Beijing Identifies a Scapegoat for China's Economic Troubles Central Bank Head Is Forced out as Scandals, Inflation Fuel Uncertainty

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CHINA is struggling to address widening financial disarray and forestall a looming economic crisis.

Confronting runaway inflation, supercharged growth, and a plummeting currency, the government is expected to announce later this week that Li Guixian, governor of the central People's Bank of China, is being removed and held responsible for the country's deepening economic troubles, according to the pro-Chinese press in Hong Kong.

On Wednesday, Wen Wei Po, a Chinese-language newspaper in the colony, reported that Zhu Rongji, a vice premier and custodian of China's market-style reforms, will also head the central bank, a move that will boost his political clout. Chinese officials refused to comment.

The shake-up comes as Beijing communists seem unable to rein in an exploding economy and free-wheeling local officials speculating in industrial real estate development. The resulting inflation is fueling discontent among cash-strapped farmers and inflation-hit urbanites.

The financial uncertainty has prompted many Chinese to hedge their savings against the soaring inflation by investing in gold. Since the beginning of the year, gold sold on the open market in China has jumped 50 percent, gold dealers in Beijing say.

Awaiting opportunities in bonds and stocks in China's emerging financial markets, many Chinese are withdrawing or withholding money from banks. That has alarmed the government and set off a scramble to raise badly needed funds.

This week the government ordered Chinese to buy badly subscribed treasury bonds, setting a minimum of $30 per worker no matter what his salary. "The whole family will have to live on tap water next month," says a college teacher whose entire salary will be used to buy the bonds.

The New China News Agency reported that the government plans to call a national economic conference in an effort to deal with unruly local and regional officials. "Beijing is getting panicky about its failure to discipline the provinces," says an Asian diplomat. "The officials are very worried about the situation."

Inflation "will get worse before it gets better," predicts a Western economist who asked not to be named. "They can probably slow down the economy, but they can't alleviate the price pressure. …