BEIJING -- More than a year after the economic crisis began ripping through Asia, China remains an island of political stability and relative prosperity.

While Japan wallows in recession, protesters take to the streets of Malaysia, and Indonesia watches decades of economic progress evaporate, China's authoritarian leaders are firmly in control, and their economy, though slowing, appears reasonably strong.

How China has so far managed to weather the region's worst economic crisis in decades provides an interesting lesson in these uncertain days of global capitalism: Sometimes it pays to wait.

China suffers from some of the same problems that have contributed to Asia's financial meltdown, including endemic corruption and a debt-ridden banking system. But by taking a slow approach to opening their economy to the rest of the world, Chinese leaders have also served to insulate it from much of the crisis.

"The speed at which you open up [the economy] should be compatible with the speed of adopting the rule of law and a fair and transparent system," said a Western diplomat in Beijing. "Given the problems they've got they were smart in not fully opening up."

Such controls, though, have only bought China more time. The crisis' larger lesson, economists say, is that Beijing must push forward in reforming an inefficient and inherently un fair economic system.

Chinese leaders face the daunting task of overhauling the nation's failing, Communist-era enterprises as well as saving a banking system that many say is technically insolvent. Beijing officials seem acutely aware of the risks of permitting widespread public corruption at a time when the government is laying off millions of workers from the state's money-losing businesses. A similar mix of economic frustration and graft proved explosive in Indonesia earlier this year, leading to mass riots and the forced resignation of President Suharto after more than three decades in power.

"They watched Indonesia very closely," said Qu Hongbin, a Hong Kong-based economist for the investment bank Dresdner Kleinwort Benson. "I think it actually encourages them to make more commitment to reform."

A few even suggest that the Asian crisis might pressure leaders in Beijing to do something they have so far resisted: permit some political freedom.

"We have some profound and very deep-rooted problems," said Mao Yushi, chairman of the Unirule Institute of Economics and Consulting Firm, a Beijing think tank. "I think there is one possibility to clean up all this corruption. That would involve political reform."

Unlike Suharto, who seemed hopelessly out of touch with his people's concerns, China's leaders emphasize the need to develop a rule of law in a nation where it garners little respect and the importance of punishing corrupt officials.

China's state-run newspapers routinely publish stories about crackdowns on public graft, while President Jiang Zemin has called for an end to rampant smuggling and the People's Liberation Army's massive network of businesses.

It is unclear how much political freedom Chinese leaders might permit as they continue to transform the economy. While some intellectuals have been allowed to discuss taboo subjects such as national elections, the government responded to a recent bid to form an independent political party with wholesale arrests.

As the bullet of economic instability ricocheted around Asia during the past year, China largely dodged it because the nation's currency, the renminbi, is not yet fully convertible. In opening to the world over the last two decades, China's leaders have never let go of the levers which control their economy.

Unlike the U.S. dollar and the Japanese yen, the renminbi cannot be traded on the world market, making it much less vulnerable to pressure from speculators. The government also maintains strict currency controls, making it difficult for foreign firms to quickly remove money as they did in several Southeast Asian nations with disastrous results. Had the renminbi been fully convertible, "I think it would have been a tragedy for the Chinese economy," said Mao.

Rumors have swirled for months that China would devalue its currency to compete with other Asian countries which have already devalued. Many fear such a move would spark another round of currency drops and further damage the region.

Some economists, however, say a devaluation appears unnecessary at the moment, given signs of strength in the Chinese economy.

Although they remain flat, China's foreign currency reserves are still among the largest in the world: about $140 billion. Fixed-asset investment, which includes new roads, power plants and factories, was up 17 percent during the first eight months of this year compared to the same time last year.

Despite declining export growth, China maintained a trade surplus of about $31 billion through August. And the nation's savings rate of more than 30 percent is among the highest in the world.

"At the current stage, there is no reason for China to devalue the RMB," said Zeng Peiyan, minister of the State Development Planning Commission, at a news conference in August. "For this year, the RMB exchange rate will not be changed."

The economic downturn in nearby countries, though, has clearly taken a toll. Tourism has dropped by 20 percent in Beijing, ship construction orders are down by a third and overall export growth slipped 1.4 percent last month to 5.5 percent.

With the plunge of the Russian ruble, Russian restaurant owner Wang Xin Ting is losing money fast and plans to close his business in a month.

Wang's restaurant sits across from Beijing's sprawling Yabao Road market, which sells cheap fur hats, large bras and knockoff sneakers to Russian traders who peddle them back in Moscow. Almost all of Wang's customers are Russian. With their economy in shambles, most are staying home.

To avoid being dragged down by Asia's crisis, Chinese leaders say they are spending $12 billion to stimulate growth, create jobs and increase consumer demand -- a powerful force in a nation of 1.2 billion people. China's growth rate has been declining since the mid-1990s, and the government is struggling to meet a target of 8 percent this year.

Officials say the 8 percent rate, which they repeat like a mantra, is the level the economy must reach to continue to absorb workers being laid off from failing state-owned businesses. If the economy stalls and the ranks of the jobless swell, Chinese leaders fear violent unrest could follow.

Pub Date: 10/11/98