President Jiang Zemin announced today that the Communist Party would accept private businessmen as members, a policy reversal that recognizes the increasingly powerful role of entrepreneurs in determining China's future.

Jiang, who is also the Communists' leader, made the announcement in the Great Hall of the People during a speech marking the party's 80th anniversary. It was a surprise ending to a two-month-long propaganda campaign designed to illustrate the superiority of China's socialist system.

The party estimates that 113,000 members already run businesses, most started after they joined the party, so Jiang's announcement was in part a reflection of reality. But it marked another ideological shift for an organization desperately trying to remain relevant in a country buffeted by economic and social changes. Earlier this year, the government allowed private Chinese firms better access to capital on China's stock markets -- presaging a fundamental transition in China's economy from a state-owned system to a privatized one.

Chinese analysts said the announcement was another attempt by the party to broaden its base at a time when its policies have become irrelevant to large sections of society. China's economic reforms, and its 23 years of openness, have unleashed new forces and created economic classes and special interest groups the party finds difficult to control.

Allowing entrepreneurs to enter the party has been the most hotly debated topic in party circles in the past year, a senior party theoretician said, speaking on condition of anonymity. China killed, jailed or exiled most of its capitalists after the 1949 revolution, but entrepreneurship began a comeback when private businesses were allowed again after the country opened to the West in 1978. Following the crackdown on student-led democracy protests in June 1989, the party, then run by hard-line ideologues, banned entrepreneurs from joining.

Lin Yanzhi, the deputy party secretary in Jilin province and the son of a prominent party official, recently predicted that if "capitalists" were allowed to join, China would "enter a long period of social unrest and economic recession." Another official wrote an essay in "Searching After Truth," a conservative Chinese publication, titled "Capitalists in the Communist Party? You've got to be kidding."

Today's announcement was a personally significant turning point for Jiang, 74, who was appointed party leader shortly before Communist Party Order No. 9 was issued on Aug. 28, 1989, banning private businessmen. Jiang told a party gathering at the time: "If we let people who aren't willing to give up exploitation, and who depend on exploitation for their livelihood, to join the party, what kind of a party would we be building?"

Today, Jiang was more welcoming of private businessmen, whose firms account for more than 20 percent of China's $1 trillion gross domestic product and who employ millions of workers fired from moribund state-owned companies. "They are also working for building socialism with Chinese characteristics," he said.

Jiang stressed that the party would still be based on "workers, farmers, intellectuals, servicemen and cadres." However, he added, "It is also necessary to accept those outstanding elements from other sectors of the society."

Jiang's announcement is part of a reform package for the 64.5 million-member party, which started in 1921 as a workers' party, then became a peasants' party and won a guerrilla war, and is now struggling to remain current. The reform package argues that the party should represent the interests of all of Chinese society, not just the working class. The party theoretician said the package will encourage hundreds of thousands, if not millions, of party members to resign to make way for new blood.

The announcement, coupled with a recent party report about a breakdown in social order and a party campaign to clamp down on China's media, illustrates that China's Communist Party is arguably facing its biggest test since it won a civil war against Nationalist troops and established the People's Republic of China in 1949.

A report issued in May by a Central Committee research group spoke of "tense" relations between the party and the people, and painted a far less triumphant picture than the one depicted in the two-month-long pep talk that has dominated China's state-run media.

The report spoke about the collapse of state-owned industry, a social safety net incapable of dealing with millions of unemployed, strained relations with China's ethnic minorities, a restive peasantry and an unjust legal system.

To quash debate about these issues, Jiang recently ordered a crackdown on state-run media. Several papers have been closed, and senior editors have been fired or shuffled at Southern Weekend, China's most courageous weekly.

And in today's speech, Jiang, wearing a suit and tie against a backdrop of an enormous hammer and sickle, called on party members to "resolutely resist the influence of the Western multiparty system."

Regardless, the party's attempts to manage China's transition away from socialism seem increasingly ineffectual.

China's economy is undergoing a historic shift from one controlled by state-owned firms to one that last year owed more than half of its gross domestic product to non-state companies. About 20 percent of China's GDP last year came from its 1.2 million purely private firms. That shift will accelerate once China joins the World Trade Organization -- possibly by the end of this year -- and faces the biggest outside challenge to its economy since Westerners opened China's markets in the 1840s with the First Opium War.

Chinese society is also more pluralistic than it has been since the 1949 revolution, with access to the Internet and foreign ideas growing exponentially.

The party's influence on people's lives has been shrinking rapidly, first with the collapse of rural communes in the 1980s, when land was returned to farmers, and then with the demise of urban work units, when thousands of state-owned firms went bankrupt or ceased functioning because they could no longer compete.

Corruption has turned such cities as Shenyang, in northeastern China, into fiefdoms for organized crime. Tens of thousands of police officers and soldiers have been used to suppress Falun Gong, the banned Buddhist-like spiritual movement, and other religions at the expense of rising crime.

According to the senior party theoretician, businessmen were banned from entering the Communist Party in 1989 because party ideologues felt that the heads of private companies were "exploiters" and that their employees, no matter how well paid, were being exploited. Most of China's private businessmen at the time came from what party leaders considered bad backgrounds -- jail, political dissent, the margins of society. And private businessmen in Beijing played a major role in the latter stages of the 1989 Tiananmen Square demonstrations, organizing a group of motorcycle-riding entrepreneurs who informed student and independent labor union leaders centered on the square about military maneuvers around Beijing.

"The party hated these people, so it decided to punish them," the theoretician said. "Now, however, private businessmen have changed. They include former government workers, members of the working class, managers of state-owned factories, demobilized soldiers, returnees from the United States."

Jiang Zemin's announcement reflects party's attempt to remain relevant in a climate of change.