SHANGHAI, Sept. 10 (UPI) -- As China prepares for a historic leadership change this fall, major economic issues remain at the forefront of the debate over succession as supporters and opponents of President Jiang Zemin's policies quarrel over the future of capitalist-style reforms.
Following the 16th National Party Congress, to be held this November, most of China's so-called "third-generation" leaders are expected to retire from their posts as younger cadres are elected.
Jiang Zemin, 76, who has been chief of the Communist party and the armed forces for more than a decade, is expected to cede much of his powers to 59-year-old Vice President Hu Jintao.
Elite members of China's powerful seven-man Politburo Standing Committee -- including National People's Congress Chairman Li Peng, Chinese Premier Zhu Rongji and Li Ruihuan, chairman of the People's Political Consultative Conference -- will step aside as younger cadres fill their posts.
But behind the scenes of China's secretive Communist Party hierarchy, rifts have emerged over Jiang's economic theories, which are viewed by his supporters as essential to the survival of the party leadership, and reviled by his opponents as a betrayal of the nation's Communist doctrine.
The controversy centers around efforts by Jiang's supporters to have his political theory -- which calls for the acceptance of capitalists into the party -- written into the party Constitution, lionizing him along with China's former paramount leaders such as Mao Zedong and Deng Xiaoping.
The theory, dubbed the "Three Representatives," calls on the 650-million-member Communist Party to represent "advanced production forces, advanced culture and the interests of the masses."
Jiang's supporters claim the "fourth-generation" of leaders is not prepared to deal with the host of economic problems they stand to inherit, ranging from rural unrest over poverty and corruption to a bankrupt financial system and the opening the country's economy to rising foreign competition.
Observers say the success of China's next generation of top leaders will depend on how well they deal with these key economic concerns.
"I think they will be challenged to continue the major economic restructuring that has accelerated over the past few years under the direction of Zhu Rongji,"
Nicolas R. Lardy, a China expert and senior fellow at the Brookings Institution, told United Press International in a recent interview.
China's membership in the World Trade Organization is opening more overseas markets for its expanding economy, giving a major boost to the country's drive towards a market-style system.
But it is also exposing millions of farmers and workers to increasing foreign competition as tariffs are lowered, subsidies scrapped and trade barriers torn down to comply with WTO commitments.
Urban unemployment in China is expected to rise to its highest levels in decades in the next four years, as roughly 20 million more workers are laid off from an ever-shrinking industrial sector.
The painful reforms in China's redundant industrial sectors are driving unemployed workers into the streets to protest factory closings, fueling fears of rising social unrest throughout the country.
Lardy say China's new leaders will be forced to deal with the rapid pace of the economic reforms, and could, if prompted by rising social unrest, push for a slowdown of the financial restructuring.
"They will have to balance the political cost of reforms against potential economic gains," he said.
Because of this, insiders say a number of influential Chinese scholars are advocating that Jiang remain in power for a few more years to ensure the survival of the nation's economic reforms.
"There are many economists in China who feel that Jiang Zemin's efforts to open the party ranks to private entrepreneurs is the best hope for the survival of the nation's economic growth," said Guo Ming, an economics professor at Shanghai University. "He is a visionary for the future."
Jiang appears to have decided that the future of China's one-party system -- based on the theory of "Socialism with Chinese characteristics" -- depends on embracing wealthy members of society.
Under his leadership, China has made radical changes to its outmoded economy by dismantling state monopolies and closing inefficient factories. State-owned firms, which once accounted for over 80 percent of China's industrial output in the mid-1980s, now produce less than 25 percent.
Shortly after the Communist revolution in 1949, China's new leaders executed, imprisoned and drove out most of the country's private businessmen. But economic reforms initiated during the late-1970s under the late leader Deng Xiaoping gave birth to a new generation of capitalists.
Jiang policies have accelerated China's shift towards a capitalist-style market economy, and as a result, private entrepreneurship is on the rise, accounting for a major portion of the economy.
According to official statistics, China has more than 1.7 million privately run enterprises with an investment of RMB 1.1 trillion (about US $132 billion), employing 27 million people. Last year, 30 percent of the nation's gross domestic product was generated by the private sector.
Most Chinese business leaders and executives say they are indifferent to the leadership shuffle, provided that it will mean continued economic progress and the growth of the private sector.
"As long as China's leaders continue to foster the growth of the private sector, most businessmen don't care who runs the country," said Chen Baoling, a 34-year-old computer software engineer.
Others say there are growing concerns within the foreign investment community that economic reforms aimed at opening China's economy could be sidetracked by political considerations.
"Some foreign investors are concerned about the leadership change, they don't understand what it will mean for them," said Richard Baxter, a New York-based investment specialist in Shanghai.
There are already signs that the leadership change is delaying key economic reforms. Last week, a senior official told the London-based Financial Times that plans to approve a crucial bankruptcy law at a meeting of the National People's Congress next March have been postponed indefinitely.
The approval of a viable bankruptcy law is considered essential to China's efforts to promote the reform of its struggling state-owned enterprises, the last remnants of its central planning system.
"It's unlikely that major economic policies will be pursued until the leadership change is secured," said one Western diplomat. "They want to maintain social stability ahead of the party congress."
