LETTER TO BILL BRADLEY FROM WILLIAM H. WEBSTER RE YOUR COMMENTS IN THE NEWARK S

Created: 8/11/1989

OCR scan of the original document, errors are possible

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The Honorable Bill Bradley United States Senate

Dear Senator Bradley:

I read with interest your comments in the Newarkedger concerning our analysis of events in China over the last few years and your perceptions about the need for CIA to anticipate major change. ant to assure you that we take both your comments and the issues you raised very seriously.

In the process of reviewing our China reporting over the pastaveumber of the assessments our analysts prepared well before the events of May and :une. Some of them do indeed "question what everybody else ishich you noterime part of our job. nclose three such papers for your consideration. All were disseminated to key people in the policy community. All reflected our perception of the volatility and uncertainty of the political situation in Beijing. elieve that these products show that our analysts were tracking major economic and political change in China very closely.

In the aftermath of the crisis, our China analysts have begun to look ahead and address the implications of what has taken place. Their research for the coming year will focus on such topics as the impact of international sanctions on Chinese foreign policy, the growing role of the military in political decision making, the new leadership balance, and the future of economic reform. Much of their work will be done in closeevencolleagues in other offices and with outside experts. On the wider fallout from the situation in China, conferences

SF.fl RET

Unclassified when detached from enclosures.

CL BY SIGNER DECL OADR

will be held and views exchanged with noted academic specialists on the new balance in Sino-Soviet-US relations and on how change elsewhere in the Communist world might be influenced by events in China. In all of this work, be assured that we will look both at the most likely outcomes and those less likely but of potentially great importance to US security interests.

I agree completely with your fundamental point about the need for our analysts' to give careful consideration across the board to the possibilitytatus-quo will be altered. We have been stressing exactly that responsibility to our analysts for several years, and your expressions of interest enable us to prove that consumers notice when we succeed in this and when we need to do more. To ensure that the message gets through, weeparate staff of senior intelligence officers who are charged with evaluating our productsariety of criteria, including how well they address the possibility and likelihood of alternate outcomes. We believe the fact of the internal evaluation servesonstant reminder to analysts of the importance management attaches to flexible thinking.

This emphasistrong impact on our assessments of another country in which youook at our work being planned for the upcoming year shows considerable attention to the shape and direction of change in the Soviet Union. Our Soviet analysts are debating the key question of the reversibility of Soviet reforms with Soviet experts from academia. One of our analysts is currentlyey National Intelligence Estimate on the prospects for the success of Gorbachev's reforms over the next several years. ypescript memorandum will soon be published underlining the volatility of the current Soviet political scene and examining some of the possible outcomes. An array of cleared academic experts whose views range across the ideological spectrum is available to critique our work on these important subjects.

This competitive interplay of ideas and institutionalized consideration of likely and unlikely outcomes is complemented by an extensive program of overseas assignments and travel that is intended to giveood feel for the countries they watch, and by training courses designed to improve their ability to identify the

DIRECTORATE OF INTELLIGENCE

7 February 1

China's Political Landscape: Between Reform and Uncertainty!

Summary

During tha past decade of Otng Xiaoping's reformist regime. China's real GNP has doubled, andtotal foreign trade has more than quadrupled. The standard of living of both urban workers and peasant farmers has. until-"recently, steadily risen, generating broad support for reform. Deng restored rationalityeasure of institutionalizationolitical system that during the Cultural. had degenerated into Byzantine intrigues. Dang ind his allies reduced the military's hold on politics and ended China's foreign policy isolation. ^fM

Belting's reform program, however. Is nowrossroads. China's leaders face the much more difficult task of liberalizing the economy while trying to maintain party supremacy. Progress has been slow as Beijing has encountered recurring economicinflation--that hava generated social discontent as well as dissension within the

WARNINGSOURCES ORtmi^JWVOLVED

leadership over tho pace and direction of reform. Jockeying for position In anticipation of Deng Xiaoplng's pasting has also contributedautious, temporizing approach to policy over the past two years.

The inability of Zhaochosen successor ind the strongest proponent ofonsensus behind an effective plan of action suggests that Chinerawn-out difficult period of uncertainly and wrangling. Zhao's problems could worsen if. when Dengattle for powerseems likely. Under those circumstances, reform Bt best would hive to mark time while new powerrrangemeots are worked out. bbbbbbj

No Consensus at the Top

Although Deng Xiaoping remains China's paramount leader,is role end influence ere waningounger, more technocratic elite begins to take over. As these leaders maneuver tor positionost-Deng era. we believe they face the most formidable challenge yet to China's reform effort. An overheated economy end runaway inflation hive already forced them to retreat from pricethe key in our view toound foundation tor China's transitionarket economy. As economic problems have mounted, the leade'ih'p has slso had to contend with growing popular discontent over Inflation ind corruption. Whipsawed by conflicting pressures to stabilize the economy end puah" ehead wtth critical but potentially destabilizing reforms, the leadership reportedly Is divided, confused, and uncertain. |

The tense atmosphere and high stakes in the succession have contributedautious, temporizing approach to reform over the past twoyounger leaders are willing to push bold, risky new initiatives that could hurt their futures. The one notable exception is General Secretary Zhao Ziyang, who remains Deng's chosen successor. Zhao la the natural leader of those reformers who feer the consequences of stagnation and ere willing to risk economic and social Instability to maintain reform momentum. Although widely respected, he does not havestrong central power base. Moreover, his policies have suffered serious setbacks In recent months. For example, ilthough Zhao had virtually announced that last September's party plenum wouldtrategy to Introduce price reform. In fact the plenum communique emphasized retrenchment and declared that there wouldwo-year moratorium on price reform. Although Deng's support has ensured Zhao's survival. Deng's continued dominance has also made it mors difficult for Zhao to establish himself as an Independent leader.

China's Overheated Economy Not Slowing Yet

China's leaders are searching, for ways to dampen Inflation andrapid industrial growth that is intensifying shortages ofand energy. Retrenchment policies adopted over the past Rvtbeen largely ineffective, and industrial production, which wisrewaster rate in December than In November.has imposed new tixes. spending controls. Interest rate hikeson exports of scarce goods.

We believe these policies are not likely to cut urban inflition9 from much below its current (aval of more thanercent in some cities the highest in nearlyears:

Beijing has avoided addressing some of the most serious causes of inflation. Conctrns about worker unrest in urban areas have led Chinese leaders to boost government subsidies for food and rant Beijing also continues to makeloans available to state factories and refuses to close enterprises that use raw materials wastefully.

Beijing has had only partial success controlling the money supply; interest rates have baen raised twice in the last five months but remain less than half the inflation rate. In addition, powerful provincial and municipal leaders often override Beijing's orders to _estnct loans and proceed with their pet construction projects. tfM

Moreover, pressures will build this spring to reverse at least some of the austerity measures. For example, these measures are facing stiff resistance from budget authorities who fearlowdown In Industrial growth will reduce government revenuesime when expenditures are growing. Belling also Is concerned with tho Intense criticism peasants leveled last tall when credit shortages In the countryside forced the government to purchase the fan harvest with lOUs Instead of cash. China's leaders have ordered rural banks to Increase lending for agricultural production, but tho budget deficit will keen them from significantly boosting grain prices, probably tho most effective way of stimulating production. The anticipated rollback of credit restrictions would funnel even more money Into the economy and accelerate Inflation Even If controlslace and growth In the money supply slows in tho second and third quarter, however, tho Infusion of funds In tho first three quarters last yaar will keep Inflation at about Us current level during all9 I

Reformtandstill

Since former General Secretary Hu Yaobang's ouster in7 some promising economic experiments have continued, but on balance reform has stalled. The sense of purpose end general agreement on goals that Chinese leeders shared in the early days of reform have diminished as policy choices have become more complex and as newankruptcy law, labor end wagebegun to demand sacrifices from large segments of the population. Recent economic problems have worsened the reform malaise: stagnating grain production, excessively rapid and poorly coordinated Industrial growth, shortages of energy and raw materials, and especially Inflation, which exceedsercent in some cities. BBBfeBJ

The overheated economy and runaway Inflation forced Bailing last fell to retreat from price roform and Impose price and credit controls Instead. These retrenchment policies, however, have been largely Ineffective. Reformers' efforts over tha past decade to dismantle the central planning apparatus and decentralize decisionmaking authority to spur development have sharply reduced Bei|lng's control over the economy. Power has shifted from the center to provincial party and state officials, who have become less responsive to Beijing's direction. BBB^

The growth of local powers has profoundly altered the political landscape and is likely toey factor In Chinese politics. The economic success of such areas as Wenzhou In ZheJIang Province and the southern coastal province of Guangdong has giveneasure of political independence that Beijing will have difficulty curbing. This trend toward local autonomy Is likely to trigger greater centra.-local confrontations, and may contribute to political tensions as tradltlon-minded leaders blame reform and reformers for eroding central control. |

Tha Public Mood

Persistent economic and social problems and political uncertainties have fostered growing feelings of pessimism and discontent. While most people remain supportive of reformeneral way. they are beginning to doubt thst Zhao and his supporters have the political clout and the competence to carry off reform. Foreign observers have commented on the prevalencean" mood; one referred to It as -almost nihilistic' HaM

China has also begun to have serious problemsange of social tensions arising from the strains of rapid modernization. Crime hasajor worry, with major crimes up byercent according to Chinese statistics. Nearlyercent of the population of mi|or cities such as Beijing and Shanghai consists of illegal migrants from the countryside, giving theseool of around one million restive, dlfflcult-to-control residents. Stubborn resistance to breeking the 'iron ricesystem of gueranteed lifetimewith resentment over Income disparities that economicave brought about have obstructed Beijing's efforts to Introduce further reforms. |

Chin**Time-Honored Truths

In tha freer atmosphere under reform. China's intellectuals have begun to ask. and to discussumber of interesting, disturbing,some in iho regime--potentially threatening questions.

One question that stubbornly reappears Is whether Marxism Is any longer an appropriate philosophy for China. Taking reform rhetoric about adapting to prasenttep further than even most reformist party leaders feel comfortable with, younger Intellectuals have raised tha question about whether China should simply admit that Communism has had its day. Some of thasa radicals look to capitalism and democracy, someearchocialist solution in words that echo the reform slogan "socialism with Chineseut what they have in commone|ectton of tha political forms of Communism and tha state-centered economic model inherited from tne Soviet Union, pjaajfji

Other Intellectuals are asking whether China's difficulties stem not just from misguided Communism, but rather from flaws in Chineseecent television series. "Rivarxplored this theme using the Yellow Riveretaphor for Chinese culture, andesponsive chord among many Chinese who. It saarrurto us, are hungry for answers to the questions the program raised. It also precipitated strong but contradictory reactions from Chinese leeders. Party elder Wang Zhen was so Incensed he succeeded In getting It temporarily banned.

The series dramatically argues that traditional Chinese cultureerious obstacle to China's modernization, and callshange In viewpoint. Over images of the river and tha sea, tha place calls for China to abandon Its continental Inward-looking past and open up to the world, modernize Its political structure end curival concepts and embrace such Western ideas as capitalism. Implicitly, tha series attacksears of Communist rule for falling to free China of Its past. "River Elegy" Is perhaps the most striking and poetic expression of tha dissatisfactions and doubts of many Chinese as their country enters Its second decade of reform. aajjajM

Probably th* most volatile and politically sensitive social Issue Is corruption fed In large partystem that allows officials access to cheap goods through state sources, which they then can resell at large profits outside state channels. Bribery has become commonplace, involving foreigners as well as Chinese; Indeed the US Embassy has been asked by American businessmen on more than one occasionequested commission" would actually beribe under US law. |

Beijing is also running into trouble from those who do not believe reform has gone far enough. Olssident intellectuals and activist students haveeadache for th* leadership. Accordingairly reliable source, even Zhao and his reform-minded supporters reacted angrily to student demonstrations last spring. They resent students' Impatience and fear the conservative backlash that campus disorder might cause.

The Next Decade

Chinaough, potentially lengthy period of uncertainty. Wrangling over the new power lineup after Deng goes will probably absorb much of the leeders' attentions and energyime when serious economic and social problems need to be addressed. At both popular and leadership levels, there Is widely shared recognition that the present system does not work, but little consensus on what to do next Pervasive disillusionment leading to Indifference and passive resistance to government Initiatives, will probably persist and further progressational market economyore open political system Is likely to be slow. Reforms made so far have generated strong pressures to move In these directions, but counterpressures ere mounting. Until one group can dominate theinal choice between fundamental reform and tinkering with th* existing system probably cannot b*nd It may b* several years after Deng's deathlear winnerg*s. "

DIRECTORATE Of INTELLIGENCE

9

China: Potential for Political Crisis

Summary

s possible successors, end aadership It is admittedly a

Although Party General Secretary Zhao Ziyang remains powerful hit standing has slippedesult of the reversal of his economic policies at the party's plenum last September This memorandum speculates on the circumstances that could lead to hishe broatW implicationshange

worst case scenario, but if Zhao is unable toonsensus to dea with current economic problems, and they persist or worsen we belie* Zhao's critics could make him thtor the reform programs many^

If Zhao fell. Deng and other party elders probably would turn eitherember of their own generator, to restore discipline within the party and Chinese society at large, or more likely in ourounger party leader not tainted by corruption and Ihe ills ol the floundering reform

program to take over as general secretary. Having no one of Zhao's stature and reformist credentials to turn to, we speculate that Dang and otner reformers would, with misgivings, accept Politburo Standing Committee member Qiao Shiompromise choice. Other younger leaders, such as Premier Li Peng, lack the institutional base or managerial abiiitv to win broad party support. No matter who succeeded Zhao however, weuccessor would find himself hamstrungonflicting views within the leadership, the party's declining prestige, and the general weakening of the central government; he would thus be unable to pursue anything but the most cautious course on reform

Zhao: Down But Not Out

By all accounts. Zhao's economic policieseating at last fall's leadership meetings. Accordingariety of sources,eng and Vice Premier in charge of economic affairs Yaocriticized Zhao's inflation-generating, high-growth policies and won endorsementeriod of "readjustment" to cool China's overheated economy. |

According to US Embassy sources. Zhao himselformal self-criticism of his management of tha economy and probably ceded some direct authority over the economic reform program to Yao and U.inimum, we believe that Zhao has had to acquiesce to the adoption ot outmoded administrative controls while trying to protect and promote market-oriented reforms. |

Officials close to Zhao assart his position remains secure, and thatey say in both domestic and foreign policy Oeng, in fact publicly reiteratedovember to Uruguayan President Sangulnettl that Zhao and Li Peng are responsible for China's affairs. Even if Deng has lost some confidence in Zhao, we believe he would be reluctant to dump his designated successor for fear ot weakening his own authority and shaking foreign confidence In Chinas stability and reform program. Moreover, in our judgment, there is no one else that Deng could turn to who both shares his reformist vision and possesses the prestige necessary to bolster domestic and foreign confidence in tha leadership the way Zhao was able to do when Hu Yaobang fell

Nevertheless, we suspect that Zhao could become increasingly vulnerable and even fall within the nextoonths if China's economic and social problems persist or worsen. Although Zhao Is reputed totrong base In the provinces, because of his support for the decentralization of authority and promotionigh-growth, loose-credit policy, his support within the Politburo and other central party organs still appears to be fairly weak. As best we can Judge, Zhao remains heavily dependent on the backing ot Deng and the acquiescense of other party elders who. according to US Embassy reporting, continue to exercise considerable behind-the-scenes influence. Were some of Zhao's more powerful critics among party elders such as Bo Ylbo to join forces with senior military and security officials against Zhaorisis, as they did against Hu Yaobang. we doubt that Oeng would be eble or even willing to save him.

CONf iDf-MTI

Glimpsesrisis

We speculate that any one of several scenarios could triggerrisis Zhao couldcapegoat If:

The economy deteriorates sharply, with soaringat its highest rate inublic confidence in the party.

Popular discontent, already high because of Inflation and growing official corruption, sparks widespread student and/or worker unrest that party elders perceivehallenge to the pany's authority

Party elders, including Deng, perceive the reform program to be adrift and slipping into the trap of stagflation that has crippled reform In Hungary and Yugoslavia

Even though all of China's leaders share responsibility. Zhao remains most closely identified with market-oriented and political reforms that lie at the root of today's problems. His critics have long had reservations about Zhao's efforts to liberalize the economy and open the political system, fearing that these steps could undermine the party's authority and by extension threaten their own power and privileges. They wou have linie difficulty constructinglist of charges to justify his ouster j

Should there be widespread unrest. Zhao would be especially vulnerable to the charge that under his direction, the party has lost its ability to maintain social order Conservative party leaders, whoigh value on social discipline, are already disturbed by rising crime rates and the breakdown of conventional mores. Corruption has grown rapidly under Zhao's market-oriented reforms, reaching the point where little business can be transacted without resort to bribery, badly tarnishing the party's image. Zhao's ability to combat corruption has also been hurt by widely believed charges that Zheo's own children are among the more avaricious of the leadership's princelings.

Zhao probably would also be blamed for problems in China's economy. Critics, because of personal grievances as well as policy differences, could capitalize on his advocacyigh-growth, high-inflation policy to bleme Zhao for popular discontent with the reform program and the party's handling of China's modernization program. Under Zhao, reformers have dismantled much of the central planning apparatus but have yet to establish strong fiscal and monetary tools to take its place. Thus, industrial growthercent in the fourth quarter8 and appeared to be accelerating despite the institution of austerity measures last September.

Alternatives to Zhao

risis. Deng and other senior feeders might be tempted to turn to an experienced alder In order to reassert central government and party control {see Inset).

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en appointment, however wouldlear signal that they were backtracking from their commitment to regenerate the partykey reform objective. We believe, therefore, they would be more likely toounger man they could trust and initially dominate. They probably wouldounger leader toan ofstrong advocate of party discipline and tighter social controls, j

Of the youngerPeng. Qiao Shi, Huieying and Tianbelieve Qiao Shi would be the most acceptable to senior leaders, and indeed all wings of the party. The selection of Qiao, who isadical reformerardline ideologue, would not unduly disturb the leadership's delicate balance between party interest groups, Qiao, who has spent most of his career in tne party bureaucracy and is intensely loyal to it probably could count on the support of Ideological conservatives, military politicians, and other cautious party elders concerned about the decline in the authority of the Communist Party. At the same time we believe his earlier, close association with Hu Yaobang probably would give him some credibility with reformers.

Qiaoood institutional base, andeputation as an effective behind-the-scenes managerarty leaders turned tohead of the party's Organizationhandle personnel appointments for the important September Party Delegates Conferences. Andhey again turned to Qiao to revive the flagging party rectification campaign.easure of their trust Qiao was picked ath Party Congress to lead the party's powerful Central Discipline Inspection Commission, and since then has taken control of personnel and patronage within the party, as well as united front work, according to the US Embassy. Qiao is also head of China's foreign intelligence and domestic security services and presides over the legal system. In short Qiao has quietly positioned himselfogical alternative to Zhao and would be able to capitalize on his control of key party institutions to impose stricter discipline.

Longer Shot; eng

Of the remaining younger leaders.eng probably has the best chance of succeeding Zhao (seeith his authority over the economy and foreign policy recently enhanced, Li is nowetter position to build patronage networks in the government shape the economic agenda, and gain foreign affairs experience. Like Qiao Shi. moreover he is trusted by powerful members of the old guard, especially the cirque

lad by Central Advisory Commission Vice Chairman Bo Yibo; In part, we believe because ha is sympathetic to their conservative views on reform. No senior elderourLi Peng would inadvertently undermine the power of the party bv pursuing bold reform strategies. Li Peng probably can also draw support from the still powerful heavy industrialrriinistries. which feel threatened by market-oriented reform-ana Tree competition

Implications

Evan if Zhao does not tall, we believe his ability toonsensus to geteform program moving again has been hurt With Zhao weakened and the rest of the leadership so delicately balanced, we question whether Chine's leadership will be able to reach agreement soon on key reform measures, especially In sensitive areas such as price reform and political structural changes.

If Zhao is ousted, we believe his successor would be even mora constrained by conflicting views within the leadership. The declining prestige of the Communist Party now increasingly perceived as riddled bv corruption, and general weakening of the central government to the benefit of the provinces only exacerbate theuccessor would face

The character of the leadership initially probably would ba more conservative regardless of Zhao's successor. We believe any successor's first task would be to restore order and strengthen social discipline. He would ba under considerable pressure to rely on traditional means to do so. including possible witchhunts directed against dissentingimited purge of soma reform leaders would be likely, though we expect any new leadership to try to coopt and employ many of Zhao's younger advisers

Up service to economic and political reform experiments would probably continue in such circumstances--partty to reassure foreignthe primary market-oriented economic and political reforms would be put onore conservative leadership probably would tighten conventional administrative controls to rein In the economy, abandoning price reform end other radical methods of systemic change- Such controls, in our view, would not solve China's economic problems, though they might mask themime

We wouldost-Zhao leadership to proclaim its continued support for the open door and strong economic relations with the West. We believe, however, that China's Investment climate would deteriorate. More conservative leaders would probably be less likely to favor genuine reform of the foreign trade system or other moves needed to make China's economy compatible with the GATT. At the local level, cautious officials would probably place greater restrictions on foreign investment or control of enterprises out of fear of committing political errors.

B

China: Portrait of an Overheated Economy*

Urban InflationIn Currency in Circulation

Industrial OutputBalance

Chines* statistics. Data8 ore estimated. Industrial output growth Is real, rather than nominal.

0

DIRECTORATE OF INTELLIGENCE7

Dang, Hu. and the Future of China'speculative Essa

Scope Note and Summary

The leadership turmoil exposed by the recent purge of General Secretary of the Chinese Communist Party Hu Yaobang has been followed by an uneasy calm, during which the principal party and govomment leaders, Deng Xiaoping and Acting General Secretary Zhao Ziyang, have tried tousiness-as-usual atmosphere. Our view of the situation within the leadership is cloudy, but observers both inside and outside Chinaerception of great uncertainty and fluidity. |

Our analysis has become more than usually dependent on scanty public disclosures. Information from those Chinese officials who have the wherewithal to leak party documents (such as those recently read to The Washington Postnd rumors of questionable authenticity repeated by Hong Kong newspapers and magazines. Facts about the current state of affairs are so rare that any assessment of longer term prospects for political stability and policy continuity remains highly

conjectural. What follows, than.peculative essay that presents two alternative analyses of Deng Xiaoplng's role in recent events, and his gains and losses in each. One view posits that Deng showed political strength in purging Hu. anda|or obstacle to tha longer term survival ot his reform policies and coalition. Tha other considers that Dangeavy price in purging his successor, and that China's leadership stability and cohesion have been seriously damaged.|

This paper, thus, isecord of eventsetailed explanation of what has happened, butreliminary attempt to sort out whatather murky and uncertain situation. It has not been coordinated with any otheroffice of CIA. or with other components of the Intelligence Community. I

Developing Leadership Strains

China's recent leadership shakeup involved far mora than just the removal of General Secretary Hu Yaobang.ery real sense, events of the last three monthsajor leadership crisis within tha Chinese Communistthat has been brewing tor severaldespite leadership assurances that vary little has changed in China's policy Intentions, ensuing events will be of critical importance for the future of China's experiments with economic and political reform.jj

The Chinese official press has attempted to portray the purge of Huroper systemic response to increasingly aberrant behavior on the part of the feisty General Secretary. In Central Document (zhong fa)fhich was read to three Western reporters In late February by an unidentified partyu was accused of six major mistakes:

1 "Bourgeois liberalization"atch-phraseultitude of sins. Indeed, it hasentral issue dividing the party at all levels over since reform beganasically, it means allowing dissent within tho party over major Issues of ideology and principle. Hu was well known as one who thought that criticism and even satire of party performance by students, writers and artists was not only permissible, but actually helpful. More traditional Leninist party members claimed this more permissive attitude would only lead to further challenges of the party's authority, and

Encouraging "bourgeois liberalization* within the party.1

One-sidedly criticizingwithin the party, but not "rightism.-3

Promoting erroneous economic policies, such as high growth rates encouragement of consumption over production, and other ideas that allowed the economy to get out of control

Disrupting the development of China's legal system by Insisting that political decisions were more important than laws.

In diplomacy, "saying things he should not have said" on numerous occasions.

Failing to respect decisions mad* by th* National People's Congress, not consulting with other party leaders on important decisions, and making unauthorized comments about major policy Issues.

The six "errors" tell only part of the story, and cover up other reasons, not stated In the official record or only hinted at, for Hu's ouster. As was the case with former party Chairman Hua Guofeng, Hu is balng made the scapegoat for most of the regime's problems. That ther*Hu Yaobangowaver, has been evident for soma time: his abrasive and impetuous personality, enmity of th* party's old guard, failure to gain the confidence of tha Army, propensity to challenge Leninisthad raised questions about whether ha was the right man toong. Rumors of alternative succession scenarios in th* summer5 suggested that Deng had decided that Hu would have to go, and planned to accomplish the change ath Party Congress, scheduled forvents of latebut certainly not primarily, the student demonstrations In Shanghai. Beijing and otherDeng to advene* his timetable, disregard the party procedures he had worked so hard to reestablish, and purge his own chosen successorrutal power play. I

The Deterioration of the Deng-Hu Relationship

Party documants and rumors agree on one point, that It was Deng Xiaoping who masterminded Hu's ouster. There Is no credible evidence to suggest that the initiative to relieve Hu as General Secretary cam* from anywhere else. Deng decided on the cours* of action, organized the Military Commission and expanded Politburo meetings that mad* th* key decisions, personally leveled th* harshest criticisms of Hu's performance, and managed the drafting of tha sxplanatory documents. jj^jj^h

were vindicated by the6 student demonstrations in China, which were the proximate cause of Hu's downfall.

H*avy reliance on very slippery Marxist-Leninist concepts suggests the case against Hu was largely trumped up. Essentially, howevar. "leftism* here signifies dogmatic Maoism, while "rightist" Brrors comprise such things as promoting "capitalist* economic ideas, permitting nonparty criticism of party matters, etc.

Despite their ctoss association. Dang and Hu did not hold idantlcal views on all Issues, and Hu disagreed openly with Dang on occasion. As he became mora comfortable with his powers as General Secretary, Hu began to take noticeably different positions from Oeng on questions Involving foreign policy, adopting, foromewhat more anti-US position than Oeng. More serious disagreements arbse over the issue of nonparty criticisms of party policy, which Hu supported and encouraged while Deng fulminated againstand any perceived decrease in the party's authority. Hu also began to push harder thin Deng wanted on the issue of forced retirement of the party old guard. Conservatives took advantage of thesa issues to criticize Hu and raise Deng's suspicions of him. I

Things appeared to comeead et leadership meetings in tha resort town of Beidaihe during tho summerccording to generally reliable reporting. Hu and his supporters directly challenged Dong on ideological issues, and Hu urged Deng to sot an example by retiring from tho Central Advisoryonservatives rallied to Dong's support, and Hu retreated Subsequently,outh League newspaper In tho Shenzhen Special Economic Zone appealed to Deng to carry through on0 ynlso to retire.

There Is no reason to believe that Hu directly fomented the student riots ofndeed, Hu himself was denounced by some of tho demonstrators. Later criticisms of Hu charged that he encouraged student dissent in Shanghai by attacking

Intorostingly, Hu aspired not to Dong's Military Commission post in which ho probably believed he would wield little influence, but to the Control Advisory Commission, where hoettor chance of inheriting some of Dong's power.

the municipal party committee (or its tepid support of political reform In the and. Hu accaptad the blame for not taking sufficiently resolute action against the students but Thai was hardly the key issue BSJSSSSJBj

in the final analysis. Hu was ousted because Deng needed to reestablish his authority over the party and the party's authority over society. Oeng evidently saw Huangerous maverick whose undisciplined actions and fectlon-building threatened the party's cohesion. For his part, Hu may have begun to see Deng as part of the problem, unwilling and unable to move decisively against the conservatives, playing rival groups off against each otheray reminiscent of Mao. The denouement was quick, and Hu went quietly. In mid-December. Deng convened the largest-ever meeting of the party's Military Commission. Accounts of the meeting are sketchy, but the pla's antipathy for Hu was made clear, as was its whole-hearted support for Deng's leadership. Subsequently, Oeng privately told Hu he would no longer support him as General Secretary, packed an expanded Politburo meeting with key supporters from the Central Advisory Commission, and rammed through resolutions removing Hu as General Secretary and kickingampaign against "bourgeoisjajajaj

In the Aftermath: Alternative Viewpoints

The timing and the manner of Hu's ouster have raised questions emong both Chinese and Western observers about the stability of China's political system, about whether Deng acted out of strength or weakness, and about the effect recent events will hava on further economic and political reform in China. What follows are two alternative perspectives on the state of Chinas political system in the aftermath of Hu's purge. On* considers that Deng showed political strength in purging Hu. andajor obstacle to the longer term survival of his reform policies and coalition. The other viewpoint Is that Dengeavy price in purging his successor, and that China's leadership cohesion hes been seriously damaged. I

Deng Dominant

One way of making sense out of recent events Is to presume that Deng acted from strength to curb dissension in the Politburo over reform policies end leadership. Oeng's precipitous move against Hu should be seeneans ofuch more bitter and potentially more destabilizing fight ath Party Congress. Deng had already decidedew succession arrangement that did not include Hu. When Hu balked, and began organizing his supporters to oppose Oeng's plans. Deng decided to act. Furthermore, his ouster of Hu served the additional purpose of removing the one personnel issue over which conservatives in the party and army appeared willing to unite. |

Under this interpretation. Deng probably has strengthened his own position, and by extension, that of other reformers, by purging Hu. Hu's unpredictable behavior, tendency to promote radical policies without concern for their side effects, and

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undisciplined leadership stylo damaged tha tntira reform wing of the Politburo. Removing Hu improved reform's image by showing Deng's own strength and resolve and by establishing the smoother, steadier Zhao Ziyang as the successor It also bought time for reformers to close rinks and toodus vivendl with other elements of the leadership. Zhao his moved quickly and effectiyely Into his new role, and seems to beood position to maintain the momentum of the reform program. Although conservative critics may shift their Ira to Zhao, he hasetter ability than Hu toolicy consensus and protect an appropriate leadership image Moreover, ha has bean respectful and solicitous of the views of the party aiders, and has won their personal respect, if not wholehearted support Moreover, Zhao is committed to reforms, and clearly mora aware than was Hu of the constraints imposed on reform by China's backward economic conditions and divided leadership. djo^bjj

Although tensions within tha Politburo hava bean heightened. Deng without Hu may bearter position to divide and conquer conservatives on both policy anrj personnel issues. Politburo member Peng Zhenerious problem for Deng, but other old guard leaders do not appear anxiousight. Deng and Zhao betweenwilling members of Hu's faction foran excellent chince of promoting more young leaders committed to cautious, orderly reform ath Party Congress. Pang's control of the military stands as the ultimata guarantor of political stability oajjaaj

By removing Hu. Deng may hava improved the prospects for restoring consensus within the leadership. With tha combative Wu in the party's top spot reaching agreement on key reform issues was bacoming impossible, because ha was so unwilling to work with the old guard. Deng and Zhao appear to agree with conservatives that cautious and cooperative policymaking stands tha best chance of success. Deng in the past frequently has adopted conservative slogans in order to push his own political agenda, and It Is likely he will do so again. There probably still is consensus within the leadership that they need to avoid the appearance of dividing into competing factions, and Deng may be able to make tha case that differences need to be ameliorated for tha sake of unity and stability. Conservative strength In propaganda is probably less than It appears. Tha currant campaign against "bourgeois liberalization" will probably damage China in the ayes of foreign investors, reporters, and academics, although not seriously. Deng eventually will ba able to make the case, as it was made in terminating3 "spiritual pollution" campaign, that these noisy affairs hurt China by reducing prospects for gaining needed technology, by scaring off buyers of Chinese products and Investors in Chinese industries, and by 'aisirg the specter of another Cultural Revolution

China's reform policies were slowing down already because ofand that process will not necessarily get worse. Deng himself probablybelieved thatnecessary as an overalltoout gradually, and experimentally. He has always stressed the need fororderliness. Huew of his radical supporters were tha odd man out onWith Hu gone. Deng and Zhao can probably more easily coopt conservativestheir concerns over the pace of reform, while at tha same timenot to get too far ahead of the pack.Zhao Ziyang also suggests

that he hasbetter appreciation than did Hu ofoderate paca of reform.

Finally, although Intellectual disenchantment with the regime has grown, the current campaign against 'bourgeois liberalization" may ala domestic stability. Deng hasessage to students and Intellectuals that the party will not tolerate threats to stability or party control, while at the same time reassuringhave been growing restive about inflation, wage reform, and rent reformthe party will not rush headlong into policies that threaten their purchasing power, job security, and related concerns. Oeng Is probably trying to persuade.-ordinary Chinese that the party will seek an "appropriate" mix ot centralization andradual improvement in economicoderate growth in foreign contacts,imited extension of democracy- and freedom of expression. This "golden mean* approach probably stilleep philosophical resonance inh

Deng Damaged

It has alwaysistake to underestimate Dang. He has taken his share of political gambles and usually has bean successful. Compared with other "victories" Deng has won In party and policy infighting, however, this one may turn out to be Pyrrhic. Dang and what remains of the reform coalition haveeavy price. In practical terms, the reformDengbeen weakened, though not incapacitated" Thar*idespread perception that Dang moved against Hu to mollify ever-more-powerful conservative leaders, who may try to exact further concessions. Recriminations against certain youthful leaders closely associated with Hu Yaobang already have resulted in the demotions of Propaganda chief Zhu Houze and Secretariat member Wang Zhaoguo. Others, such as Hu Qih and Qiao Shi. have tried to distance themselves from Hu and have survived tho Immeditete threat but are still subleet to attack. Zhao Zlyang's position is secure for now, but his support Paso within the party is thin. Zhao concentrated on running mo government in the past and Is widely respectedalontod administrator and effective bureaucratic maneuvered He has eschewedersonal power base In favor of soaking to conciliate different Interest groups involved In policymaking. That approach has won him favor from party conservatives Now. however, Zhao Is tho principal spokesman for still-controversial reforms, and he will be called to account for whatever problems arise. Without Huightning rod for conservative dissatisfaction, Zhao will be the focal point Zhao is heavily reliant on Deng's personal support toteady course.

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Arranging an orderly succession seems lo have recededoal of political reform,ost-Deng power struggle may be more likely. Hu's on ml.more than ever the linchpin of the political system, supported by all factions within thi party as the one indispensable man. He retains the firm loyalty of the militaryt large fj

to rebuild th* political groundwork that Zhao will needtruggle Ash Party Congress approaches, conservatives tnd reformers alike will be lobbying Deng to enhance their power positions. Conservatives can be expected to tryhao and promot* their own successors. Even Huhis extensive network of pro-reformyatole to play. I

Within th* Politburo, it appears that the struggle is not vet over. The intensification of personal animosities over the last two years probably has not abated with the removal of Hu. and that could lead to further probloms.h Party Congress willritical showdown, with many political 'prizes* at stake. One of the hallmarks of Deng's political leadership has been his ability to suppress factionalism at th* Pollburo level. Thetreat deal of time, effort, and patience. Over the last two years, tha leadership's cohesion hasaraly strained by both political/economic Issues, and by considerationssonal power. It remains to be seen whether Deng can restore calm and cooperation to the system. Th* conservative wing of the Politburo appears considerably strengthened esult of the recant

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political battles: Hardliners such as Peng Zhen, Deng Liqun and Hu Qiaomu have returned to active participation in running importantthe propagandahave stepped up their attacks on reform policies. They appear even more determined than before to limit Dengs policy choices on reform questions, and they may work to slow Implementation of reforms through their supporters at th* middle levels of party and government bureaucracies. Although they are In no position to move against Deng himself, thoy may seek to further wound him by attacking his key supporters.

The conservative resurg*nc* has contributed to an impression of policy drift at the lQPZ'vangg have publicly insisted that reform policies and the opening to th* Wast will notut there Is growing skepticism both in China and overseas about whether some of the more controv*rsial policies will be maintained. It has becom* clear, for example, that plans laid last year to move ahead with some aspects of price reform have been shelvedesult of recent events. Conservative critics of reform have become more vociferous in proposing alternatives to reform policies they consider to have failed. Enhancing grain production has replaced diversification as tho focus of agricultural policy, and propaganda has advocated *plaln living and arduous struggle' to replace "get rich* as th* appropriate slogan tor China's economic development.

Intraparty disagreements over ideology may have been exacerbated by events surrounding Hu's fall. Oeng's reforms have never been on solid Marxist-Leninist ground, and are even less so now. Hu's cavalier dismissal of th* rol* of Marxist Ideology and toleration of th* spread of Western Ideas put many old party cadre on th* warpath. Hu now stands accused of having "prematurely" halted th* campaign against "spiritual

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ndsr. trying to reopen it in the context ofwortampaign was onginaliy stopped-by Zhao Ziyangt0 di8njpt'^entaion of otii 2

nilpna *na!,v' tne party may be losing support from educated elitesesult of the

S remain to be settled. Several prominent

SSL^SS! . M" P'n'Shed' "ndknives are clearly out to many others. Intellectuals-who have been among the most active supporters of the reform program-appear demoralized by the party's seeming sharp turn to the left and

K.ar?i*' SOma are likely ocoT.

hthas said it needs to accomplish Chinas modernization. More radical elements of the intelligentsia are probably mo re

t^^VTh! PartVfHhough student protests have ceased and the party hasrackdown against those

The Implications for Reform

whohe issues that precipitated them have not been resolved and some students may continue to foment discontent

lh8SePerhaps, some mix of both--holds true, the

*re verv mucnn,nP8"'od leadingh Party Congress, still scheduled for October, the party will be Increasingly

rU",eS- bv waVpolfcy

oled har Imnim i" WP<,rlmemalWl"b. Shelved or

rolled back, implementation of existing policies may be slowed as wary bureaucrats

ZtJS "V^?d nis "PPOtws haveamage limitation effort to keep the attacks against "bourgeois liberation" from harming rural and economic policies, but the pressure can be expected to mount Personnel vacancies may remain unfilled as the contending forces within the Politburo strive to improve their positions. Foreign policy probably will be maintained on an even keel under Denq's guidance, as it is unlikely that any major policy changes would be agreed to byhina can be expected to be somewhat more prickly about foreign trade and investment issues, as more conservative voices attempt to blame foreign capitalists for some ofroblems. |

Over the longer term, reform will depend upon which of the above alternative scenarios prevails. If Deng has Indeed gained strength from the purge of Hu, reform will com nue to be the chief Issue on the party's political agenda. Although some sort of political showdown- appears to be in the works, it probably will not result in a

leadership debate.

Although Hus diplomatic gaffes weighed in the decision to dismiss him. thereredible evidence that his foreign policy positions did. Public and private statements of China's foreign policy since the Hu purge do not Indicate either change or

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conservative victory or in political Instability. The conservative wing of the party has not been united around anything but its opposition to Hu and its support for the campaign against 'bourgeoists leadership is old and with tha possible exception of Pang Zhen, probably not disposed to take on Dang directly. It has little real support in (ha military, and very few younger cadre to raise up as potential successors

Moreover, there is widespread support for reform within the party rank-and-file, not simply because Dang has been leading It but because large numbers of party cadre agraa it Is necessary. Conservativa complaints reflect important concerns within the party, but so do reform proposals, including calls for more inner perty democracy, freedom of speech, and Institutional change. Personnel changes made at5 Party Delegates Congress markedly strengthened tha so-called "progressive" wing within the party, and we would axpact any large-scale Central Commute or National People's Congress meeting to demonstrate that strength

China's economic achievements under reform have bean impresssive. despite obvious flaws and shortcomings, and most Chinese recognize an Improved sense of well-being attributable to reform. "Popular support" has seldomritical factor in power maneuvering In Bailing, but It cannot be disregarded entirely, finally, reform appears to be "catching on" in the Soviet Union and other Communist countries, and publicity-conscious Chinese leaders will be disinclined toet of policies that is finally being recognized as ideologicallyH

eform, however. Is being redefined to bring it in Una with Deng's original goals of restoring discipline and creativityowerful Communist Party. Oeng does not desire and will not support reforms that might lead Chinaore pluralistic, open-market society. Reformrocess may. therefore, become narrower in scope more cautious, and less Innovative and dynamic than It has been at times in tha past three years.

If the purge of Hu has brought about tha mora serious fracturing of tha political system outlined above, than reform's longer term prospects are lass favorable. Deng appears to have conceded so many Issues to party conservatives that he may not be able to recoup his losses. Under these circumstances,controversial politicalbaatter of defending past gains, rather than developing new policies. Reform has moved forward on momentum generetad by its success, and is dependent for its continued success on flexible policymaking that allows for correction ofhat momentum now appears to have been blunted and perhaps has bean lost Criticism, rather than correction, has become the party's response to mistakes. Economic reform is likely to stagnate in such an atmosphere.

Too much still depends upon Dang Xiaoping. His death or Incapacitation now probably would cause considerable political disarray. Evan without that exigency, however, how Deng chooses to exert his Influence will be the most Important factor in determining whether tha current political dissension Is curbed. At this point he appears to have chosen to support Zhao Ziyang and the continuation of reform. But the purge of Hu has caused some Chinese to question Deng's commitment to reform. For his part.

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in addition to tha problemst in heading both the party and the government must carefully manage his relationship with Deng. Zhaoautious, but

reformer.

He has avoided the ideological disputes that have swirled about reform, but he has encouraged consideration of radical economic reforms, and has vigorously supported political reforms. If he continues to push these policies aggressively, he may find himself in conflict with Deng. |

Reform has benefited in th* past from th* maintenance of general harmony and consensus in th* Politburo on the rules of political Infighting, and from popular confidence In th* party's dedication to modernization. Th* purge of Hu, however, suggests that Deng has chosen to violat* th* rules for his own purposes. In so doing, ha may hav* unleashed political forces within the Politburo that he will not be able to control. Mao faced similar circumstances In his waning years, and chose to try and manipulate the players rather than resolv* th* real issues, if Deng end Zhao cannot discel th* sense of drift thathe leadership, policy issues will probably be put off until after Dang dies and the leadershipts disagreements through struggle. That may be too 1st* for successful reform.

Original document.

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