Profile: Zhu Rongji: The dragon learns from the tiger

What next for Asia? China's prime minister in waiting won't be rushed into reform

WHEN Lawrence Summers, the US Deputy Treasury Secretary, flew into Peking for a fleeting visit last week, there was no question of whom to see first - Zhu Rongji, China's 69-year-old chief economic policy maker, who is due to take over as prime minister in March. It is Mr Zhu who has orchestrated the mainland's response to Asia's economic meltdown, centred on China's explicit commitment not to devalue the renminbi (the country's renamed currency). And it is he, armed with China's $14bn (pounds 8.6bn) in foreign exchange reserves, who ultimately stands behind Hong Kong's pledge to keep its currency pegged to the US dollar.

Mr Zhu is every visiting Western statesman's favourite Chinese leader, a confident, English-speaking technocrat who understands the language of global markets and is at ease on conference platforms with international financiers. So much is he the face of "new China" that Westerners sometimes forget he comes from a very different tradition, and that most of his career has been spent as a central planner in a closed economy.

There is, however, no doubt that, in China, Mr Zhu counts as a reformer. Jean-Pierre Cabestan, director of the French Research Centre on Contemporary China in Taipei, said: "By training he was a planner, but he has steadily changed his mind over the years. He is a moderniser, he wants to modernise the economic system and adjust the Chinese economy to the world economy."

But only up to a point. Mr Zhu has an instinctive distrust of spontaneous markets. Just over a year ago, for instance, when China's volatile stock markets in Shenzhen and Shanghai had a bout of nerves, China's response was an old-style warning to investors on the front page of the People's Daily and the imposition of 10 per cent daily trading limits.

Those instincts have only been strengthened by watching the turmoil elsewhere in Asian markets. China has so far been ring-fenced from the domino financial crisis in Asia because the renminbi is not convertible on the capital account and its financial markets are mostly closed to foreigners. Thus there can be no massive outflow of foreign capital. The country also boasted a record $43bn trade surplus last year, and has relatively little short- term foreign debt.

But Mr Zhu has enough problems of his own to sort out, the biggest one being a state bank sector creaking under years of huge bad loans to China's decrepit, over-manned state enterprises.

Peking had been looking to countries such as Japan and South Korea as it devised how to restructure its banks and loss-making state firms. Now Mr Zhu and other Chinese leaders are taken aback at the weaknesses exposed in the "East Asian model". He told one visiting statesman that he had been "surprised" to see the scale of problems emerging in Japan's banks and securities firms. Meanwhile, the fall from grace of the South Korean conglomerates demands a rapid rethink of China's policy, announced last year, to create Chinese chaebol-style mega-companies to compete on the international market.

The Asian crisis is likely to reinforce Mr Zhu's natural caution about opening China's financial markets too rapidly. Seeing the vulnerability of letting foreign capital flood into a half-reformed financial system means that China will focus on getting its own house in order. To this end, Mr Zhu's appointee as central bank governor, Dai Xianglong, on Friday outlined a restructuring of the state bank sector.

"For the time being, I would say that he wants to evolve towards a kind of free market economy in which the key or strategic sectors are still controlled by the government," said Mr Cabestan. If that means World Trade Organisation entry or renminbi convertibility takes longer, then so be it.

Privately, Mr Zhu has admitted that one "positive" effect of the Asian financial upheaval has been to enable China to understand when an economy's structure was "irrational". Given the contagion effect of the existing crisis, the rest of the world must now hope that Peking can avoid at least some of the mistakes of its Asian neighbours.