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China: A Look Back at a Missed Opportunity

By the late 1980s, was well under way and the benefits of free-market reforms were abundantly evident. Yet as he traveled the booming coastal provinces, then-Premier and Communist Party chief Zhao Ziyang, an architect of several key reforms, was troubled by mounting evidence of rampant corruption, which he considered a symptom of a structural flaw in China's model. The Communist Party's monopoly on political power and heavy hand in business not only distorted competition, it also created enormous opportunities for officials at all levels of government to extract graft. "The only solution for resolving this issue is continued deepening of reform to separate government and enterprise," Zhao wrote in a diary. China also needed a system of political checks and balances and a rule of law. "To fight corruption, reform of the political system must be carried out." As Zhao saw it, without such reforms would never become a modern market economy. In 1989, when hundreds of thousands of people took to the streets of Beijing to demand a cleaner and more open government, Zhao's worries about corruption led him to express sympathy with the Tiananmen Square protesters. That prompted his purge by hard-liners, who placed Zhao under house arrest until his death, 16 years later. Today, two decades after Tiananmen, his observations are recorded in the book Prisoner of State: The Secret Journal of Zhao Ziyang, published last month by Simon & Schuster. The book, edited by Bao Pu, Renee Chiang, and Adi Ignatius, is based on translations of audiotapes that Zhao had recorded and kept hidden during his years under house arrest. When Prisoner of State first appeared, most attention focused on Zhao's inside accounts of power battles within the Chinese leadership and his observations on Tiananmen. The book also triggered speculation about how China's political system would look today had Zhao remained in power: He endorsed Western parliamentary democracy as the best political system. Zhao: Key Architect of Reforms But Zhao's journal also raises the intriguing question of what the Chinese economy would look like today had he been able to usher in his agenda of political reform. While late paramount leader Deng Xiaoping garnered most of the credit, Zhao was a key architect of some of the most important reforms enabling China to achieve decades of rapid growth and emerge as a modern industrial power. He fought relentlessly behind the scenes to promote agricultural reform, foreign investment, and the economic opening of the coastal provinces. Perhaps Zhao's biggest contribution to economic reform was to keep it on track and find a way to defuse ideological objections over capitalism, says editor Bao Pu, son of former top Zhao aide Bao Tong (who also was arrested after the June 4, 1989, crackdown) and editor and publisher of Hong Kong-based New Century Media. For instance, rather than use the term "market economy," Zhao used the term "merchandise economy." The nomenclature, Bao says in an interview, helped Beijing "bypass a costly debate among the leaders over whether they should go down the road of market reform or not." Zhao's faith in democracy had nothing to do with ideology, Bao contends. "He was always a practical leader and tried to find real-world solutions," he says. "What he is saying [in his journal] is that since parliamentary democracy has proven to work in modern industrialized nations, there is no reason it would not work for China." Prescient Concerns About Structural Flaws By the time Zhao began dictating his journal, Bao says, "he knew China had way passed the turning point and had to be committed to a free-market economy." But he worried that without political reform, a market economy would lead to greater social injustice. "He thought it was time to address that." Zhao's concerns about China's structural flaws, meanwhile, seem prescient today. Even though has enjoyed three decades of breathtaking growth—and is faring far better than the U.S., Europe, and Japan in the global recession—party officials from the central government down to the townships still have huge sway over most industries, while successful court challenges to abuse of power are rare. Corruption is a bigger problem than ever. And state-owned banks still funnel most of China's savings to big state corporations that crowd out more dynamic and innovative private entrepreneurs. Meanwhile, the growing gap between rich and poor has become a major concern for Beijing's leadership. China's top leaders recognize the flaws in the current economic model and are pushing to address them. But as Zhao clearly realized decades ago, there's reason to doubt these flaws can be fixed without reforming the political system.
Engardio is an international senior writer for BusinessWeek

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