West doubt the resolve of current Chinese leaders in reform and opening-up, Lin said the direction of opening is very clear that China will utilize both domestic and global resources and embrace both domestic and international markets. But he admits that China as a transition economy, there is still a lot of legacy, so China's globalization and opening will also depend on domestic and global situation.

Lardy, author of the 2014 book Markets over Mao: The Rise of Private Business in China, pointed out that current Chinese leaders Xi Jinping and Li Keqiang are very committed to opening, citing documents from the Third Plenum of the 18th Communist Party of China Central Committee and China's recent free trade agreement with Australia. The documents promised a series of ambitious economic reforms and fi nancial liberalization believed to be vital for China to sustain its economic growth.

"The trajectory and direction is positive," Lardy said of current Chines e leaders.

Contact the writer at chenweihua@ chinadailyusa.com