Because of a transmission error, an article from Beijing Aug. 28 incorrectly reported that Peng Peiyun, director of China's family- planning program, said the issues that sparked last year's pro- democracy protests have not been resolved. (Published 10/3/90)

BEIJING -- Watching Chinese television news, a Westerner might get the impression that society here has reverted to an Orwellian state, closed and controlled. The screen proclaims that China's leaders and people speak with one voice, that the country's factories meet all production targets, that there is not a single dissenting opinion to be heard.

But if the goal of China's leaders is uniformity and unwavering loyalty, they are having much less success than many in the West may realize.

The Chinese people, many of whom may publicly profess love for the Communist Party, actually have lost faith in their leaders and view the Communists as a dynasty in decline. The leadership itself is deeply divided over economic reforms; the social order is weakening, and there is fear that chaos will erupt when 86-year-old supreme leader Deng Xiaoping dies and would-be successors begin a battle to claim his throne.

Furthermore, none of the issues that sparked last year's unprecedented democracy movement, including rampant corruption, have been resolved, and many Chinese are employing passive resistance against the government to show their disdain.

None of this means that the Communist Party is likely to be overthrown easily; indeed, many critics of the regime believe that fundamental political change can only come from within the party, following the deaths of a number of elderly senior leaders.

But there are signs that Chinese society is developing in ways the Communist Party may not have anticipated or sought.

Perhaps the most remarkable change in society over the last five years, as China has experimented with economic reforms, some political loosening and then rigid repression, has been a growing independence of thought in the country's urban areas.

Instead of the rigid mindset that the country's leaders have been trying to foster among the people of China, saying one thing but thinking and doing the opposite, which long has been a way of life, has become even more acute since the democracy movement was crushed by the army in June 1989.

This ability to think independently, based in part on China's greater openness to the outside world and the opportunity to compare Chinese society with foreign social systems, extends to some Communist Party members and even to some members of the party's security forces: the regular police, secret police, paramilitary police and armed forces.

The Communist Party's prestige had already struck a low point before the Chinese military opened fire on protesters, and it plunged even further afterward. Many Chinese, including many party members, who supported the regime became disaffected after the crackdown. "The sound of gunfire on June 3 finally woke up anyone who still had pleasant dreams about the party saving China," said a Beijing University student earlier this year.

This transformation from loyal subjects to independent thinkers involves what Czechoslovak President Vaclav Havel calls the hidden sphere in Communist nations.

It is usually manifested in subtle resistance to party controls, propaganda and campaigns, but becomes highly aggressive when it bursts into the open during moments of crisis, such as when demonstrators took to the streets in China last year and in the countries of Eastern Europe.

Passive, yet pervasive resistance has been particularly noticeable here since the army crackdown. Ubiquitous party-created work units, designed not only to provide social benefits for employees of a given factory or organization but also to monitor and control workers, have proven less than reliable since last year.

These work units have been ordered to interrogate and reeducate the populace on the "counterrevolutionary rebellion," as the party terms the seven weeks of demonstrations for democracy last year. But many of the units now protect members against police investigations, arrests and purges.

"Within my sub-unit I feel completely free. I can say anything I want and feel safe," one Chinese said, echoing sentiments heard over and over now in Beijing.

Along with a growing independence of thought, there has been, over the past five years, a small explosion of experimentation in new modes of lifestyle, fashion, music and art. This has been accompanied by an expanding interest in Western thought, culture and religions.

While none of these activities directly endangers the regime, they do represent acts of free expression that some Communist Party leaders view as an inherent threat to the system.

The past half-decade also has led to increased prosperity for many Chinese because of reforms that loosened the regime's hold over the centralized economy. The reforms also brought inflation, rising expectations that could not be easily satisfied and great resentment of freewheeling entrepreneurs and venal party cadres who profited from payoffs and bribes.

The regime's two significant victories in the wake of the military crackdown last year have been to curb inflation and to silence open calls for political liberalization. But even as the party tries to strengthen its political control, the country's social order, which already was under stress, continues to weaken.

There is a rise in crime rates, underground religious sects, mental distress among university students and the desperate desire of many of China's brightest young people to leave the country.

Problems in the social order also can be seen in the persistence of widespread economic corruption, despite an officially publicized anti-corruption campaign that has lasted more than a year. And in three areas of vital importance to the long-range future of the country -- family planning, education and the economy -- confusion reigns.

Peng Peiyun, director of China's family-planning program, admitted recently that none of the issues that sparked the popular protests of last year, including corruption among government and party officials, have been resolved.

Even in the area of political control, appearances can be deceiving. Many knowledgeable Chinese believe that the top leadership, despite a display of unity, is deeply divided, particularly over economic policy.

Nearly everyone believes that Deng, despite his formally announced retirement and advanced age 86, is still China's supreme leader and, in effect, emperor. When it comes to major decisions of state, Deng can still have the final say, but like emperors who presided over past dynasties in decline, he seems to be losing control.

Over the past five years, Deng's prestige has fallen considerably. His great strength is that many Chinese believe that he is now the only leader who can continue to push strongly for economic reforms.

But the signals reaching the provinces from Beijing these days are so confused that many provincial leaders appear to believe that the best approach is to pay only lip service to the capital's commands. These leaders can then continue to pursue their favorite programs.

Nowhere are the contradictions at the top more evident than in the chaotic state of the Chinese economy. The party leadership two years ago decreed a sharp turn away from economic experimentation and toward central planning and austerity measures. The aim was to bring down inflation and cool the overheated economy.

The program was supposed to rein in the private sector of the economy and assist huge state-run factories considered to be the backbone of socialist industry. It succeeded in slowing down inflation, but also caused a massive drop in production in many of these inefficient, state-managed behemoths.

Guangdong Province in south China, where the private and semi-private economy thrives, was the region believed to be the most responsible for overheating the economy. But despite the austerity program, Guangdong continues to boom, albeit at a slower pace.

Guangdong is more independent of the central government than most provinces and able to generate much of its own wealth through its proximity to capital-rich Hong Kong, its bustling private economy and its thriving export industries.

With some 60 million people, Guangdong Province holds little more than 5 percent of China's population. But its vibrant economy, now growing at a rate of 13 to 14 percent a year, accounts for 50 percent of the country's exports and half the foreign investments entering China.

Beijing has been trying for several years to gain more fiscal control over wealthier coastal provinces such as Guangdong, but the central government's share of national revenue has continued to decline.

Despite the best efforts of the party and government to re-centralize economic and financial power, many of the provinces, counties and townships resolutely go their own way in many regards, creating a crazy-quilt pattern of unequal development. "This is a country with 30 separate industrial policies," declared a Western economist recently.

Because of the economic slump in much of the country, the provinces also have revived their practice of engaging in economic warlordism: Raw materials, such as cotton or coal, are banned from being transported to other provinces in order to ensure supplies for local industries.

Such protectionism inhibits competition, damages national economic development and lends itself to corrupt practices designed to circumvent trade barriers.

But the key problem afflicting the economy appears to be the same one that faced planners five years ago: the country's irrational pricing structure. As long as many prices are kept artificially low, it is impossible to work out a fair system of profits and losses, and to coordinate supply and demand.

Price reform, however, brings with it the risks of a new round of inflation, greater losses by unprofitable, heavily subsidized state-run factories and more unemployment.

Some authorities succeeded in raising train, plane and postage prices over the past year without causing a furor, and officials again have begun to advocate gradually making prices respond more to market forces, as in capitalist countries. But there is no evidence that these authorities have the party's consensus or the political will needed to carry out more fundamental price reforms.

In the end, the failure to initiate further reform could undermine China's efforts to reach its development goals.

Although China's austerity program succeeded in its immediate aim of reducing inflation, it was not designed to weed out unprofitable factories and wring more efficiency out of those enterprises that survive.

Deng apparently would like to revive his reform program, but no one can predict what will happen when he leaves the scene. His designated successor as the "core" leader of the country, Communist Party chief Jiang Zemin, has not shown much ability to consolidate power since being named to the post last year.

While Jiang is in nominal control of the party's Central Military Commission, it seems clear that other leaders, such as Deng and President Yang Shangkun, continue to exert much greater influence over the military.

Still, nearly every party-run and government-run institution, including the army, is split by a generation gap, with younger officials and officers often favoring a more liberal political and economic system than the one being sustained by Deng, Yang and other elderly leaders.

Deng has strongly influenced the selection of his successors, men now in their fifties and sixties. But Deng cannot guarantee the political reliability of following generations of Chinese officials.

Some Chinese predict that once Deng dies, there will be chaos in the streets. Others predict a period during which weaker leaders muddle through, maintaining order with the help of the army until a high-level power struggle produces another strongman.