CHINA'S RED PRINCES

In the chaotic, black-market capitalism of the new China, the children of the Communist elite are the economic warlords— a secret society reaping vast fortunes through family connections

ANDREW

LESLIE COCKBURN

Dispatches

'Beijing isn't really a party town yet," says Chang Ning, perched on the bed of a topfloor room in the ultramodern Cvik Hotel in central Beijing. She is stunningly beautiful, wrapped in a tight beige wool jacket and leopard-print skirt slit to the thigh. ''People get together to play mah-jongg and gamble." She gestures with her delicate hand, a gold ring on every finger. ''I haven't played mah-jongg since the Cultural Revolution. That was a 'bourgeois pastime.' Listening to Mozart was 'bourgeois pornography.' "

Ning is a Red Princess, one of the "special class" of children of top officials with impeccable revolutionary pedigrees. Her father sentenced Madame Mao to death in 1981, ending the era of the Gang of Four, whose excesses in the last days of the Cultural Revolution bordered on madness. (Madame Mao died in prison 10 years later.) Ning and her contemporaries, with the right parents, the right schools, the right connections—the indispensable guanxi—are the thin upper crust of Chinese society, the chief beneficiaries of the much-advertised economic "boom."

From their childhood days in the heavily guarded compounds inhabited by their powerful parents, the princes and princesses have lived in a secret world, inaccessible to outsiders and, by the standards of the 1.15 billion "common people" around them, infinitely privileged. They do not court attention, for, as one prince observes, "it is bad luck for a man to be famous and for a pig to be fat."

The very mention of this set, known collectively as the "Gaogan Zidi" (children of the senior cadres), is enough to make career bureaucrats blanch. "No one wants to know about the Gaogan Zidi," one official says nervously. "It's better not to know."

Ning moves with dainty steps, like an emperor's concubine, to organize tea. Her earrings alone are worth several years' salary for the crush of Chinese on the streets below. "I'm so ruthless," she says of her business dealings, which involve introducing a long list of European clients to the right people in China. "China is not like Russia. Nobody has to teach the Chinese how to trade. We are like the Jews. We are bom with it. So far as business is concerned, the government has said to people, basically, 'We don't care what you do.' It's like America in the last century. What do you call them? The robber barons."

Ever since "paramount leader" Deng Xiaoping told the Chinese people in 1977 that "to be rich is glorious," the sons and daughters of the old guerrillas who fought their way into power nearly half a century ago have been taking him at his word. There is no membership list for the network of great clans crisscrossing politics, the military, and business. (It was not until 1984 that Beijing admitted publicly that Deng himself had any children at all, let alone what they were up to.) Chinese themselves talk about "the 1,000 families" or "the 90 families" or "the 17 families," depending on how near the summit you want to go. A Hong Kong magazine with excellent connections in the Communist power structure compiled a partial list of sons, daughters, sonsand daughters-in-law, as well as adopted children, and came up with 120 names of those at the top.

U.S. intelligence, aware that this is the group that holds power in China, has its own lists locked away in the files, considered so sensitive that only those with the highest clearances are allowed to see them.

These are the people with the most at stake if the debate in Washington over relations with China turns against them, and the lucrative contracts with U.S. business come to an end. In the meantime, they pursue a cycle of frantic dealmaking and lavish spending. "Before, we used to go to the country for hunting and shooting," says Chang Ning. "Now everyone's so busy. People only talk about money."

"They don't know what to do with their money," says a Beijing painter disconsolately, surveying his unsold works in a tiny apartment across town. "When they gamble, they have a big stack. You have to measure it with a ruler. In Beijing, they spend their money on gambling and a second wife. In Shanghai, they buy a tomb for themselves—you have someone 30 years old who's spending lots of money on his tomb. In the South, in Yunnan, they spend their money on heroin."

The mechanics of the new capitalism, he explains, are still primitive. "In China, we don't have personal checks. Everything is cash. So everybody carries around cash in a briefcase. It's very dangerous to carry a briefcase here."

He shares the common view in the capital that things are "unsettled," but that the free-for-all may be temporary, which accounts for both the manic energy of the participants and the cynicism of those old enough to remember a very different China. "In China, everything is a stage. We are all actors. When Nixon came to the Great Wall, there was a group of children playing there. The weather was cold, they were freezing. They were told to play for his benefit. When he went to the park, the [supposedly ordinary] people there were all party cadres. It was a play. Now," the painter says, smiling, "we play business."

On a crisp winter Thursday night, Beijing's princes and princesses glide to the tables for 12 that line the dance floor of the Club, next door to the Minzu Hotel. "The music," says Chang Ning, shedding her ankle-length mink, "is better than Annabel's" in London. She takes in the room and laughs. "You are the only foreign devils here." Lola, exquisite in a black cocktail dress with a single strand of pearls, has flown in from New Jersey to attend to family matters. Din Din, whose high-ranking family is being ripped apart by a messy divorce, complete with childnapping, sits languidly waiting for a dancing partner. The divorce is the talk of Beijing officialdom. As one of Din Din's friends confides, "It's like a Chinese Dynasty. Everybody's using their power. It's very corrupt."

'The government has said to people, 'We don't care what you do.' It's like America in the last century. What do you call them? The robber barons."

Din Din seems oblivious to her family's notoriety. She is scanning the ballroom, lit by flashing colored lights. At one end of the cavernous club, a singer in a slim black sequined gown with red satin puff sleeves is belting out Chinese torch songs. Nostalgic lyrics about Chairman Mao are set to a Mongolian folk tune.

Our table is filled out by a top customs official married to an air-force colonel, a cancer specialist who has opened the first private hospital in Beijing, and an entrepreneur with a fleet of 80 cars. The customs official, Wang Chuping, in sneakers and stonewashed jeans, explains why this privileged crowd are such good friends. "Everyone was in the Red Guards together," he shouts over a lusty "Moon River." "Because all of us suffered so much in the Cultural Revolution, it made a bond between us. It made us very close. . .for always."

The one hint that everyone over 30 in this room was one of the Red Guards— the brutal cadets of Chairman Mao who ransacked temples to destroy "the old," who burned books and beheaded teachers because their line was not "correct," who hounded "capitalist readers" into destitution and prison cells—is in the eerie discipline of their dancing. They waltz, carriage erect, faces solemn, with perfect precision. Din Din fans herself after an exhausting round, pulling on the belt of her green sheath. "I must have lost two pounds."

There was, of course, a time when these elegant aristocrats stood to lose more than weight. Though they may have been Red Guards at the start of the Cultural Revolution, Mao Zedong soon moved to purge his old associates—their parents. While the parents were jailed or tortured to death, the princelings were cast out of their privileged compounds and sent off to live among the lower orders in the countryside. Most of them were forced to stay there until Mao died and their parents had taken charge again.

Grim though such treatment may sound, Ning confesses a certain nostalgia for the old days. "It may be blasphemy to say it, but during the Cultural Revolution I had a really great time. Of course, my parents were in jail for eight years—that was terrible—but I had grown up in such a privileged way, boarding school and so on with all my friends, so when the Cultural Revolution came, we all went wild. I was sent to the countryside, but I only spent three days in the fields, then I got a fever. The peasants all said, 'Look how thin she is, just a little flower,' so I never went back to the fields." Apart from entertaining the peasantry with her guitar and exhibitions of ice-skating, she snuck back to Beijing, joining her friends in a strange vagabond existence.

"There was a whole gang of us—all our parents were in jail. We were being chased by police, but we didn't care. We were really wild. We'd go to a restaurant and steal the silver, then throw it in the lake just to hear the sound." As far as Mao was concerned, the gang members' families were condemned forever, but Ning was buoyed by an inbred sense of class superiority. "I never lost all hope. We regarded ourselves as a sort of spiritual elite. Having come from something better, I expected something better again."

One member of the party leaps up to sing karaoke. He electrifies the crowd with his booming operatic baritone. There is Chinese beer all around. The conversation turns inevitably to business.

"I'm working for the government," says the customs official, "and most people who work for the government have very, very low salaries. A few months ago, some friends organized sending clothes and leather jackets to Moscow. Not very good quality, but very low price. Sell them there for a high price, then change the money into dollars." He grins with pleasure at the scheme. The doctor at the table, who opened his private hospital three years ago, boasts that his 120 beds are each bringing in "$10,000 U.S. a year." As the band strikes up "Auld Lang Syne," someone at the next table offers a good black-market dollar rate.

In a cramped walk-up near the Summer Palace, a princess in disgrace, one of the very few dissidents in the elite, sips green tea. She wears no makeup, her strong, lively face framed by a severe Dutch cut. Dai Qing was raised in the stratosphere of the Chinese leadership. Her adoptive father, Marshal Ye Jianying, led the coup against the Gang of Four and restored Deng Xiaoping to power. When the Dengs turned up at the Ye house, they knew their place. "I remember at Marshal Ye's birthday party in 1980 the Deng family were the only guests," Qing says. "When they had their pictures taken together, Deng's wife refused to sit on the sofa. She wanted to sit on the floor," humbling herself in the most embarrassing way. "I saw it," she beams, whipping her tiny, expressive hands through the air. "The children of the two families," hers and Deng's, "wanted to use each other."

Dai Qing speaks dispassionately now of the princes and princesses who populated her youth. Even before her outspoken criticism of Tiananmen, which earned her time in solitary confinement (in one of the better jails, because of her connections), she broke ranks on other sensitive matters, such as China's border wars in '79 and '84 with Vietnam. "When I went to the front with Vietnam, our soldiers were using old weapons. At the same time, the companies were selling new weapons to Iran and Iraq. The hand grenades," she says with disgust, "we used these in the war with Japan. And the Vietnamese were using new Chinese hand grenades. I made a report, I put in suggestions to the government. Word came down to destroy it."

She has a succinct explanation for how her peers, who have never questioned their parents' rule, have cashed in on the "tides of change" in China: "They sold their power." Her own siblings, some of whom she describes as "terrible rich," were recently estimated by Governor Chris Patten of Hong Kong to be worth $3 billion. As Qing proffers in her deep, throaty voice, "Lots of people got rich from real estate."

The real estate that is sprouting fortunes overnight is in Guangdong Province, a thousand miles south of Beijing, home of the first "special economic zone" to attract outside capital. Taxes are minimal and joint ventures, particularly with the taipans (business moguls) of Hong Kong, are flourishing. The province hailed in the West as a model of China's new free market (with endless profiles of feverish lady factory workers and driven entrepreneurs) has been very good to the Ye family. Dai Qing's adoptive father was to Guangdong what Mayor Daley was to Chicago, only richer. To ensure continuing family sway over a population of 70 million, his son Ye Xuanping got the job of governor. "He refused to move from Guangdong even when Beijing wanted to promote him," says a high-ranking Chinese official. His father had instructed him to stay put, and it took them two years to get him out. Even then, he gave up the post but kept the patronage.

"It's leading to a new kind of warlordism," says a Chinese arms dealer of the families who now have cash to dispense as well as power. The implications for China are ominous. "The central government's having trouble collecting taxes. That could lead to a problem with the military because the military are depending more and more on provincial authorities for supplies and money." The services of the People's Liberation Army (P.L.A.), the Chinese army, now go to the highest bidder. "The corruption is terrible," says the high-level official sadly. "Everything is for sale. I don't think the P.L. A. could fight now if it had to. In military regions like Guangdong, the troops have nice houses, local wives and families; the commanders are all into making money."

In one recent case in the South, a factory owner hired a unit of the army to trash the factory of a competitor. Even more enterprising, some P.L.A. units appear to have turned to piracy. In an area off Hong Kong known as "pirate triangle," ships have been attacked by boats carrying crews in green P.L.A. uniforms, who are apt to let loose with rifles, machine guns, and rocketpropelled grenades. As the Hong Kong Sunday Morning Post discreetly noted, "China's military is partly self-financed."

Smuggling is endemic. "A few weeks ago," says the official, "a freighter was taking goodies to Haiphong. It was a smuggling racket of the P.L.A. The customs stopped it and looted a third of it."

The official smiles with resignation. "In the old days, we tried to get power. Now we get power to get money. "

This free-market anarchy isn't reflected in the glowing economic statistics that bring Wall Street fund managers tumbling off transpacific flights eager for "China plays." A Hong Kong businessman with a practical interest in such matters notes that "there's a hundred tons of gold being smuggled into south China every year—that doesn't show up in the figures. Nobody knows China's exposure—how much they have borrowed altogether. Nobody knows how much they have hidden abroad."

"All the princes and princesses have foreign bank accounts in Hong Kong and Switzerland," says a longtime observer. "It's the thing to do. The central government is running out of money. The provinces don't pay their taxes. Even the counties now don't pay their taxes to the provinces. At the county level, they are doing business on their own, including deals with foreign companies."

To push the paperwork through, there is always a helpful prince or princess who is willing to sell influence. Even Deng Xiaoping's family is reportedly not averse to taking commissions. One son, Deng Zhifang, "is in the arms business," says the observer. "He gets the highest bribes of all."

"It's not that China is corrupt," says an urbane London-based arms dealer with considerable experience in ' 'the new China." "Not compared with, say, Indonesia. It's just that the system has reverted to the old system. Everyone's on commission. It's all done on personal relationships, honest in a way. You deal with Uncle Fred or Cousin George, people you trust." The lucrative arms business is a very attractive niche for the princes. "You have the exporting companies like Poly technologies," continues the arms dealer. "They are run and operated by and for the benefit of the senior brass and their families. They have adopted the French system—'You want to buy a battalion of tanks? Fine, take this one,' and the 5th Tank Battalion of the 57th Regiment or whatever is speedily demobilized so you can have your battalion."

"All the princes and princesses have foreign bank accounts in Hong Kong and Switzerland. It's the thing to do."

The executive suite of Polytechnologies has sheltered some very senior brass indeed. He Ping, for example, is Deng Xiaoping's son-in-law. "He Ping," says the arms merchant, "is worth maybe $30 to $40 million. But he's only been at it five years." Last year he moved up to the general-armament division of the P.L.A. (which supplies the firm with the weapons it sells), succeeding another Poly technologies alum, He Pengfei, who has gone on to be deputy commander of the Chinese navy. Also getting a share of the company's take at various times have been Wang Xiaochao, sonin-law of a former president; Wang Zihua, son-in-law of a former party general secretary; and Wang Jun, son of the late vice president Wang Zhen.

The arms dealer finds that China yields some very unusual business opportunities. ' 'The Space Ministry runs a nice line in Buddhas. So if you go into the offices in Hong Kong and say you want to book time on a launch for a satellite, they'll say, 'Fine.' And if you want to buy a Buddha, they'll say, 'Fine,' too. If you want to launch a Buddha into space, they'll say, 'Fine, providing you have the money in the bank.' "

Profits from the business are substantial. A group of middle-level managers from Norinco, another outlet for Chinese arms, "had so much dough they wanted to buy a third of Portugal," says the arms dealer. "A bizarre idea. It turned out one of the guys had trained in Macao and spoke Portuguese. We tried to tell them that it wasn't really a sound investment and that they should buy bonds or something, but they were adamant until we said that Portugal was too socialist a government. Then they threw up their hands."

"Money is pouring out," says a Chinese official, sampling dim sum in an expensive Hong Kong club. "No one knows where it's going. Hupeh Province just bought a floppy-disk factory in Ireland. The provinces and even the counties are out of control, spending what they like. Some of their investments abroad are pretty silly. I think they're being ripped off by a lot of con men."

From where he sits in the Central District of Hong Kong, the dapper official takes a rather jaded view of the party leadership. "A developer from Taiwan was building those fancy Parkville apartments here. He gave one to Deng Rong [Deng Xiaoping's daughter]. She never lived there. She sold it for six million Hong Kong dollars." Another princess, the daughter of octogenarian "hard-liner" Chen Yun, is a frequent visitor in Hong Kong. The official laughs at the paradox: "Chen Yun's daughter is a member of the Hong Kong Jockey Club! "

He stresses the emerging axis of power between Hong Kong and the Chinese capital. All-important "relationships" have been forged "between the big taipans in Hong Kong and the big guys in Beijing. For example, Yang Shangkun [China's ex-president] is very close with Henry Fok [a Hong Kong billionaire]. Li Peng [China's premier] was a good friend of Y. K. Pao [the late shipping magnate]." The official is amused by the courtship rituals. T. T. Tsui, the financial backer of Hong Kong's fashionable China Club, widely rumored to be a major arms broker for the Chinese, is particularly skilled at stroking party officials. "He always sends the officials moon cakes for the mid-autumn festival. And he gives them karaoke."

Some taipans have tried to curry favor with Deng Xiaoping by investing in his daughter Deng Lin's paintings, much to the annoyance of other painters in Beijing. "Nobody buys her paintings here," says a denizen of the local art scene, "but in Hong Kong she had a show. One of the big businessmen there came and said, 'Where are Deng Lin's paintings?' He looked at one and said, 'How much?' The price was 350,000 Hong Kong dollars. He said, 'Oh, that's not enough— 700,000.' So he doubled the price." When she got back to Beijing and told her father, he rather waspishly inquired, "Was the painting really that good?"

Dai Qing, the dissident princess who has known the Deng girls since childhood, is sympathetic. "She has her talent. But most people say she does this for her father. It's a dangerous position."

The fact is that China's doddery paramount leader is entirely shielded by his children. His mumbled commands are interpreted and clarified by his daughter Deng Rong, leaving many to speculate that she may add her own spin. "So long as the old man is there," says the official, "if he says something, that's policy. But it's all coming through Deng Rong. We only know what she says he said. It's like the last days of Mao." Mao's nephew, who served the same purpose, was known in official circles as "the direct line."

Deng Rong, generally thought to be the most powerful woman in China, is, according to Deng-family friends, the mere lieutenant of yet another sister. "Deng Nan is the most important child," says Dai Qing. "We call Deng Nan the Zong Guan, the 'general manager' of the family."

As one American businessman who has spent considerable time trying to dissect the power structure observes,

"In other societies, you talk about an Oedipus complex.

In China, you can talk about an Electra complex."

Deng Xiaoping's sons, though not their father's managers and spokesmen, are well looked-after by the party. According to Gao Xin, a Harvard scholar who tracks the princes, Deng's son Deng Zhifang returned from a stint with IBM in the States to find a large and powerful company established for his benefit. "It is in charge of all construction workers sent abroad—Mideast, Africa, Japan. The company has a lot of power. It gives out passports and generally provides the means for a lot of corruption. It has a very bad reputation on the mainland."

Asked whether this kind of nepotism poses some political risk, Gao Xin observes, "They want their children to have money invested abroad in case they need to flee later on. On the other hand, the people promoted during the 14th Congress were anti-corruption. In fact, there has been a clampdown on corruption lower down. Only the high officials' families are exempt."

The son of Deng Xiaoping who receives the most favorable reviews is Deng Pufang, due partly to tragic circumstances which left him crippled. Pufang was thrown out of a window during the Cultural Revolution. He was paralyzed from the chest down. "The only time that Deng Xiaoping cried," says Gao Xin, "was when Pufang joined him in the countryside. 'How are you?' asked his father. 'O.K. from the chest up,' replied Pufang. Deng broke down. Deng hates anyone who benefited from the Cultural Revolution."

Threatened by chaos, one of China's princes spelled out the ultimate bottom line: "If we kill 20,000, we can keep power for 20 years."

The success of Pufang's subsequent efforts on behalf of the disabled has been enhanced considerably by his status as a prince. "People say it's fortunate that Deng Xiaoping's son got crippled, because he ended up doing a lot of good," says Liu Binyan, one of China's bestknown investigative journalists until he was exiled for his exposes of official corruption. "It was the only good thing that came out of the Cultural Revolution."

Liu Binyan, who now lives in Princeton, New Jersey, believes the younger generation's position is very precarious. "After the death of Deng Xiaoping, China will fall into chaos. So even the safety of the princes is in doubt. There's a Chinese saying, 'As soon as the guest leaves, the tea becomes cold. ' "

The princes are prepared to go a long way to protect their power and influence, let alone their safety. In May 1989, as students massed in Tiananmen Square to denounce corruption and greed in high places, a select group of Gaogan Zidi gathered in Deng Pufang's office. At least some of those present, such as Deng Pufang and Wang Qishan, son-in-law of the deputy prime minister, had the reputation of being sympathetic to reform. But now, threatened by chaos, Wang spelled out the ultimate bottom line: "If we kill 20,000," he said, "we can keep power for 20 years."

Chaos could come in less than 20 years. As the rich provinces go their own way, raising the specter of "warlordism," and as tens of millions of hungry people demand their share, the men and women who have used the power they inherited to grow rich will need all their money and guanxi to keep control. "There's a siege mentality among the princes," says Liu Binyan, "like the end of the world is coming."

t the Galaxy Karaoke Club in Bei| jing, the decor for the intimate rooms i consists of display cases full of Remy Martin. Hostesses in short black organdy skirts with skintight tops seat guests in front of two suspended television sets. Music videos appear, with boy-meetsgirl love songs, the words flashing up on-screen in a Chinese version of follow the bouncing ball. In front of the wellfed crowd, a businessman is pouring his heart into the microphone. A dishy singing partner, supplied by the club, is crooning back to him, both glancing at the sets for their lines.

The habitues of such clubs are both princes who come to meet joint-venture partners from Hong Kong and the new rich who have pulled themselves up from the jumble of street stalls along Silk Alley to mingle with the revolutionary upper class. "I have a friend who's 34," says Chang Ning. "In four years, he's become a billionaire on property deals. He travels with bodyguards in a Mercedes 600." When he crossed one of the princes in a property deal, "he was thrown in jail. After three days he got out. He paid everybody. He had his meals sent in from restaurants. So the new money can be as powerful as the old."

They flock to the Rumours Disco at the glittering Palace Hotel, dancing to rap and reggae under strobe lights, bathed in Asia-trash ambience. "It's run by the general staff of the army," adds Chang Ning, "to make money." She is despondent that affording a spot on the Rumours dance floor is now the driving ambition of Beijing youth. "The younger people don't remember the Cultural Revolution. Mao is now just an icon. ' ' She straightens her leopard skirt. ' 'One man who got very rich was asked how. He said, 'Mao helped me. ' He had a picture of Mao in his house, like a god. So other people started putting up pictures of Mao to help them get rich. There is nothing now to replace the spiritual side of the revolution. Just greed. I think it would be good to have some religion here to replace that spiritual side. There are some secret societies starting up, and some Christian groups coming in from Hong Kong.

People get together in a hotel room and someone will 'reveal Jesus Christ,' then everyone dives in the bathtub."

One traditional variety of spiritual involvement the smart set is reluctant to discuss is fortune-telling. "Listen," says one Western veteran of Chinese deal-making who has been forced to consult "a futurologist" in order to get an agreement, "before they finalize a deal, they'll want to consult a fortune-teller to see if their partner has good luck in his future. The name of their fortune-teller is a big secret in case someone nobbles him. You have more chance of getting the numbers of their Swiss bank accounts than the names of their fortune-tellers. It's their version of due diligence, the way we use lawyers."

Some of the princes turned to the spirit world for help even during the Cultural Revolution, when that sort of thing was being ruthlessly persecuted as a remnant of feudalism. According to Gao Xin, a student leader during the Tiananmen demonstrations who survived the massacre to become, in exile, a China scholar at Harvard, "The Bo family suffered a lot during the Cultural Revolution. [Paterfamilias Bo Yibo was an oldtime guerrilla and later minister of finance.] They went to a magician about their problem. He told them, 'It's your house, it's unlucky.' " In fact, the member of the Gang of Four faction who had taken over the house also suffered an unlucky fate, thus confirming the diagnosis. They abandoned the house and took matters a stage further. According to Gao Xin, ' 'They paid a magician to cast a spell on Mao Zedong so that he would die"— which he duly did within the year.

The Bo sons are prospering in the new China; their frank, businesslike Western ways make them popular with visiting Americans. Bo Xilai, mayor of the northeastern port of Dalian, hires an Elvis impersonator for his parties, and Bo Xicheng is in hotel management. One of his clients is the Palace Hotel, home of the Rumours Disco and flagship of the army general staff. (Army ownership, according to one official, guarantees that the Public Security Bureau will not bug the rooms.) The high-rise hotel, noted for its indoor waterfall, is only the most visible example of the military's spreading business empire. The P.L.A. is now the largest foreign supplier for the American gun market. It is also doing a brisk business in videos, refrigerators, motorcycles, and the AIDS drug AZT. After the daily news broadcast, half the commercials are for army products. "Of course," says a longtime foreign resident, "the army gets a discount for the airtime."

The army entrepreneurial spirit is best displayed inside the gates of a sprawling gray military base in the suburbs northwest of Beijing. Ushered into an airy waiting room, visitors are treated to a bevy of fit teenage girls in red satin tracksuits. They direct you to choose from a Chinese menu of weapons selected from the army arsenal. Number 14 is a 12.7-mm. anti-aircraft machine gun which you can fire yourself for seven yuan (a little less than one dollar) per round. There is also a 40-mm. rocket launcher, a 60-mm. mortar, and a 14.5mm. anti-aircraft gun. There are Uzis and sniper rifles, and a restaurant is planned for the brick pile next to the rocket range. Here Japanese businessmen blast away at a mountain 880 meters in the distance.

Far away in Europe, in a villa that might be described as "standard arms dealer"—protected by highly unfriendly

"There is nothing now to replace the spiritual side of the revolution," says one Red Princess. "Just greed."

dogs and electronic gates—a decidedly non-Communist Chinese arms merchant recalls when the People's Liberation Army first went into business with the West. ' 'I was visiting one of the P.L. A. 's factories. They said, 'You're the second foreign group to visit us. Guess who was the first, giggle, giggle? It was the Americans. ' They were buying the weapons for Afghanistan that the Chinese supplied. That's when they first started selling arms. Before that, they just used to give them away."

The question is asked whether the ongoing aggressive Chinese arms sales to Iran, Pakistan, Syria, and neighboring Burma are part of some geostrategic Chinese policy. The small, round host, whose age is impossible to guess, shrugs and sips his drink. "Maybe there's a strategic reason, but I don't think so. I think it's sheer naked greed." He cites the case of Iran, a subject which sends Chinawatchers in Washington into a frenzy. "When there was an international scandal about the sale of Chinese missiles and other arms to Iran, there was a meeting between Yang Shangkun [then vice-chairman of the Military Commission], the foreign minister, and Deng Xiaoping. The foreign minister said, 'We must stop selling these missiles and arms.' Yang said, 'This business brings the Chinese armed forces $1.8 billion a year. So as soon as you give me that money, I'll stop.' "

When asked which princes are reaping big profits from the arms trade, he grimaces at the very mention of the name Wang. The Wang family are, in his view, the worst kind of predators. ' 'The old man is a really horrible, corrupt son of a bitch, and his sons are just as bad. ' ' The obituary which appeared in The New York Times a few weeks later for "the old man, ' ' Wang Zhen, was considerably milder. He was portrayed as a salt-of-the-earth peasantrevolutionary who rose to the inner circle of the party and maintained a hard line until his death. In fact, says the arms merchant, the Wang family has profited handsomely from the boom.

One son, Wang Jun, the real boss of the huge Chinese trading company Chinese International Trust and Investment Corporation (CITIC), is famous for his profligate spending. "Wang Jun is very rich," says a Beijing observer. "Everybody knows it. But the papers never write about it. Because of his relations, he's protected."

Gao Xin, the Chinese scholar at Harvard, characterizes Wang Jun as "a peasant without sophisticated tastes. He's in his 50s, went to military school before the Cultural Revolution." Jun, Deng's son-in-law, and Yang Shangkun's son "have absolute power over the weapons business," says Gao Xin. "Every single one of the arms companies is controlled by the families of high officials. No way the Foreign Ministry can control them. It doesn't even know what they are up to."

"They began to make big money during the Iran-Iraq War," says one U.S. Senate staffer who has developed an encyclopedic knowledge of Chinese arms dealing. "They are deeply involved in the Algerian nuclear reactor." He describes the relationship between the big arms firms and the army. In a weapons deal, "let's say it costs $100 million. Polytechnologies gets $5 million, $95 million [goes] to the P.L. A. The $5 million is up-front so if a deal goes south the $5 million is in Switzerland." On some deals, the profits have been considerable. CSS-2 missiles were sold to the Saudis "for $2 billion.. .the cost of production is $500 million."

Not far away, in the Hart Senate office building, is Lianchao Han, a Chinese exile who works as staff attorney to Senator Hank Brown of Colorado. "Sixty percent of the high-ranking military are from 'the 1,000 families,' " says Han, who is steeped in the nuances of the Chinese hierarchy as only someone who went to "the right schools" can be. "There was a baby boom in the 1950s among the leading cadres. They got a very good education. There was the 101 Special School and Middle School No. 4. Most of the princes went to No. 4. The most important military college was the Harbin Military Industrial Engineering College. Most of the 50s baby boom [as well as Ye-family dissident Dai Qing] went to Harbin."

They were a very different crowd from their parents. "The baby-boomers never participated in the revolution, so they had no idea what their parents went through. At the beginning of the Cultural Revolution, Mao used the princes. The most radical Red Guards in Beijing were from the 1,000 families. There were two elite Red Guard detachments, one from the cadres, one from the military."

"These elite Red Guards considered themselves very pure," says Jigme Ngapo, a Tibetan exile whose family is powerful in Beijing. " 'I was born Red,' 'From my mother's womb I was Red!' were their slogans. After their parents were denounced they became very disillusioned, they suffered. Suddenly, they were bom black. You can imagine how difficult it was for them to adjust."

"I had to plant rice for four years," says Bo Yun, sipping a Coke in the bar of the Beijing Hotel. "It was terrible, hour after hour tending in freezing water." He worked in the fields side by side with Deng Xiaoping's daughter Deng Lin. "Deng Lin is not beautiful. She's really less than ordinary. Our 'leader' [in the countryside] was an army officer. He said, 'Deng Lin, I've got a husband for you. He's just divorced. You're never going to find anyone.' She said, 'No, no.' "

"There's no way the huge quantities of heroin could move across southern China without the involvement of high-level officials."

Their group, tormented by their leader, was delighted recently to find that he is now miserably poor while they are flourishing. "One of us saw him in the street in Beijing, carrying a bag like a peasant. He has a very low factory job. Our friend told him we were all very successful." Now the whole group is planning a countryside reunion next year, traveling back to the village where they spent hellish years in rice-paddy mud. One of their peasant "housemothers," who put them up during their forced exile, had a child that looks suspiciously like one of their colleagues. They are all eager to confirm the gossip.

After the rigors of the countryside, the princes' fortunes rebounded. "The Princes' Party started in the late 70s. When the reforms started, they immediately got positions," says Jigme. "Ordinary people were still very nervous of dealing with foreigners. These people weren't. They knew the policy, and knew they wouldn't get into trouble."

"They have special rights to make money," says Dai Qing, the dissident princess, of her peers. "The result of the reforms is just to make money for themselves, even now." The wide gap between rich and poor, ever more apparent as Mercedeses with smoked-glass windows leave Beijing cyclists struggling in their wake, is hardly popular. "The common people know. Lots of people got rich so rapidly. How did they do it? Princes and princesses."

In 1989, grumbling about corruption was in large measure responsible for the democracy movement in Tiananmen Square. The supreme irony perhaps is that after the carnage many of the surviving dissidents "jumped into the business sea." "A lot of them are in business now, ' ' says Francis Deron of Le Monde, a 10-year veteran of China and the chief irritant in the foreign press corps for the Deng regime. "It's hard to distinguish the dissidents from the businessmen."

Maintaining its grip to safeguard the seamless transition to a "free market" while keeping China in one piece is a feat of gymnastics the regime may not be able to perform. "If we don't have strong control, China is going to be much worse than Russia," says Bo Yun, Deng Lin's companion in the rice fields. "I worry about whether the party can keep control. Now you drive in the countryside and you come to a village. There's a man sitting on the side of the road with, maybe, a table and chair. The man gets up, stops you, and says, 'Forty yuan. ' Why? 'Your lights are broken. ' You say, 'My lights are fine. ' He says, 'Oh, well, they're dirty.' You say, 'I washed the car. It's clean. ' He says, 'Forty yuan.' The next village, same thing. 'Forty yuan.' It's getting very expensive to drive across China."

Lawlessness has kept pace with reform, manifesting itself as tax rebellions, extortion, and straightforward robbery. "Crime is on the rise in Beijing," says a well-placed police official. "There are a lot of robberies." The Forbidden City, the walled palace of China's emperors, has been robbed six times. "They took the seal of an emperor's favorite princess. They also stole a book made of gold. Unfortunately, it was shredded."

There is less said about China's biggest criminal enterprise, heroin smuggling, perhaps because the vast quantities transported across southern China demand some level of official complicity. "I think that high-ranking army officials are involved in drug smuggling," says Liu Binyan, the investigative journalist in residence at Princeton. "Because it's illegal, army vehicles are very good for moving stuff. There's even competition between units for the business."

Francis Deron is just back from Yunnan Province, on the Burmese border. "There's no way the huge quantities of heroin could move across southern China without the involvement of high-level officials," he says. "The amounts are unbelievable. You can tell from just what they are seizing: 100-kilo loads. They told us 5,000 people have been arrested down there in the last year. That gives you an idea of the huge numbers of people involved."

The murderous State Law and Order Restoration Council (SLORC) regime in Burma, the source of the opium that moves as refined heroin across China to Hong Kong, has recently purchased a $1.2 billion cache of arms from the Chinese government. An authoritative report on the Burmese drug trade notes that the arms transaction is not reflected in the country's balance of payments, deliberately leaving unresolved the question of whether the arms were purchased with drug profits. Interestingly, a secret directive recently warned the Chinese press that cross-border trade between China and Burma must not be written about. Deng Xiaoping's son-in-law would ''certainly have taken a cut" from the weapons deal, according to Le Monde's Deron. Whether he knew or cared where the money came from is another matter.

There is talk among Western military attaches that China has designs on Burma for a military port, a strategic initiative that would override any qualms about drugs. But the Chinese official finishing his dim sum in Hong Kong says the reason for selling arms to the unsavory regime in Rangoon is very simple. ''It's just money," he says matter-of-factly, ''only money."

In the Supatra restaurant, on a steep side street behind Hong Kong's Central, two financial operators are discussing the prospects for serious money in the China boom. The Swiss investment adviser, sporting a ponytail and very expensive hand-painted shirt, is predicting a crash. The ''hedge fund" manager, a high-risk speculator from New York, is considering buying securities in Shanghai. The speculator, Victor Teicher, aims to get a 25 percent return for his clients. He is intrigued by the China market. "Doing business here is different from any other place in the world. Here you have 'the relationship.' It's like going out with a woman. After doing it the first time, you don't have to work at it. The second night you probably don't have to buy her dinner."

Teicher pauses for dried fish and leafy vegetables. "The Chinese understand something the Japanese don't. The Japanese aren't playing with a full deck. I mean, for years we were told that the Japanese had this better way of doing things: they invested long-term, went for market share rather than the bottom line. That's true, and it's also the reason that Japan's down the toilet. The Chinese are different. They're only interested in the money. That's it." He draws an imaginary bottom line with a chopstick. "The Chinese have a different accounting system. They get a bank loan, they call it a profit." He shrugs. "They say, 'Hey, we got the money.' A lot of Chinese companies are buying from the government at prices that just couldn't be real. Then they sell and say, 'Look at this huge profit.' It's not real."

In a drab business district of Beijing, it is starting to rain. Liu Jufen sits in a small, badly decorated office with the same stale air shared by all of Beijing's corporate suites. "The market economy provides a very large stage for us," says the corporate princess, "but compared with Japan and America, China is still very poor." Liu Jufen is vice president of the Stone Group, one of China's major private enterprises. Her father ran the General Labor Bureau, a vast and very prestigious fiefdom in the old era, in charge of all unions.

"Always in Chinese history there has been a cyclical pattern in dynasties. The first generation is clean, the second is less so, and the third and fourth are corrupt."

"The market environment is not very good," she admits freely, adjusting her simple slacks. "Before, the Chinese economy was run according to plan. The system has opened to the market, but," she says, smiling, "it's not easy to change from the plan to the market." Liu attended all the right schools and after Qinghua University spent years in the computer department of the Northern Transportation University and on the Chinese Science Committee. She now presides over a workforce of 3,000 and is proud that last year, in her company's eighth season, its sales of electrical products reached three billion yuan. She is the main agent for Microsoft in China and says that her business with Americans has grown "very fast." That has meant trips to L.A. and New York.

"A third of my classmates do business now. Most of my classmates have been successful. A lot of my classmates have been asking when our stock will be on the market. They want to buy it." She is content with the way things are going. "The open policy is very exciting. It gives people a lot of chances." What she doesn't say is that it gives only the right people a lot of chances. Sitting next to her is the capable-looking vice director of the company's technology department, who makes 700 yuan a month, less than $100 at the black-market rate. His counterpart at a stateowned firm, he says, makes 300 to 400 yuan a month, less than $50. Neither will be buying a Mercedes or shopping at Yaohan, Beijing's Bloomingdale's, or paying $30,000 for the membership fee at the Beijing Country Club.

Down a dirt road outside Beijing, through an alley of winter trees, a Chinese cowboy appears on his stallion. He is dressed in black with a matching black Stetson with silver studs. He wears polished spurs and twirls a lasso. "Tiger," as he is known, whips off his shades and directs us to the International Riding Club, as yet a simple farmyard where the princes like to ride. Wang Jun is a regular, which is no doubt why Tiger's saddle is engraved ' 'Jun. ' ' There are grand designs for the complex—a racetrack, clubhouse, and exclusive membership. "They have big plans," says one visitor, cooking popcorn over an open fire, "like everyone else in China." It is a long way from the Long March.

"Always in Chinese history," says a prince in exile whose family enjoys the perquisites of power in Beijing, "there has been a cyclical pattern in dynasties. The first generation is clean, the second is less so, and the third and fourth are more and more corrupt. When a new dynasty comes to power, the first thing they do is slaughter all the old princes and princesses. The Communists say they have nothing in common with the old imperial regime, but the first generation was very clean, the second is very corrupt, and the people really resent it."

The princes and princesses who spin in perfect step under the low lights of the club down from the Minzu Hotel, the graceful, slender women and stylish men, look remarkably like the dancers in The Last Emperor.