While attempting to maintain political stability, Premier Zhu Rongji kept things on track in the difficult years of the late 1990s, maintaining an average GDP growth of 9.7% a year over the two decades to 2000. Against the backdrop of the 1997 Asian financial crisis (precipitated when China devalued the RMB), the catastrophic 1998 Yangtze River Floods, and a global economic slowdown, China's GDP still grew by 7.9% in the first nine months of 2002. Active state intervention to stimulate demand through wage increases in the public sector and other measures showed the strength in the Chinese economic system in times of hardship.
As global firms scrambled to avoid missing the China boom, foreign direct investment (FDI) in China rose 22.6% in 2002 alone. While global trade grew by one percent in 2002, China's trade soared 18% in the first nine months of 2002, with exports outstripping imports.
Zhu also tackled deep-seated structural problems, such as uneven development divesting state-owned enterprises, resolving the triangular bad loan crisis and resolving questions over the pace of change.
The PRC leadership was also struggling to modernize and privatize State-owned enterprises (SOEs) without inducing massive urban unemployment. The generation of people that, due to the Cultural Revolution, lacked proper education or applicable skills found it increasingly difficult to find a stable place in the increasingly privatized workforce. Millions lost their jobs as state firms closed, so Zhu established financial safety nets for unemployed workers and new urban jobs to absorb laid off workers and rural migrants. Under the auspices of Zhu and Wen Jiabao, his top deputy and successor, the state has been alleviating unemployment while promoting efficiency by pumping tax revenues into the economy and expanding consumer demand.
Though critics charge that there is an oversupply of manufactured goods driving down prices and profits while increasing the level of bad debt in the banking system, demand for Chinese goods, domestically and abroad, is high enough to put those concerns to rest in the time being.
Zhu's right-hand man, Wen Jiabao, oversaw regulations for the stock market and campaigned to develop poorer inland provinces to stem migration and regional resentment. Zhu and Wen also set tax ceilings for peasants to protect them from high levies by corrupt officials. Well respected by ordinary Chinese citizens, Zhu is also highly thought of by Western political and business leaders, who credit him with bringing China into the World Trade Organization (WTO). Wen replaced Zhu as Premier in March 2003. Like his fourth-generation colleague Hu Jintao, Wen's personal opinions are difficult to discern since he sticks very closely to his script. While Zhu was frank and strong-willed, Wen is known for his suppleness and discretion.
Crises abroad
In May 1999, NATO forces undergoing bombing operations in Yugoslavia during the Kosovo War bombed the Chinese embassy in Belgrade. The event resulted in the death of three Chinese journalists as well as a strong wave of anti-US sentiment, supported by denunciations of the US in the Chinese media, who portrayed the attack as being on Chinese patriotism. Though the US declared the incident an accident, the Chinese government officially condemned the action and demanded a full apology. In an official statement, Vice-President Hu Jintao condemned the action as "barbaric" and illustrative of "American hegemony."
At the start of the 21st century, China faced numerous challenges: China’s human rights record has become the concern for many western governments, and US leaders seem required to mention the issue on every official state visit. Pro-Taiwan Independence forces of the Democratic Progressive Party won the elections in Taiwan for the first time, derailing talks of Chinese reunification. Li Teng-hui published his "Two Countries Statement," labeling Taiwan an independent entity separate from China. Then, in April 2001, a collision occurred between a US spy-plane and a Chinese military jet near the island of Hainan strained China-US relations even further.
Further, in July 2001, the PRC and Russia signed the twenty-year Treaty of Friendship and Cooperation, aimed at balancing out US dominance in global affairs.