DENG LEGACY MORE A MATTER OF ECONOMICS THAN IDEOLOGY.

Byline: Sheryl WuDunn The New York Times

Deng Xiaoping, the architect of China's policy of economic openness, seemed to possess a magical touch with China's economy in its rocky transition from communism to capitalism.

But Deng has left his successors facing even tougher challenges, ones that he may not have been brave enough to take on.

Jiang Zemin, Deng's designated successor, and his circle of colleagues and adversaries have far less political legitimacy and influence than Deng. That may be crucial in pushing ahead with unpopular but necessary economic policies, like reducing the cumbersome government sector, raising taxes, hiking prices or allowing large-scale layoffs.

This leaves one pressing question: Will Deng's death threaten to derail the pace of China's progress on economic restructuring? Or is it possible his death might pave the way for even swifter change?

On Thursday, business leaders in the United States expressed an almost stubborn optimism that China will remain on its current course of economic modernization. And markets around Asia seemed to take his death in stride, as stock indexes in Tokyo, Hong Kong, Taipei and Shenzhen, even, edged higher.

Trading in the Hong Kong stock market opened smartly Thursday, as the Hang Seng Index jumped more than 200 points. The market finished the day up more than 300 points to close at 13,411.3 for a 2.3 percent gain. That would have been inconceivable a few years ago, when people were talking about a drop of 30 percent after Deng's death, and it is a sign that more and more people accept that a leadership transition has taken place.

Deng's death was not only anticipated, but Deng had already set in motion an economic revolution in China far beyond what any one man could control.

``It is still a market of taxi cabs and chauffeur-driven vehicles,'' said John F. Smith Jr., chairman and chief executive of General Motors Corp., which has a sizable business in China. ``The roads are currently missing, so that has to come first.''

Deng's death does not change the fundamental strength of the economy, which grew nearly 10 percent last year. Savings rates are still high, labor remains cheap, and China's public works and legal systems both remain weak but improving.

``Nobody in China has really lost from economic reform, and in the beginning that was very important,'' said Nicholas Lardy, a senior fellow at The Brookings Institution. ``But somehow along the line, you've got to start making some tough choices.''

Those tough choices loomed while Deng was still alive, and they remain China's greatest challenge for the future.

It will certainly be hard to match the magic of China's former patriarch. When Deng made what has become known as his imperial journey to the south in 1992, a time when economic restructuring was stalling, he was nominally just a retired old man.

But in fact, his trip paved the way for remarkable changes in the national winds of economic policy. Hard-liners were virtually expelled from the leadership. China hailed the virtues of a ``socialist market economy,'' sweeping central planning under the carpet at the Party Congress in October. And suddenly, a new economic vitality spread like wildfire throughout the country.

He was a decisive leader, and when problems arose or critics swooped down on him, he forged ahead steadily and determinedly. That is exactly the opposite of the approach taken by Jiang Zemin, China's cautious communist leader. Deng had the influence to override hard-liners who thought economic modernization should proceed much more slowly. China still has a clutch of elderly leaders, some of whom are ardent revolutionary purists, and they may now press for a slower pace of economic restructuring. It is unlikely they will win, but there may at least be a tortuous, protracted battle that itself could delay economic change.

Finally, Deng had the political capital to make dramatic and painful changes in China. He did not always exercise it, but he did begin to allow companies to lay off workers, and he gingerly began to accept the concept that companies could go bankrupt.

In contrast, both Jiang and Prime Minister Li Peng may lack the stature necessary to push ahead with important but painful measures.

Still, in a sense, one of Deng's critical economic contributions survives him: Economic restructuring is no longer an ideological question. It is more of a technical one.

When the Chinese leadership debates how to introduce capital markets or dissolve inefficiencies in the state sector, the debate is not over whether these steps are allowable. Instead, they are about the concrete process of how to go about orchestrating the change.

For example, how can welfare benefits be taken away from people? How can workers be laid off, and how can new jobs be found for them, to keep them from protesting in the streets? They are issues that are as much of a headache for any capitalist leader.

In some ways, China's younger, more technocratic and worldly crop of leaders are better equipped than their elderly predecessors to handle the next stage of economic challenges. Jiang and Li probably understand the technical issues about the economy better than did Deng, and they are acutely aware that a vibrant, flourishing and progressing economy is the core of their legitimacy.

But they may not have a strong enough political will, the discipline, or the mandate to carry out unpopular measures. Moreover, if the Chinese leadership is divided, neither Jiang nor Li may have the ability to break the impasse.

There are a cast of characters surrounding Jiang and Li in the collective leadership, and one or another of them may be potentially daring and shrewd enough to emerge as a king-maker.

One leader who sometimes has demonstrated a flair for the bold is Zhu Rongji, a deputy prime minister who is often considered China's new economic czar. He helped steer China's overheated economy to a soft landing in recent years, curbing inflation without choking growth.

Some even see him as China's Gorbachev, or a future emperor; though those who do are mostly foreigners. Indeed, with Deng gone, some economists like Lardy say there may be possibilities for faster or more substantial progress to be made if well-informed, better-trained technocrats are allowed to proceed with restructuring.

China's economic successes have been phenomenal. But along with this wealth has come signs of the evils of 19th-century industrial capitalism in the West. Fly-by-night companies in China often produce dangerous products, families send their children to sweatshops instead of schools, inequalities are expanding, and the get-rich-quick mentality creates its own excesses.

When, in the late 1980s, word got out that AIDS had created a huge demand for disposable rubber gloves in the West, scores of tiny Chinese factories rushed to manufacture gloves for export. The result was that China's production of rubber gloves exceeded the worldwide demand, and prices plunged and factories went bankrupt. Deng was perhaps not courageous enough to confront the most troublesome remnant of communism: the inefficient state sector and the circle of financial and systemic problems surrounding it.

``I think there were some things that it was harder to raise and debate openly while he was still alive,'' said Robert Knapp, president of the U.S.-China Business Council.

China's state sector used to be the core of its economy, but now it is draining the economy dry, Knapp added. Loans to inefficient state-owned enterprises have doubled as a percentage of gross national product, according to Lardy.

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Photo

Photo: Customers in a department store in Fuzhou City, China, watch as Deng Xiaoping's death is announced.

Associated Press