On top of a heap of loose sand: As China's economy overheats, its elusive political leaders cannot keep pace, says Teresa Poole

IMAGINE a Britain where Margaret Thatcher is about to turn 89, has not been seen in public for months, has held no formal political or party position for years, and yet remains the most powerful person in the country despite her ailing health. At the same time, the Prime Minister of the day has made just two official appearances since April, is said to be suffering from a heart problem, but the population has no idea how ill he is or even whether he is still involved in running the country. Against this background the economy is growing so fast it is in danger of veering out of control. And Westminster is trying desperately to reimpose its order on counties that, in this heady atmosphere, no longer pay much attention to regulations issued in London.

Now imagine a similar scenario in a country with 20 times Britain's population and which is in the throes of transforming itself from a rigidly centrally planned Communist economy to a free-market system. Such is the strange world that is China today.

This Sunday is Deng Xiaoping's 89th birthday. Nowadays his only formal position is as honorary president of China's Bridge Association (that's playing-cards, not transport). But even though his grunts usually have to be translated by one of his daughters for wider dissemination, he remains the master puppeteer in the secretive business of Chinese politics. In recent weeks rumours have run riot that his health is finally failing; testicular cancer was one story, albeit firmly denied by officials. So the question of succession is again at the forefront of any discussion about China. Meanwhile, Li Peng, the Prime Minister, who for weeks was said by the authorities to be suffering from a 'bad cold', has some sort of heart problem, but no one is admitting just what it is.

Much has changed in China during the past 10 years of economic reform, but the bamboo curtain remains tightly closed around the inner workings of China's political system and its key players. All that can be said with any certainty is that in these last days of the emperor, the men at the top will keep their heads down while trying to position themselves ahead of the huge power struggle that will emerge when Deng finally goes to meet Marx. No one can know at this stage what the outcome of that struggle will be.

When China was a closed country or caught up in one of its painful upheavals, such uncertainty did not seem out of place. These days, when every aircraft is wait-listed with business people trying to fly into the country, and a decade of economic reform has transformed many Chinese people's lives, it is attractive - but misguided - to believe that the question of what will happen when this particular old man dies is less of an enigma.

In the fastest-growing areas of the country, the symbols of change are everywhere. Homes not only have colour televisions, they have satellite dishes. Rural workers have the freedom to travel widely in search of work. China's urban youth mirror their Hong Kong counterparts, from their clothes to their mobile phones. One Chinese woman in Shenzhen, China's biggest special economic zone, recently complained to me what a nuisance it was that her 'BB' - the Chinese name for pagers - insisted on beeping her with regular stockmarket updates that she did not want. And just four years after the Tiananmen Square massacre, Peking is even a serious contender to host the Olympic games in 2000.

It is the less obvious things that are slower to evolve. While foreign investment is flooding the country, China's paranoia about the management of information remains as strong as ever. The health of political leaders is one extreme case. But take two recent, more mundane, examples. Earlier this month there was a huge explosion at a chemicals storage warehouse in Shenzhen. If it had happened in a more remote part of China, rather than right next to Hong Kong, the outside world might not even have heard about it because China does not like to broadcast things that go wrong. As it was, official announcements about the death toll went from one to 70 and back to 12 within 24 hours. Even now, no one knows for sure how many perished, only that it is probably many more than admitted. Another mysterious matter was the Shenzhen authority's initial request for assistance from Hong Kong, which was suddenly withdrawn, perhaps when higher authorities pointed out the error in seeking help from the colonial government to the south.

Management of news remains very centralised. Just last weekend, Peking issued revised instructions that all Chinese groups, including local governments, must officially register any news conferences that they wish to hold. 'Sponsors of news conferences should not leak party and national secrets,' the directive added.

Nor is there any significant diminution of human rights abuses, despite the efforts of Western governments to bring pressure to bear on Peking. Western human rights groups have documented dozens of arrests of peaceful pro-democracy figures since Deng's push for faster economic reform last year. China is now under pressure on another count; Han Dongfang, a free trade union activist who has spent the past year in the United States for medical treatment, was last weekend thrown out of China after he tried legally to return home.

A big difficulty with assessing China is that an outsider's view can easily swing too severely from one side to the other. After June 1989, China was synonymous in the West with a bloody, repressive government, and scant attention was paid to how economic reforms were largely left in place. Over the past year, in contrast, the paradigm has gradually shifted to one where China is most often assessed in the light of its economic growth, modernisation plans and lucrative opportunities for foreign business. Far less emphasis is given to the shortcomings and contradictions that persist and the extraordinary place it remains below the surface.

It is the potential success, so far, of these economic reforms that will make the stakes even higher in the succession battle when it comes. At the moment China's leaders are attempting what no other Communist country has managed, to modernise a vast economy and integrate it into the free world while maintaining absolute control within a monolithic single-party system. Political stability is all the more crucial during the next few months because the economy is overheating and the moves to rein it in will not benefit everyone.

Deng Xiaoping's visit south early last year was a message to the country to seize all the opportunities of reform and press full steam ahead. The provincial governments took him at his word and things subsequently got out of hand. Growth this year has surpassed all forecasts and is running at about 14 per cent, bank lending has ballooned, inflation has jumped, money supply has gone out of control, and the central government is saddled with a huge budget deficit because it is left with the task of baling out loss- making state enterprises. The gap between the wealthy and the poor has widened sharply so that, although most people are better off, there is growing resentment towards the new super-rich. Corruption is endemic, despite campaigns to stamp it out.

The central government's austerity package being imposed by the Deputy Prime Minister, Zhu Rongji, aims to crack down on speculative investment, slow economic growth and reassert central control over the provinces.

The challenge is to do this without exacerbating the potential for social unrest. A pessimistic picture would focus on the angry peasants who have not been paid for their crops because local governments have used the money on other ventures, and worried urban workers who are losing the guarantees, such as lifetime employment, that a centrally planned Communist system used to provide. On a more positive note, the pent-up industry of a billion people with a natural bent for making money has exploded into furious activity that would be hard to find in the former Soviet Union.

Against this background, the succession battle will be vicious because the rewards could be huge and there will be no room for losers. It remains a common faith in the upper echelons behind the walls of the leaders' compound at Zhongnanhai that the only way to implement successful economic reform is to have a centralised, unopposed one-party system.

Fear of chaos and the need for unity is the recurrent theme in Chinese politics. Early this century, Sun Yat-sen, the nationalist leader, cautioned of the dangers for a nation if it were reduced to 'a heap of loose sand'. Last month China's President and party chief, Jiang Zemin, issued a similar warning that the country faced chaos unless the party succeeded in rallying its members: 'We will become a heap of loose sand and be unable even to begin to talk about cohesion, fighting capacity and creativity, and there will be no bright future.'

(Photograph omitted)