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China's New Elite


International Business: CHINA

CHINA'S NEW ELITE

Chen Xiaoyue was 19 years old the day Red Guards came hunting for "class enemies" at Beijing's Qinghua University. It was 1966, the start of the Cultural Revolution, and Chen's father--a professor who had taught at Harvard--was a prime target. Chen's home was ransacked, and his family was scattered to different corners of China. Chen spent 10 years toiling as a farmer and factory worker in remote Shaanxi province.

It was the seminal experience of his life. After working all day, he spent nights poring over old textbooks to teach himself math, physics, and English. In 1977, a year after the Cultural Revolution finally ended, Chen was one of the few people who passed the first competitive university entrance exam held in a decade. Nearly 20 years later, Chen is leading a different revolution at Qinghua: As associate dean of the management school, he is shaping its curriculum to prepare leaders for the market economy. "People of my generation will play a very important role for the next century," Chen says. "We have to establish a new business culture."

A dynamic new elite is coming to the fore in China. Its members stand out from both the older generation raised on communist glories and from younger Chinese exhorted to "get rich." This group came of age during the Cultural Revolution, when millions of teenagers became Mao's fanatic Red Guards. In the reign of terror that followed, millions of Chinese were humiliated, beaten, and murdered. Then, Mao banished 17 million teenagers to the countryside, closing their schools and denying them education beyond communist propaganda. They became known as the "lost generation," a waste of talent that hobbles China to this day.

WARY. A select group has managed to make up for lost time. Call it the Class of '77. Its members were the first students after the Cultural Revolution to gain entry to universities on the basis of competitive exams rather than political connections. Out of 12 million applicants for China's top universities in 1977 and 1978, they were the 5% who earned top scores. Many went on to earn master's degrees and PhDs in the West. Now, the Class of '77--sophisticated and wary of rigid ideology--is making an impact on every aspect of Chinese society, from business to government to the arts.

They are by no means a monolithic group. Highly independent, they hold widely varying opinions on such issues as political and economic reforms. But most want a China that is more open to the outside world, tolerates greater debate, is driven by the private sector, and is run by modern institutions and the rule of law. While a more liberal China is a long-term goal, some support a government run by pragmatic technocrats. Above all, members of the Class of '77 believe they are the most qualified to lead China, by virtue of their experience with rural poverty and Western society. With Deng Xiaoping near death and doddering Communist Party career men fading from the scene, members of the Class of '77 are preparing to take the reins.

They will be able to tap into a tremendous network. Alumni are everywhere, from the upper management of state-owned companies to the Asian units of multinationals such as Kraft Foods International and Goldman, Sachs & Co. They're pioneers in private enterprise, capital markets, and legal reform. Many hold prominent posts in Chinese universities. Tens of thousands are at key levels in China's massive bureaucracy. The '77ers "are the most impressive people I've ever met," says China expert Kenneth G. Lieberthal of the University of Michigan.

To be sure, the Class of '77 isn't the only influential group of fortysomethings in China. Far more powerful are the "princelings"--sons and daughters of top Communist officials. Many also did time in the countryside, but they advanced through patronage and nepotism.

They and others among Beijing's leaders view the Class of '77 with some suspicion. The class dominated the economic and political think tanks that influenced policymaking under reformist party boss Zhao Ziyang, purged after Tiananmen. Many Zhao advisers supported the students and subsequently scattered into the private sector or to overseas universities after the massacre.

SELF-RESPECT. As a result, Communist elders may take moves to slow the Class of '77's advancement into sensitive top-level jobs. "The leaders do not trust our generation," says an economist who had been a Zhao adviser. "We have too much self-respect to kowtow to them." This generation, however, will not be easily marginalized. For starters, they're very much in vogue. Recently, novels, TV series, and theme restaurants have been devoted to the experiences of the laosanjie, or "old three classes"--those who would have graduated from high school during the first three years of the Cultural Revolution.

More important, the Class of '77 has a pivotal role in the economy. The drive to develop capital markets, monetary policy, and a commercial-banking system largely is the work of '77ers. They hold directorships in the Finance Ministry and State Planning Commission. The China Securities Regulatory Commission has at least five '77ers in top positions, including chief legal counsel Gao Xiqing, a former Duke University professor who worked in a munitions factory in the Cultural Revolution. Gao left a high-paying job at a Wall Street law firm in 1988 to take his present post.

Some of this generation's most gifted members serve as a bridge between Wall Street and China's state sector. Shan Weijian, based in Hong Kong as J.P. Morgan & Co.'s vice-president for China, toiled six years in Inner Mongolia as a farmer, horse rancher, mason, and "barefoot doctor"--a rural physician with no formal medical training. He went on to earn a PhD in the U.S., work at the World Bank, and teach at the University of Pennsylvania's Wharton School before moving to J.P. Morgan.

China's progress in building a modern legal system also depends largely on '77ers. At 40, Wang Yun is a judge in the Supreme Court's commercial division, where she handles cases on contracts, bankruptcy, and banking. Wang entered college in 1979, after working in a dyeing plant for seven years. Her seniors had only orthodox communist training in school, but Wang and her classmates studied works by such Western theorists as Locke, Montesquieu, and Rousseau. "My generation learned more in law school," says Wang, who is a visiting scholar at Columbia University.

Since this group suffered so much during the Cultural Revolution, it is determined to build a sound legal system. "The Cultural Revolution was lawless," recalls Wang Xinan, director of the legal department in the Ministry of Machine-Building Industry, who spent six years on a farm and at factories in Gansu province. "My generation paid a high price, and we don't want later generations to have to as well." Wang is helping state enterprises develop legal skills so they can appeal to the courts rather than the ministry to solve problems.

The Class of '77 will have its most lasting imprint on education. Chen Zhangliang, who heads the biology department at Beijing University, says his brethren occupy top academic posts. "If you look at every institute and university, you will see over half are from this generation," he says. Academics returning from the U.S. are also revitalizing economics courses. "We must totally change the system," says Hai Wen, one of five U.S.-trained economists from the Class of '77 who started Beijing University's China Center for Economic Research.

The Class of '77 is well-represented in the business world, running property, marketing, and financial companies. Li Xiaohua, who spent six years as a horse-cart driver in Heilongjiang province, created Beijing-based property-and-industrial concern Huada Investment Group. The founders of Beijing property group Vantone Industry Corp. and computer pioneer Stone Group are also '77ers.

BUSTED TRUST. This generation of execs may become a factor in politics. Many remain bitter about the Cultural Revolution. An official at a Guangdong hotel company says he has "never trusted the Party" since 1967, when as a Red Guard, he was branded a rightist and beaten after a different faction in Beijing took over the movement. Someday, "we will fight for our political rights," he says. "This will transform China."

That time hasn't come yet. As leaders jostle for power in the post-Deng era, political reform is in the deep freeze, and the pace of economic reform has slowed. Many '77ers regard President Jiang Zemin and Premier Li Peng as temporary leaders at best. Next in line are party veterans in their 50s, educated before the Cultural Revolution. They occupy most ministerial posts, provincial governorships, and the top jobs at China's biggest state-owned companies. But with age limits being enforced in more government jobs--a key reform under Deng--most of this group will be pushed into retirement within a decade.

That opens the way for the Class of '77. Having suffered through Maoist fanaticism, '77ers harbor no illusions about sudden transformations of Chinese society. If nothing else, the Cultural Revolution "taught that in China, political changes are dangerous, unstable, and unpredictable," says Ding Xueliang, a '77er who is now a political science professor at Hong Kong University of Science & Technology.

That hasn't stopped some of them from pressing for political reforms, though. Members of the '77 generation played a leading role in recent months as Chinese intellectuals sent petitions to the government calling for change. If this group is viewed as too threatening, it could be bypassed for top positions in the future. "They are hot potatoes," says Robin Munro, Hong Kong director of Human Rights Watch/Asia.

But there's no guarantee that younger generations will be any more submissive. Educated Chinese in their 20s and early 30s take the Communist Party even less seriously. "They sneer at everything," says Stanley Rosen, a political science professor at the University of Southern California. Because the '77ers possess the skills needed to run bureaucratic machinery and formulate policy, whatever faction is in control will need to rely on this generation. Any leader "will have to solve society's problems," says a '77er who was a Zhao adviser. "He will need us to do that."

As the older bosses viciously struggle for power in Deng's wake, expect the Class of '77 therefore to wait its turn. Meanwhile, it will likely try to change the system quietly from within, gradually strengthening the institutions required for a civil society. If China can get through another decade without major upheaval, it could start to resemble the modern economic power so many await--thanks in large part to the Class of 1977.

The Class of '77 Makes Its Mark

Survivors of the Cultural Revolution who entered China's best schools in the late 1970s make up the Class of '77, an elite group that is becoming more powerful as the country enters the post-Deng era

-- Having risen largely on merit rather than family ties,

the '77ers represent some of China's brightest minds

-- They have built up extensive personal networks based on friendships during the Cultural Revolution

-- After studying and working overseas, '77ers are more open to Western ideas and less bound by communist ideology than the older generation of leaders

-- They fill key positions in the government, universities, and think tanks, and their help will be vital to whoever wins the power struggle after Deng

-- State-run enterprises and Western multinationals alike rely on '77ers to run many operations in China

-- They want the government to tolerate criticism, boost the private sector, and encourage the rule of lawBy Pete Engardio in Beijing, with Dexter Roberts in Hong Kong and Bruce Einhorn in New York


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