THE NEXT CHINA

By Johanna McGeary

He was a surprisingly unassuming man for such a titan among statesmen. His round, cherubic face belied a will of steel that had launched his vast land on the most remarkable transformation of the modern age. When death came to Deng Xiaoping last week, at 92, he was nearly blind, deaf, virtually invisible and the honorary chairman of only the China Bridge Association. Yet even in his long political twilight, he still cast a shadow over the nation, at once reassuring and restricting the Chinese as they march uncertainly toward the 21st century.

The seismic changes Deng set in motion were daring, thrusting one-fifth of mankind in a Great Leap Outward from the crushing, dogmatic isolation of Maoism into a quasi-capitalist economic miracle. The China that comes after Deng will grow inexorably from the complex of roots he planted firmly in the nation's soil. Yet his work is unfinished, and the next China will have to come to terms with the fundamental contradiction in his hybrid creation. Even as the country embarked on a headlong pursuit of free-market economics, Deng insisted it be done under the iron fist of a rigid communist political system. The people would be free to get rich but not to challenge or change their leaders. Economic liberties would have to coexist with political bondage. China would continue to be ruled by men, not laws.

When this frail old man finally succumbed to the Parkinson's disease and lung ailments that had sparked rumors of his demise for years, most Chinese registered barely a sigh. Black-clad television announcers proclaimed his death just a few hours after it occurred, while traffic continued to thread through Tiananmen Square. The casual manner in which Beijing residents went about their daily routines offered eloquent proof that the Chinese have accepted their leader's mortality and long since discounted his loss. "We are at ease with the thought that things will be all right without Deng," said Beijing writer Yin Zhixian. "It's unlikely that there will be major changes, because everyone is a beneficiary of Deng's policies." Thirtyish Zhu Xun, manager of the Shanghai office of a German air-conditioning firm, raised his glass of white wine at the chic Golden Age club in a fitting toast: "Thank you, Comrade Deng."

Though he continued to wield an almost mystic influence from his private Beijing compound, Deng's gradual withdrawal from overt power allowed his successors to prepare for an orderly transition. He was, like the ghosts Chinese revere, a force the current leaders dared not speak of disrespectfully. The steady rise in personal prosperity has persuaded China's citizens that their new leaders will continue to follow in Deng's footsteps without a major change of direction.

Yet for all their outward calm, the Chinese are as anxious as the rest of the world about their future. Jiang Zemin, State President, head of the party, chief of the military committee, the "core" of the new collective leadership, was ordained by Deng eight years ago and has been running the government pretty much ever since. But history has never been kind to China in its moments of transition from one ruler to the next. And though there is confidence that these new leaders are firmly set upon the path of reform, there is equal doubt that they have the courage, stamina and leadership to complete the journey.

Jiang finds himself thrust into the limelight in what already promises to be a watershed year in Chinese affairs. U.S. Secretary of State Madeleine Albright will pay her maiden call at his office this week. Despite the official six-day period of mourning, Beijing quickly cabled Albright that they wished the meeting to go ahead. "They want to take her measure, and they want to show that it's business as usual," says a senior State Department official. Vice President Al Gore is expected in March. The national parliament opens its annual session that month, and the 15th Party Congress, the important meeting held every five years to fix policy and confirm leadership positions, is scheduled for the fall. Trickiest of all, Hong Kong reverts to Chinese control on July 1 and will be the world's litmus test of China's behavior. How Jiang handles this rush of events will be weighed by every domestic political rival, Chinese citizen and foreign power as a measure of his suitability.

"TO GET RICH IS GLORIOUS"

China, Deng told President Jimmy Carter in 1979, would need a long period of peace to realize its full modernization. To accomplish that, he added, China would also need Western money and know-how. Flinging open the doors, he led China on a capitalist drive from which there is no turning back.

As recently as 1994, Gao Feng, now 47, earned $100 a month as a machine repairman in a state-run textile factory in Shanghai. Then the nearly bankrupt firm laid off 300 workers, promising Gao 300 yuan a month to stay home. "These changes offered new opportunities," says Gao, and so he cobbled together $1,100 and enrolled in a course for taxi drivers. Gao now drives a shiny Santana cab for another state enterprise, and his take-home pay is pegged to his own moxie. On average, he says, he earns $240 a month plying his route from 5:30 a.m. to 9 p.m.

All Shanghai is caught up in entrepreneurial energy. In the mid-'80s, while southern provinces like Guangdong and Hainan turned Deng's experiment in "special zones" into a capitalist boom, Shanghai's decrepit state industries stagnated, its infrastructure disintegrated, and its people sulked. The economic revolution wasn't reaching far beyond a few chosen cities. Recalls Li Bo, a Shanghai economist who runs a consulting firm for German companies: "The most popular expression in 1991 was 'Gao bu hao le'--everything's hopeless."

Everything changed in 1992. Deng emerged from retirement to exhort his successors and lagging Chinese cities to "dive into the sea" of capitalist commerce. Shanghai dived in, reviving all its old spunk and luster. The metropolis is furiously rebuilding, attracting foreign investment, remaking itself into an Asian hub of finance, trade and culture. Officials say they will quadruple the city's industrial and agricultural output by the year 2000.

Today Shanghai is one vast construction site. More than 20,000 projects, including 5,000 major ones, are under way as 27,000 companies build bridges, tunnels, flyovers, ring roads, hotels, villas, golf courses and public housing. The "crane," quips Vice Mayor Zhao Qizheng, should be designated the city's official bird.

Chinese capitalism was born in the rural farmlands when Deng permitted the provinces to dismantle their communes and collective farms. Peasants raced to divide up plots of land for private tilling, harvesting record crops and selling them in private markets. In no time, residents of tiny villages like Fenghuang in central Sichuan province had wrought a green revolution. By 1984 the village was producing more than $1 million worth of rice and a range of side products, including a famous brand of rice wine. The once impoverished residents were now earning close to $200 a year, enough to begin replacing their mud-and-straw huts with solid brick houses.

Economic liberalization spread through the land, sparking national growth that has averaged 10% a year for the past 18 years. Millions of Chinese go home each month with bulging wallets, accumulating private wealth in stocks, bonds and bank deposits that has jumped sixtyfold since 1980. The average per capita income last year stood at about $250, but people live far better than the number implies, since the prices of goods and services remain relatively low. The Chinese can buy cars, appliances, TVs, pagers, cell phones, computers--all the expensive gadgetry of advanced industrialism. Private enterprises have expanded to make up 13.5% of the economy, and joint ventures account for 38%; state-run production has dwindled to 48%.

China has not merely joined the world community but has become the globe's third largest economy. As the trend continues, local capitalists and foreign investors will corner more than a quarter of the country's production by 2000. China raked in nearly $40 billion in capital from abroad last year and lures more foreign investment than any other developing nation. The country is already a formidable force in international trade, an export powerhouse that ranks 11th in the world.

Economic progress has propelled once unthinkable social changes. The strict, monochromatic way of living has yielded to a stunning variety of colorful life-styles. Big Brother is no longer a pervasive presence. People are free to wear what they want, work where they want, live where they want, travel where they want. They enjoy vastly greater access to information of all sorts. They can choose whom to marry and when to divorce--though a couple may still have only one child. They may air their views, gripe and disagree with one another or the authorities--as long as they don't organize protests or insult top leaders.

There is even the beginning of grass-roots democracy. With little fanfare or publicity, peasants in villages across China are choosing local leaders by secret ballot from a slate of candidates that may include not only Communist Party members but also individuals with no affiliation. The farmers can unseat the bums who mismanaged the local electrification project or the crooks who pocketed irrigation fees and elect the "capable people" of their choice. By 2000, all of China's more than 1 million villages will operate under the system. Some say these local elections are diluting the Communist Party's power. And the party leaders now have a vested interest in the economy's steady advance. As their Marxist ideology loses all legitimacy under the wave of money that has finally turned the country, after 150 years of sullen resentment, into a strong competitor with the West, their very survival seems to ride on their ability to keep the economy going.

"REFORM MUST BE INSISTED ON FOR 100 YEARS"

China before Deng may have been poor, but everyone was equally in need. Now, around the corner from Shanghai's glittering Golden Age club, those forgotten by the economic boom gather under the eaves of the central railway station. There, a "floating population" of the destitute from far-flung corners of the nation arrives by the carload, hoping that Shanghai will be the land of plenty. Ran Yigang, a scruffy 23-year-old with the thick hands of a farm laborer, got off the train last week from Anhui, one of the poorest provinces. All day he searched in vain for construction work, then collapsed on a bag of clothing in front of the station. He considered whether to take a room for $2.50, a price he considers usurious, or hop a train in search of work elsewhere. "I wonder how people here get so rich," he says.

Deng's commercial revolution is dangerously incomplete. "China is like a movie set," says Mineo Nakajima, one of Japan's leading Sinologists. "It looks wonderful, but it's all an illusion." Many of the most difficult issues were put on hold while Deng lived, but the new regime cannot hope to ignore these malignancies indefinitely.

Even though 800 million peasants were the first to thrive on economic reform, the urban boom has left many of them far behind. Per capita income in the countryside is only $190 a year, about 40% of the urban average. Some 65 million struggle to survive on incomes below the official poverty line of $64 a year. The hinterland clamors for a bigger share of the pie, and historically, rural poverty has been the underlying cause of political unrest. The floating population of desperate job seekers pouring into China's cities has reached 100 million. While they provide the cities with cheap labor, they have stripped the countryside of its ablest workers and are blamed for the wave of crime that plagues urban neighborhoods.

As the gap between rich and poor individuals yawns, so does the divide between wealthy and impoverished provinces, creating competing regional principalities that threaten the control of the central government in Beijing. The wealthy Meccas on the coast routinely ignore orders from the national authorities, their aggressive technocrats think and act according to their own rules, and power flows where the money goes.

A true market economy cannot emerge fully until the government does something about its ailing state enterprises. These decrepit firms, employing some 100 million workers, are swamped by debt, surplus labor and bloated inventories. Their out-of-date equipment and Marxist management, corrupt and incompetent, make them hopelessly uncompetitive. Half the 100,000 enterprises operate at a loss, and one-third barely turn a profit. At one time or another, half of all state employees have been furloughed or have had their pay or hours cut. Workers earn most of their income moonlighting for private firms.

Yet no one in Beijing has dared face the high-risk social and political consequences of cutting off the subsidies that keep these plants working. Instead Beijing has been pumping billions of dollars into them to stave off their bankruptcy. Shutting down the biggest, most inefficient, monopolistic enterprises would throw millions out of work. Already, wildcat strikes and noisy demonstrations have disrupted several regions.

Corruption is biting into everyone's purse as petty officials, communist bureaucrats, soldiers and policemen, middlemen and hucksters greedily siphon off anything they can stuff into their own pockets. The protests that rocked the communist government in 1989 were in part fueled by popular resentment of endemic financial chicanery. Today the failure to establish political or judicial systems that can check corruption is stirring widespread public anger once again.

Meanwhile, the military is demanding a bigger share of the nation's resources. Tens of thousands of officers and hundreds of thousands of soldiers are busily engaged in the pursuit of commercial interests from chicken farms to karaoke bars as part of an almost comical program of self-financing, but the top brass is not joking about its determination to modernize.

Deng always put revamping the armed forces last among his Four Modernizations, and he demobilized more than a million soldiers from the People's Liberation Army. But the 2.9 million left still operate more like a force trained to envelop an enemy with sheer numbers than one capable of responding rapidly with 21st century firepower. After watching a whole new way of warfare in the Persian Gulf, senior officers went on a buying spree. They came home last year with 50 Russian attack jets, two Russian destroyers, four diesel submarines and 70 fighter planes.

The idea is to convert the defensive People's Army into a modern, mobile attack force capable of projecting power beyond China's borders. Top priority is a blue-water navy to carry troops into areas remote from the mainland. But the Pentagon estimates that it will be at least 20 years before China can rival the U.S. Navy, and it is an open question whether any regime can bear the expense of seeking military superpower status.

"SOCIALISM WITH CHINESE CHARACTERISTICS"

Deng used that maxim to mean many things, but at its most fundamental it defines the base line of his blueprint for reform: a stubborn, inflexible resistance to political change. A hard-liner all his life, he was determined that economic liberalization would not sweep away the Communist Party's monopoly on power. He committed his successors to the relentless repression of democracy. Deng and some of the men now in power ordered the tanks into Tiananmen Square in June 1989 to crush the nascent democracy movement beneath a heap of bloody bodies. Since then, virtually all of China's political dissidents have been jailed or hounded into exile.

The prime ambition of the new leaders is simple: stability. They are not alone in that desire. However cynical the Chinese people have become about Marxism, they, like the leadership, profoundly fear disorder. The terrible decades under Mao taught the entire nation the very real dangers of anarchy, and while the Chinese now want to concentrate on private concerns, they want to do so amid political stability and public order. That allows the regime to maintain a degree of authoritarianism quite abhorrent to Westerners. Jiang and his cohort can probably maintain Deng's dual system of economic progress and political rigidity as long as people's material expectations are being met.

Yet the odds against achieving full modernization without losing political control are daunting. The party's one remaining claim to legitimacy rests on its ability to deliver sustained economic growth and rising incomes. Once people are rich and fat enough, they begin to demand a say in their own governance. What no one can predict is how long China can continue to achieve economic advances without modifying--or being forced to modify--its repressive political system.

One critical indicator to watch is any "reversal of verdicts" on the Tiananmen Square massacre. Ever since that debacle, the regime has declared it the justified suppression of a counterrevolutionary riot by a bunch of hooligans. As long as Deng was alive, no official revisions were possible. But many wonder whether the new leadership will make a bow to all those pressing for political liberalization by changes in the official attitude toward that traumatizing event.

"IT DOESN'T MATTER WHETHER A CAT IS BLACK OR WHITE, AS LONG AS IT CATCHES MICE"

Deng's famous proclamation is usually interpreted as a defense of pragmatism. But it can just as easily be applied to his idea of leadership: not a cult of personality but a test of efficiency. The bottom-line challenge for his chosen heir, Jiang Zemin, is to prove he can carry on Deng's pragmatic work.

Up until Deng's passing, Jiang & Co. had been able to wrap themselves in the mantle of the great man's authority. Now Jiang must cement his own claim to it, and many wonder if he has the strength and charisma to sustain a cohesive leadership or the moral and political pre-eminence to dominate his rivals and his country. He has shown growing self-confidence and has managed to consolidate his base more successfully than anticipated; he is unlikely to be challenged right away as party or national boss.

Jiang's biggest problem is that he is only first among equals, and, says Winston Lord, former Assistant Secretary of State for East Asian and Pacific Affairs, "he can't just issue edicts. He has to marshal a consensus." That consigns him to continuity and caution rather than bold decision making in the manner of Deng. One day after the Paramount Leader's death, Jiang issued a statement promising to turn "grief into strength" in "unswerving" pursuit of Deng's policies. The process already in place dictates avoiding radical shifts in economic and political policy at home and minimizing the chances of miscalculation abroad.

China has perhaps become too complex to be run by the old men in Beijing. Unfortunately, Deng left no system of governance to move China from the rule of men to the rule of laws. The country's government is based not on a constitution but on a fluid dynamism where power shifts with personalities and personal alliances. While the Chinese people have learned to fear the depredations of megalomaniacs, they are also afraid that their country will fall apart without a demigod at the helm.

The outside world is just as ambivalent. No matter how prepared China was for Deng's passing, there will be new tensions inside the country, and that promises continued tensions between Beijing and Washington. Even with Deng, says a senior State Department official, "it was a difficult relationship to manage. The prickliness on the Chinese side won't change." U.S. analysts think Jiang is unlikely to advance into greater intimacy with the U.S., yet economic progress depends on keeping the relationship active and friendly.

Jiang has been sending warmer signals to the White House for several months and has been answered in kind, but none of the issues that breed conflict--human-rights abuse, nuclear proliferation, trade barriers, Hong Kong, Taiwan--have been settled. American intelligence agencies view the future darkly and has advised the White House that Jiang's coalition may be only a brief transition before a stronger leader takes power. Says an American intelligence official: "This is a leadership that exhibits a good mixture of hubris and insecurity."

Not surprisingly, the rest of the world reacts in schizophrenic ways to such contradictory impulses. The U.S. has lurched back and forth between accommodating China to gain commercial advantages and condemning its ugly record on human rights and its erratic behavior toward its neighbors. Its repressive treatment of dissent ignites America's cold war instincts. Beijing has not fully resolved what role it wants to play in the world, and that has made it harder for other nations to judge it fairly.

In almost direct proportion, China's confusion about itself leads to confused treatment by other nations. Not only for those inside the country, but for the U.S. and the rest of the outside world, the topography of the next China remains a very troubling question mark.

--Reported by Sandra Burton/Hong Kong, Dean Fischer and Douglas Waller/Washington and Jaime A. FlorCruz/Beijing

With reporting by SANDRA BURTON/HONG KONG, DEAN FISCHER AND DOUGLAS WALLER/WASHINGTON AND JAIME A. FLORCRUZ/BEIJING