Jasper Becker: China resembles a right-wing dictatorship

China's flinty premier, Zhu Rongji, formally bows out next week after a decade steering China towards free markets. He is hated and worshipped, but no one doubts his historical importance. More than anyone else, apart from the late Deng Xiaoping, his forceful leadership has kept the Chinese Communist Party in power. He did it by aggressively pushing a Thatcherite economic vision while relying on old-fashioned state spending.

The special commemorative editions published this week hail China's membership of the World Trade Organisation as Zhu's most enduring legacy. The WTO agreement casts the economic future in concrete and marks the final rout of the party's left wing, yet it leaves China's political system undefined. And as the National People's Congress meeting this week celebrated China' s economic performance during his five years in office with a barrage of healthy statistics, the sense that all is not well occasionally intruded.

Just before the meeting opened, bombs exploded at Zhu's alma mater, Qinghua University, and at Peking University, where most of China's new generation of leaders were educated. When the police caught up with the only suspect, a peasant, they said he admitted doing it to seek fame. One soon notices here that almost every bomb or protest is blamed on lunatics, religious fanatics or subversives financed by a foreign power.

All the signs indicate that political reform is a long way off. No one in the incoming administration, rates as a liberal. Even if they are cleverly hiding their reformist cravings, one only has to look at the new Beijing to foretell the future. The party is lavishing $50bn, perhaps $100bn, on rebuilding Beijing for the 2008 Olympics, with new motorways, metro lines, stadia, hotels, shopping centres, conference centres, opera houses, luxury suburbs, a Silicon Valley hi-tech zone, an ecology park, an equestrian riding park – the list goes on and on – but there is but no mention of a parliament building. Even North Korea has a parliament and holds elections, but not China.

Political reform remains taboo, making China increasingly resemble an ultra right-wing dictatorship, ruthless against trade unions but keen to ensure that big corporations and investors make plenty of profits with cheap, docile labour. The state's ideology seems a throwback to 1920s Fascist Italy – an authoritarian state nursing a fiercely nationalistic sense of humiliation about the past and promising its people regeneration in a bright technocratic future.

Yet China does not really fit into any pattern, and what has changed is so remarkable that anything seems possible. Consider what Zhu has managed to achieve. Sunk in a post -Tiananmen slump, China had swung so far towards autarky and central planning that it seemed to be heading into a Stalinist twilight zone.

When Zhu emerged into the limelight, on the back of Deng's 1992 southern tour, his main task was curbing runaway inflation. In the mid-1990s, he spearheaded such a harsh austerity campaign that there were believable rumours that he and his family had narrowly escaped assassination. Millions lost their savings and often their jobs.

Zhu kept the state sector going during the liquidity crisis by aggressively funnelling money raised on domestic and overseas stock markets, but he also reined in countless over-ambitious experiments in capitalism: local stock markets, futures markets, trust and investment corporations, and some crazy property bubbles.

Hard on the heels of the successful campaign to bring down inflation, he faced an inner-party battle when the left wing revived on the back of the 1997 Asian financial crisis. Chinese papers filled up with triumphant predictions about the imminent collapse of capitalism or warnings about the threats posed by the "sharks" and "crocodiles" of international finance.

Zhu cleverly managed to exploit the crisis as an opportunity. When foreign investment dried up, Zhu used this to insist that it was all the more urgent that China enter the WTO. He pushed through a deal with the US, despite being accused of selling out the country, and put China on the path towards creating a thriving mixed economy.

Zhu got away with a lot through bluster and bluffing; manipulating statistics to say the economy was growing at around 8 per cent in 1998 even though it was barely growing at all. Yet his worst legacy is the high esteem that many younger Chinese now have for his brand of authoritarian leadership, and for the merits of heavy-handed state intervention and big government spending.

Last year, Zhu even boasted that he had saved the Chinese economy from collapse, but the day of reckoning may only have been postponed. That leaves the "fourth generation" of Chinese leaders too nervous to allow freedom of association in any form, from trade unions to Rotary clubs. Yet the new leadership is enthusiastic about ushering in an era of private property ownership and a consumer-driven economy. The state is getting smaller and smaller, and the individual becoming independent of China's suffocating bureaucracy.

Many hope that Zhu's reforms have laid the foundations for political change – but, if so, they may have to wait at least until the "fifth generation" takes power to see what emerges.