Publication: China Brief Volume: 3 Issue: 3

By Willy Wo-Lap Lam

Security will be the watchword of the new administration of Wen Jiabao, due to be named prime minister at the National People’s Congress (NPC) early next month. In the past fortnight or so, Wen, a Zhu Rongji protégé, has conducted marathon meetings on ensuring China’s security and stability in the face of enhanced globalization and what Beijing calls “treacherous international developments.”

“We must beef up our ability to handle international crises,” Wen indicated in an internal strategy session late last month. Beijing sources said the veteran vice premier was referring both to economic problems that would arise as a result of China’s accession to the World Trade Organization and to flashpoints such as Iraq and North Korea. Wen was to some extent highlighting instructions Party General Secretary Hu Jintao had given in a recent Politburo meeting devoted to preserving China’s economic security. “We must be able to make preparations before the rainstorm,” said Hu. “We must safeguard the stable development of the Chinese economy and [economic] security. We must engage in forward-looking, strategic research on sudden changes in the global economy and their [adverse] impact on the Chinese economy, so that we’ll be in a position to take the initiative.”


Wen, whose portfolio for the past five years has been finance and economics, has paid the utmost attention to China’s banking system, deemed the weak link of an otherwise booming economy. At a national meeting on financial issues late last month, Wen and other senior cadres warned that China could be plunged into a debilitating fiscal crisis unless substantial reforms were undertaken.

“Finance is the core of a modern economy,” Wen said, adding that more efforts must be focused on lowering fiscal risks as more multinational companies in the banking, insurance and securities sectors are allowed into the domestic market. “We must be able to forestall any crisis in the financial sector.” He then pointed out that banks must adopt modern management techniques and stop old practices such as making government-mandated loans that are commercially unviable. He recommended, among other things, setting up a high-level, relatively independent Banking Supervision and Regulatory Commission. He urged more thorough-going means to reduce the banks’ nonperforming loans (NPLs) as well as the transformation of the four main state banks into concerns with management comparable to that of joint-stock companies.


In another conference, the 60-year-old Wen underscored the importance of safeguarding “strategic assets” such as petroleum. A senior officer in the State Development and Planning Commission said last week the country would work toward building up a “strategic stockpile” of 20 million tons of petroleum–a month’s worth of supplies.

While China is the world’s third-largest consumer of petroleum–it is due to import 60 percent of its needs by the year 2010–the country usually has enough supplies for only two weeks. The Chinese media has reported that the central government will spend upwards of US$100 billion to put together a “petroleum security system” in the coming twenty years. Apart from prospecting petroleum and gas within China and buying oilfields and other facilities overseas, Beijing will look into novel methods of conservation and unconventional sources of energy.


Both Wen and Hu have also been focusing on rencai anquan (literally “talent security”). This means, in effect, preventing China’s best-trained personnel–particularly those in areas that have a direct bearing on national and economic security–from being snapped up by multinationals and foreign government agencies. While brain drain has been a perennial problem, Chinese governmental and business units have been generally successful in luring back overseas-educated professionals and academics.

For example, out of the nearly 400,000 who have left China for studies in the United States and other countries since the mid-1980s, an estimated 140,000 have returned to work mainly in coastal cities. It is understood, however, that the Wen administration is drafting measures to effectively retain top-flight talents in high technology and military sciences, economics and business.

It is laudatory, from Beijing’s perspective at least, that the premier-in-waiting has pinpointed a number of pressing issues. The key question, however, is whether the Wen team’s preoccupation with financial and other kinds of security will expedite the pace of reform. Take, for example, the critical issue of whether Beijing will use efficient as well as market-oriented means to lop off NPLs and to gradually privatize the banks. According to a Chinese source close to the banking establishment, the just-named governor of the People’s Bank of China, Zhou Xiaochuan, recently proposed that the central government adopt more drastic steps to write off NPLs, estimated by Western economists as upwards of RMB4 trillion.

The source said Zhou suggested at a meeting on overhauling the financial system that the state make a substantial one-shot injection of funds to help the banks offload NPLs. Zhou also criticized his predecessor as chief central banker, Dai Xianglong, for moving too cautiously on the reform front. For instance, an effort by Dai and his colleagues in 1999 to write off NPLs by “transferring” some RMB1.4 trillion worth of bad loans to four asset management companies has proven to be ineffectual.

Zhou, who is close to both President Jiang Zemin and Premier Zhu Rongji, also indicated Beijing’s goal must be to list more banks, insurance companies and other financial institutions on the stock market so that management and corporate governance will be improved. Zhou also favors granting more licenses to private banks or those with mixed ownership. Decisions on these and other measures, however, will not be made until after the new cabinet is formed at the NPC.


Several among the prospective cabinet–including Wen and Zhou–have reformist reputations. At the same time, this leadership is very much concerned, to the point of obsession perhaps, with stability and security. Fears have therefore arisen that the leadership is predisposed to play it safe, and likely to err on the side of caution. The favorite reason, for example, cited by conservative cadres who want to continue extending “policy loans” to losing state-owned enterprises is that choking off the funds will mean more layoffs of workers–and more political instability. And Hu and Wen’s concern about keeping top-flight IT and hi-tech talent at home could hamper the free flow of talent.

And Beijing’s newfound nervousness about petroleum security has obvious foreign policy implications. The country has in the past month witnessed an upsurge of anti-U.S. sentiments, due largely to the perception that Washington is targeting the Saddam Hussein regime largely to grab Middle East petroleum. For example, Fang Ning, a well-known political scientist at the Chinese Academy of Social Sciences, said in an interview with the Chinese media that President George W. Bush’s motive in launching a possible attack on Iraq was none other than “the further control of the world’s petroleum reserves.”

Since late patriarch Deng Xiaoping kicked off reform and the open door policy in 1978, the Beijing leadership has walked the high wire between stability and progress. As more uncertainties and crises are expected to crop up in an era of enhanced globalization, the skills and reformist zeal of Fourth Generation cadres such as Hu and Wen will be tested to the limit.

Willy Wo-Lap Lam, one of Asia’s best known journalists and authors, is a senior China analyst at CNN’s Asia-Pacific Office in Hong Kong.