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xiii Foreword Helmut Schmidt During the late 1960s I had an inkling that China was regaining its status as a world power. However, since Germany and China had no diplomatic ties, I traveled to East Asia hoping to look at China from the perspective of the Japanese, the South Koreans, the Thai people, and the Australians. In 1972, as one outcome of these travels, Germany and China established diplomatic relations . Three years later, I visited China for the first time at the invitation of Zhou Enlai, but owing to Zhou’s illness, I was received by Mao Zedong and by Deng Xiao­ ping. In the following decades I visited China some 12 or 15 times and witnessed firsthand China’s phenomenal economic, educational, and social upswing since the late 1970s. Throughout the four millenniums of its existence, Chinese civilization has shown a fascinating vitality. Considering China’s relative decay during the 19th century and its riven internal and external conditions during the first decades of the 20th century, China’s rather explosive renaissance in the past three decades seems almost unbelievable. After 1978 Deng set up a stunning evolutionary process of step-by-step economic reforms. He anticipated that if structural and economic reforms were introduced simultaneously, it might lead to chaos. Later developments in the former Soviet Union appeared to justify this view. After 1989 the risk of a rollback in China appeared a possibility. However, with his five-week trip to southern provinces and cities in early 1992, Deng successfully affirmed that the movement toward a market-oriented economy would continue. Without the paramount leadership of Deng Xiaoping, China’s new rise would certainly never have occurred. Yet it has been Zhu Rongji’s outstanding achievements as VicePremier , central bank Governor, and as Premier that consolidated Deng’s legacy to present-day China. The first years of China’s economic transformation resembled an ecstatic rush. Severe signs of a dangerous overheating were soon noticeable. Inflation became a serious problem, especially in the early 1990s when China suffered double-digit inflation rates of more than 20 percent. Obviously, a framework that allowed for a steady and sustainable growth had to be established, and xiv Foreword by Helmut Schmidt it became the main driving force of Zhu’s work. In a speech in March 1992, he outlined the need for broad structural reforms and technological progress alongside the process of further economic opening. To turn the spirit of Deng’s southern talks into reality, a sound macroeconomic environment, a modern financial system, and an efficient industrial sector were essential. I first met Zhu Rongji in 1993, when he was still Vice Premier and had become fully responsible for economic affairs. Although Zhu was educated as a technical engineer, his economic insight was remarkable, surpassing that of most other political leaders in the world I have met. In 1993 Zhu launched widespread reforms to restructure China’s financial sector. As one result, the People’s Bank of China became a genuine central bank that was now able to conduct a nationally unified monetary policy. At the same time, Zhu addressed the need to shift fiscal power to the central government as its share of tax revenues had fallen sharply during the 1980s. A federal-style tax-streaming system with centralized tax administration replaced a rather complicated system in which all taxes were collected at the local level. This put the central government’s financial resources on a much healthier foundation than before and meant they could be redistributed to provinces with less dynamic economies. In the wake of improved macroeconomic controls, inflationary pressures decreased, and between 1995 and 1997 China’s high-flying economy managed to make a “soft landing.” When Asia was hit by a severe financial crisis in 1997 and 1998, China was affected only slightly, mainly because of its capital controls but also with the help of massive infrastructure projects. Guided by Zhu’s economic expertise, China’s leadership kept the renminbi from being devalued and refrained from taking part in a damaging “race to the bottom.” After the Asian crisis, Zhu emphasized the need for effective financial market regulation and oversight in order to prevent harmful speculation. The global financial meltdown after the collapse of Lehman Brothers almost 10 years later demonstrated that Western political leaders had regrettably failed to draw similar lessons. When he was appointed Premier in 1998, Zhu accelerated the pace of reforming China’s huge sector of state-owned enterprises (SOEs). By the...


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