Deng ally loses post as head of central bank

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The Independent Online

Hong Kong

Zhu Rongji, who was inaccurately described by China-watchers in the West as ''China's Gorbachev'', has been replaced as governor of the country's central bank, the People's Bank of China. He retains the post of vice- premier and other economic responsibilities.

The move, endorsed by China's parliament yesterday, appears to be part of the power struggle now under way in anticipation of the demise of the Chinese patriarch, Deng Xiaoping, and sends mixed signals over control of the economy.

Mr Zhu, 66, a former mayor of Shanghai, was a protege of Mr Deng who ensured that control of the economy was concentrated in his hands both to combat rampant inflation and to bring tougher controls over money supply.

He gained a reputation as a liberal reformer among China- watchers although there was little evidence to support this. The real distinction between Mr Zhu and the mass of incompetent officials who ran the central bank was that he favoured modernisation and a tougher approach to the credit lines freely extended to near-bankrupt state industries.

His tough approach earned him influential enemies throughout the country. Six months after assuming the governorship of the bank in July 1993, Mr Zhu said, with splendid understatement : ''Since we implemented macro- controls over the economy, the post of People's Bank of China Governor has become extremely unpopular.''

His blunt, no-nonsense approach did little to mollify his opponents. In recent months President Jiang Zemin has been deflecting complaints about Mr Zhu and bringing in one of his proteges, the new vice-premier Wu Bangguo, as a part of the core economic team.

Although Mr Jiang and Mr Zhu know each other well from their time in Shanghai, Mr Zhu is not regarded as a full member of the so called ''Shanghai gang'' of supporters Mr Jiang is putting together to reinforce his position once Mr Deng dies.

Mr Zhu was known as ''one-chop Zhu'' when he ran Shanghai, China's largest city, denoting the way he centralised and speeded up authorisation for new projects. In contrast, Mr Jiang's period of controlling Shanghai was characterised by bureaucratic indecision.

Mr Zhu's successor as bank governor is Dai Xianglong, one of his allies and a current bank vice-governor, indicating that the government is not looking for a profound change of policy. However Mr Dai, 50, is more junior in the Communist Party hierarchy and will not be able to throw his weight around in the way that got Mr Zhu into trouble.

Although the outgoing governor made some impression on economic problems, the scale of his task precluded quick results. Inflation, which peaked at almost 26 per cent late last year, is coming down but still rages at around 20 per cent in major cities.

The supply of credit, which in part fuelled the inflationary trend, has been curbed but Chinese banks remain awash with bad debt from ailing state enterprises and are forced to keep throwing good money after bad.

Mr Zhu's stewardship of the economy is also credited with both raising and stabilising the value of the currency and with replenishing state reserves. He was responsible for the passage of two important bank reform laws which had the effect of decentralising the banking system, giving greater autonomy to the banks and detaching the state from responsibility for all their debts. However, he made little progress on opening the domestic banking sector to eager foreign investors.