Jiang extols virtues of downsizing

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President Jiang Zemin stuck his political neck out yesterday with bold plans to overhaul China's creaking state sector, cut the army by 500,000 soldiers and launch a "protracted war" against corruption.

In the most important speech of his political career, Mr Jiang, 71, became the first Chinese Communist leader to call on factories to "increase efficiency by downsizing staff", part of an ambitious economic reform programme for loss-making state enterprises which is economically necessary but which carries social risks.

Standing beneath a huge hammer-and-sickle emblem in the Great Hall of the People, Mr Jiang opened the 15th party congress by nailing his political colours to the reformist mast of Deng Xiaoping. This is the first congress since the architect of China's modernisation died in February, and Mr Jiang must now seek legitimacy as Mr Deng's anointed heir.

Deng Xiaoping was mentioned no fewer than 60 times in Mr Jiang's two- and-a-half hour speech, but yesterday China's leader was determined to make his own mark as an innovator.

The President declared that the party must not indulge in "book worship" of Marxism, but be open to "bold experiments". The boldest of these was Mr Jiang's redefinition of "public ownership" and his decision that privatisation will be the main method of dealing with the burden of loss-making state enterprises.

Most of China's 300,000 state firms will be reorganised, merged, leased, sold off or turned into shareholding companies, and they will all now be responsible for their own profits and losses.

If the policy goes wrong Mr Jiang will be left to the mercy of his political opponents. Yesterday he pre-empted a likely broadside from the remnant of left-wingers who say he has abandoned the socialist path. "We cannot say in general terms that the shareholding system is public or private, for the key lies in who holds the controlling share," said Mr Jiang.

But the main danger, as Mr Jiang knows, comes from the millions of jobs which will be placed at risk when market forces are unleashed on state firms, half of which were in the red last year. The President admitted: "It would be hard to avoid the flow of lay-offs. It will cause temporary difficulties to [some] of the workers."

Reform of state enterprises has been under way for several years, albeit without an official imprimatur. Workers' strikes and public protests over redundancies and unpaid wages have already threatened the social order in some north-east and inland cities.

Mr Jiang's decision to cut 500,000 of China's 3 million soldiers over the next three years will add to the employment problem. This follows a reduction in troop levels of 1 million during the Eighties. Mr Jiang yesterday called on the army to "uphold the absolute leadership by the Party" but in reality he desperately needs to retain the support of the military to bolster his position as supreme leader and it is not clear how the generals will feel about the latest cuts.

Mr Jiang has also put himself in dangerous territory by delivering a broadside against corruption in the party. "We should be mentally prepared to fight a protracted war against corruption," he said.

Everyone pays lip service to a crackdown on corruption in China, but so many people have their fingers in the pot that a real top-level onslaught could cause a serious political upset. Earlier this week it was announced that the disgraced former party secretary of Peking, Chen Xitong, had been expelled from the party and would be prosecuted.

Ordinary Chinese welcomed the move, but it sent ripples of disquiet through the party's upper echelons.