Death of a Reformer and China's Economic Policy
Summary
On May 10, Li Fuxiang, director of China's State Administration of
Foreign Exchange (SAFE), died after falling seven floors from a
hospital in Beijing. Li, head of SAFE since 1998, was one of the
first staff from the Bank of China to study international
management in the United States and was widely considered to be
free from the taint of corruption. Li's death comes amid reports
that he was recently called to assist in the investigation of a
former SAFE head, Zhu Xiaohua, and that Li himself may have been
under investigation for irregularities perpetrated by SAFE. With
even the most reform-minded among China's economic policymakers
facing charges of corruption and mismanagement, the nation's
economic policy is approaching total disarray.
Analysis
On May 10, Li Fuxiang, director of China's State Administration of
Foreign Exchange (SAFE), fell to his death from the seventh story
of Beijing's Number 304 Hospital. Li's death, kept quiet in China,
was widely reported in Hong Kong's media as a likely suicide due to
stress or due to alleged links to a major Chinese corruption
scandal. The event raises questions about the future of China's
economic reform policies.
His death comes amid rumors that he was either called to assist
with the investigation into former SAFE head Zhu Xiaohua or that he
was under investigation himself for inappropriate activities.
However, Li was widely considered untainted by the myriad of
economic scandals in China, according to several foreign financial
professionals cited by Hong Kong media.
Prior to serving at SAFE, Li had worked as a currency trader with
the Bank of China in New York. Li was the first in a series of Bank
of China employees to study international management in the United
States, starting his studies at the University of Texas at Dallas
in 1981. Li was devoted to his work and was characterized as having
a strong sense of duty and honor, according to Dr. Stephen
Guisinger, Li's former professor and long-time associate. Guisinger
added that Li's possible successor, Deputy Director Zhao Jianping,
was also a former student at UT Dallas.
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Li's alleged links to corruption arose during a government
investigation into China Everbright Bank, which operates under the
guidance of China's State Council, headed by Prime Minister Zhu
Rongji. Zhu Rongii appointed Zhu Xiaohua to head China Everbright
in 1996 in order to reform the Bank. Around the same time, Li was
made Deputy Director of SAFE. He was then promoted to director in
1998 amid a reorganization of China's financial apparatus to
facilitate greater central control over the nation's economic
policies.
Zhu Xiaohua was removed from China Everbright in July 1999 amid
charges of improper investments. His replacement, Shao Zhengkang,
was reportedly detained in April and is also being investigated for
economic irregularities at China Everbright.
China Everbright also allegedly invested $200 million in a Shanghai
investment firm with funds coming from SAFE. This led to Li's
implication in the investigation, according to Hong Kong's Sing Tao
Daily. The investment violated Chinese regulations that ban state
investment or bailouts of state-owned international investment
firms.
Allegations of economic corruption have rocked China's leadership,
bringing investigations extremely close to the top. The cases of Li
Fuxiang, Zhu Xiaohua and Shao Zhengkang bring corruption
allegations close to the architect of China's economic reforms -
Zhu Rongji.
The wife of a close confidant of President Jiang Zemin was linked
to a massive corruption case in the southern city of Xiamen. As
well, a protege of Li Peng was expelled from the Communist party
for corruption prior to the annual Congress session in April. While
corruption and misuse of power has spread throughout China's
political apparatus, the anti-corruption campaign increasingly has
become a tool of factional fighting.
This has led to near paralysis of Beijing's decision-making
abilities. China's fiscal policy-makers have been rendered impotent
through continuing battles among the State Council under Zhu
Rongji, the executive apparatus under Jiang Zemin and the National
People's Congress under Li Peng. This has been further exacerbated
by fears of politically-driven corruption investigations that spare
the top leaders but strike at their supporters or proteges.
Li and Zhu Xiaohua were once key promoters of Zhu Rongji's economic
liberalization and reform. Whereas Zhu Xiaohua was sent to China
Everbright to clean it up and reform it, Li was promoted at SAFE to
stem foreign currency flight and utilize his knowledge of Western
economic systems amid the restructuring of China's central banking
and exchange system.
Li may have been driven to suicide over the morass of China's
economic policies. He may also have been assisted in his fall
because he knew too much. Whether by suicide or foul play, Li's
death clearly signals a breakdown in China's macroeconomic policy-
making apparatus. Guilty or not, China's economic leaders are
absorbed in dealing with the political battles in Beijing, not in
guiding China's economic future.
With even the most reform-minded elements under investigation,
Beijing's financial policy is caught in the middle of scandals and
factional competition. This leaves China's economic future in limbo
until someone steps in to redirect policy. With Zhu Rongji and his
Western-trained allies now under the gun, economic policies will
likely revert to a more traditional - and less transparent -
Chinese system, but not before it collapses from a lack of
guidance.
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