Essay About Zhou Clan And Top Leader

China Case
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Harvard Business School 9-798-066
Rev. March 19, 1999
Professor Robert E. Kennedy and Research Associate Katherine Marquis prepared this case as the basis for class discussion
rather than to illustrate either effective or ineffective handling of an administrative situation. We are grateful for substantial
input from Professor Yasheng Huang and Research Associate Teresita Ramos.
Copyright © 1998 by the President and Fellows of Harvard College. To order copies or request permission to
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China:
Facing the 21st Century
As 1997 drew to a close, economic czar Zhu Rongji considered the economic and political
challenges that China would face in the next decade. It had been a tumultuous year. Long-time
paramount leader Deng Xiaoping had died in February, trade tensions with the United States escalated
when the U.S. blocked Chinas membership in the World Trade Organization (WTO), and a series of
currency crises in Asia threatened regional recession and the competitiveness of Chinese exports.
Perhaps most important, there was widespread concern that Chinas vigorous growth was threatened
by several long-neglected issues. Should China alter its development strategy, especially in light of the
leadership change?
Since Deng had initiated Chinas program of economic reform in 1978, China had experienced a
stunning transformation. GDP had grown at a 9.5% annual rate, per capita income had more than
quadrupled, foreign direct investment had boomed, and trade had increased from 10% to 45% of
GDP–making China the worlds seventh-largest exporter.1 Although per capita GDP was still only
$600 when measured at official exchange rates, Chinas economy had become the worlds third-largest
when adjusted for purchasing power.2 Most observers were awed by the magnitude of the
transformation; the World Bank referred to the reforms as “spectacularly successful.”3
Dengs death had settled a long-simmering dispute over succession for the top positions of the
Communist party and the country. After seven years of grooming, President Jiang Zemin, Zhus
patron and a cautious reformer, had emerged as the top leader. Zhu was currently number three in the
hierarchy and was expected to become the prime minister when the current prime minister, Li Peng,
retired in March 1998.
Dengs death and the political ascendancy of the reformers provided an opportunity to reassess
Chinas economic strategy. Dengs primary goals had been political stability and rapid economic
growth. But the focus on short-term growth had left many issues unaddressed. Losses at state-owned
enterprises and banks were growing, posing a potential threat to Chinas fiscal health. Trade tensions
with the United States were increasing on both political and economic fronts. The Communist partys
political legitimacy was threatened by corruption and a shift of power to the provinces. Pollution was
a growing danger to public health. Finally, and perhaps most threatening in the long run, Chinas
market institutions remained underdeveloped.
As economic czar, Zhu was charged with addressing these issues. He was inclined to think
strategically, but radical action would be difficult. Nearly everyone agreed that China had great
economic potential, but that potential might remain unrealized unless Zhu found a way to address the
factors that threatened long-term growth.
798-066 China: Facing the 21st Century
Historical Background
Dynastic China China claims one of the longest histories of any civilization, dating from at least
2200 BC, when farming clans began to form in the Yellow River valley. Central government first arose
in approximately 1120 BC, when the Zhou clan established control over the Yellow River valley. The
Zhou ruled the region until 480 BC, when China splintered during the Warring States period (480 BC –
221 BC). During this period, Confucius, one of Chinas greatest philosopher-sages, tried to convince
the rulers of the virtues of order and the ways of maintaining it. Chinas first emperor, Qin Shi Huang,
unified the country in 221 BC, creating its first dynasty. Qin is credited with laying the foundation for
the birth of the Chinese state. He standardized the Chinese currency, weights and measures, and the
written language. He also created a national army and established a centralized political apparatus
that ruled much of Chinas present territory. Qin died in 210 BC and his empire quickly disintegrated.
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