Too Soon to Celebrate.(politics China)

Lardy is a Senior Fellow at the Institute for International Economics.

When Zhu Rongji delivered his swansong speech at the opening of the National People's Congress last week, the outgoing prime minister had good reason to pat himself on the back. After all, 2002 was a banner year for the Chinese economy. Despite a weak global recovery, China's economy expanded by 8 percent--far and away the fastest paced growth of any major country. Its trade performance was even more impressive, with imports and exports each rising by more than a fifth. China is now the world's fifth largest trading economy and--stunningly-- accounted for half of world trade growth in 2002. If that wasn't enough, in China's first 12 months in the World Trade Organization, its direct investment from abroad exceeded $50 billion for the first time, making the Middle Kingdom the world's leading destination for foreign investment.

Years ago Deng Xiaoping famously remarked that "some people have to get rich first" if China is to develop successfully. And although Zhu's leadership helped as many as 300 million join the ranks of the middle- class, Zhu's successor, Wen Jiabao, must now work to buoy the many millions more who have been left behind.

In this task, Wen and his economic team face an awesome challenge. Every major economic divide in China--between urban and rural residents, coastal and inland provinces, skilled and unskilled workers- -has expanded markedly in the past decade. And the tools available to bridge the gap are limited at best. China's personal-income tax-- potentially a redistributive instrument--touches few. Beijing's new "Go West" campaign was intended to spur economic ...