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U.S. government says China not currency manipulator

UPDATED: 09:05, May 11, 2006

The U.S. Treasury Department said on Wednesday that China was not a currency manipulator but pledged to "actively and frankly" push China toward faster exchange-rate flexibility.

In a delayed report to the U.S. Congress on its trade partners' currency practices, the department announced it would not brand China as a country that was manipulating its currency to gain unfair trade advantages.

The U.S. government is required to report every six months to the U.S. Congress and cite any countries that the United States believes are manipulating their currencies for trade purposes.

The current report was delayed from its deadline of April 15.

While the Bush administration has been pressuring China to allow its currency to rise in value against the U.S. dollar in the two years, the U.S. government has not designated China as a currency manipulator, a process that would trigger consultations between the two nations.

Source: Xinhua

http://english.peopledaily.com.cn/200605/11/eng20060511_264695.html

Buying Chinese goods saves Americans $100 bln a year

UPDATED: 17:33, November 30, 2005

The Sino-US economic and trade relations are among the most important bilateral economic relations in the world. Over the 26 years since China and the United States of America established formal diplomatic relations, bilateral economic relations have developed rapidly with cooperation having expended to various areas of economy.

The Sino-US trade volume has grown from the $2.5 billion at the beginning to $169.4 billion in 2004. By the end of 2004 the US has invested in 45,000 projects in China, increasing in-place investment to $48 billion. From January to October this year trade between China and the US reached $127.3 billion, up by 26.2 percent year on year. The US is currently the second largest trade partner of China while China is the US' third.

In recent years the fastest growing market for US exports is in China ( China was the 9th largest market for US exports in 2001 and by 2004 it has grown to be the fifth). In the first eight months this year US exports to China for the first time exceeded those to the UK and China has become the fourth largest market for US exports. From 2001 to 2004 annual growth of US export was 4.45 percent in average. During the same period US export to China grew by 21.85 percent each year while the Netherlands, the fastest growing market among the rest of the top ten markets for US exports, had a growth rate of only 7.65 percent.

Mutual benefits and win-win result are the remarkable features of the Sino-US economic and trade cooperation. China and the US complement each other in terms of economy. Strengthening the bilateral economic and trade cooperation benefits the economies of both countries as well as the two peoples.

For a long time China's exports to the US not only promote China's development but also satisfies demands in the US market and helps save Americans' expenses. A report by Morgan Stanley shows China's low-priced quality products have saved American consumers over $600 billion over the last ten years and $100 billion in 2004 alone. Take children clothes for example. Young American parents spend $400 million less because of purchase of Chinese goods. At the same time, American businesses also make huge profits. China created 4 to 8 million jobs for the US in 2004. On the other hand, Chinese imports from the US bring obvious benefits to both sides. China imports huge amounts of farm produce such as wheat, soybeans, oranges as well as airplanes and fertilizer to meet China's production and living needs, which at the same time effectively sustains America's economic development and employment.

American businesses also see generous returns from investments in China. American investments in China involve a variety of areas including industrial manufacturing, telecommunications, banking, insurance, science and technology, transportation, agriculture and catering industry etc. According to Chinese statistics, American-funded businesses in China sold goods worth $75 billion in the Chinese market in 2004 and sold about the same amount of goods to other markets. The US Chamber of Commerce in China released a white paper on American businesses in China recently. Its survey of its member companies shows 93 percent American-funded business in China believe the Chinese economic reform has improved business environment for American businesses. Ninety-two percent said their forecasts of business in China are optimistic or cautiously optimistic at least for the next five years. Eighty-six percent of the surveyed have seen improved returns, sixty-eight percent either are making money or have very high rate of profitability while 42 percent report profitability higher than their global average. The white paper believes American businesses have strong confidence in China's business environment and hope to solve business problems through constructive dialogues. It fully demonstrates that American investments in China not only helps the development of the Chinese economy but also brings unprecedented opportunities to American businesses.

The article is written by Liao Xiaoqi, Vice Commerce Minister of China and published on the overseas edition of the People's Daily on Nov.30; Translated by People's Daily Online

http://english.peopledaily.com.cn/200511/30/eng20051130_224707.html

Do not blame China for job losses in the US

UPDATED: 09:16, May 09, 2006

Many Americans, influenced by US media, believe that their jobs are being stolen by competitors from China.

This opinion, which is widely bought by workers in manufacturing sectors, has great influence on the US Government.

In view of this, it is necessary to analyze the employment situation in the United States.

The transfer of traditional industries overseas constitutes one of the major reasons for job loss in the United States.

Expensive US labour costs have led to the shifting of primary manufacturing industries to other countries where the price of labour is much lower.

The core competitive edge of the US economy lies in technological innovation, service industries and high-tech manufacturing. Transferring traditional industries overseas helps the country focus on developing the industries in which it enjoys advantages over other economies.

This strategy can enhance its international competitive power as much as possible and also brings fat profits to US companies.

But workers in sectors that have become hollowed out have to look elsewhere for employment, and this is a major problem. When their old skills fail to meet the requirements of new posts, they face unemployment.

On the other hand, China is not the only country affected in this kind of industrial transfer.

The bulk of Chinese exports to the United States are labour-intensive products. If China stopped exporting such products to the United States, the Western nation would not engage in making these goods anyway. And other countries would fill the vacancy.

Scientific and technological progress and the increase of productivity have robbed many Americans of their jobs.

Since the beginning of the 1990s, US companies have invested heavily in IT, automation and artificial intelligence technologies, which have helped raise the productivity by large margins. But wide application of new technologies and the sharp enhancement of productivity have led to job redundancies.

Of course, there is still a huge demand for workers in newly emerging sectors. But the posts created by these new industries are less than the jobs lost in traditional sectors. This renders the employment pressure all the more serious.

In addition to those in traditional sectors, many US high-tech workers have also lost their jobs recently as a result of the bubble burst of high-tech shares on the stock market.

Worst of all, US high-tech firms, big and small, compete with each other to transfer IT-related jobs to countries such as India, where the pay and welfare level are much lower than those in the United States. They do this in order to cut costs to the minimum and reap the highest possible profits. This again costs many Americans their jobs.

Statistics indicate that about 300,000 computer-programming jobs have so far been transferred from the United States to India. And the tendency looks likely to continue.

At the same time, some financial institutions on Wall Street, following the examples of the high-tech companies, have also shifted some high-salary monetary analytical posts to India.

US research firm ForrestResearch predicts that about 3.3 million US white-collar jobs in service industries will be transferred to lower-wage countries, chiefly India, by 2018. This is bound to give rise to more serious problems.

The situation is compounded by the fact that many Americans find it difficult to adapt to new posts once the sectors where they are working decline, owing to their inability to keep up with the changing times, or to their low educational or training levels. Many employment opportunities are therefore missed.

Job hunters have been subjected to higher education requirements because the United States is shifting from a manufacturing-orientated economy to a knowledge-based economy over the last decade or so.

The figures released by the US Labour Department show that the unemployment rate for those who received education below senior high was 6.5 per cent in November 2000 but rose to 9.2 per cent in January 2003.

Many unemployed people with low education levels are unwilling or unable to learn new skills, while keeping their job expectations high and hoping to get posts in their old sectors with generous pay.

In the meantime, the US economy is suffering, which drags down the US public's consumption confidence and their consuming power as well.

This necessarily results in weak domestic demand, and 70 per cent of the US economic growth is powered by demand.

Insufficient domestic demand makes it hard for the US economy to recover. This, in turn, worsens the employment situation. Rising unemployment renders consumption all the weaker. A vicious cycle is triggered.

Recent statistics, however, suggest that the US economy shows signs of recovery. It is believed that the employment situation will take a turn for the better if the recovery maintains its momentum.

Taking all this into account, the blame on China for robbing Americans of jobs is unfounded.

Some Americans see only the transfer of funds, technology and employment opportunities to China but turn a blind eye to the fact that good and cheap Chinese consumer goods lower Americans' consumption costs. They also forget that the US-headquartered multinational corporations are the biggest beneficiaries of the industrial transfer.

They should realize that the unemployment problem is the necessary consequence of economic globalization and that the problem signifies a necessary phase through which the US economy is undergoing.

Source: China Daily; By Guo Di, he author is a Beijing-based economics researcher.

http://english.peopledaily.com.cn/200605/09/eng20060509_264072.html

China's development benefits US economy: American attorney
www.chinaview.cn 2005-08-27 12:49:44


WASHINGTON, Aug. 26 (Xinhuanet) -- The US economy has benefited greatly from China's economic growth, and "simply blaming China will not solve issues relating to US economic transformation," an American expert on anti-dumping laws said Friday in an interview with Xinhua.

"China and the United States are the twin engines of world economic growth. China's economic development has numerous beneficial effects on the US economy," said Jeffrey S. Grimson, 38, Counsel and Chair of the China/International Trade Practice of Kaye Scholer LLP, an international law firm with over 500 lawyers on three continents.

Foremost, "Chinese goods have a reputation for being low-priced. The availability of low-priced goods has had a beneficial impact on the US economy, by enabling consumers to enhance their standard of living while keeping inflation down," said Grimson who have been working in the field of anti-dumping laws for 15 years.

Chinese products are moving up the scale of quality too, he added.

Also, economic prosperity in China means more potential customers for US goods and services, he said.

What's more, "the rise of China as a manufacturing superpower has pushed US business to modernize and achieve ever higher levels of efficiency and productivity," said Grimson.

Grimson holds that it is not right for US manufacturers to blame China for a decline in US manufacturing jobs, saying "the transformation of the US economy started long before the current 'crises' with China's trade imbalance, the currency, or textiles. Simply blaming China will not solve issues relating to US economic transformation."

According to statistics compiled by the US-China Business Council, he said, the US manufacturing sector's share of the US economy has fallen from 32 percent in 1960 to 22 percent in 1980, and to 14 percent in 2002.

Grimson noted that "in fact, the decline in the contribution of the US manufacturing sector to the overall economy began long before China's emergence" as a major trade power.

On the bilateral economic and trade relationship, Grimson said the overall economic and trade ties between China and the United States are built on a strong foundation of mutual benefit, and the fact that the relationship is not viewed in the United States as a "two-way street" is in part because the US-China trade statistics are typically viewed in isolation, rather than in broader regional terms.

For example, less than half of the US trade deficit in 2004 is related to trade with East Asian countries, including China, he said, while "overall, the US trade deficit with the rest of the world has increased nearly three times as much as the trade deficit with China over the past ten years."

Because of the negative perception of the US-China trading relationship, trade disputes that might otherwise be considered an expected consequence of such a large volume of trade take on a whole new political aspect, Grimson noted.

"Groups interested in curtailing free trade are able to capitalize on the negative political environment to achieve objectives that might not otherwise be attainable," he said.

It is essential for the two countries to handle trade disputes in an objective, transparent fashion, abiding by fundamental principles of fairness in addition to merely the strict letter of international and domestic law, said Grimson.

"For the United States, abiding by international trade agreements is paramount to maintaining global credibility as a country committed to open markets not only abroad, but also at home," he said.

"Unilateral action is not the ideal way to resolve trade disputes," Grimson noted, "Quotas, especially unilateral quotas, are the opposite of what the international free trade rules seek to achieve."

Grimson has traveled to China many times over the past 10 years. When asked about his impression of the Chinese economy, he said that the pace of growth of China's economy is unprecedented.

"China is speeding through decades of development in only a few years. As such, the country has the opportunity to learn from the mistakes of countries. In particular, China can look to the lessons of other developed countries in areas such as urban planning and the environment," he said. Enditem

http://news.xinhuanet.com/english/2005-08/27/content_3409927.htm

US citizen expelled out of China for selling pirated DVDs
www.chinaview.cn 2005-09-29 17:51:37

BEIJING, Sept. 29 (Xinhuanet) -- US citizen Randolph Hobson Guthrie III has been expelled from China for selling pirated DVDs Thursday and handed over to the US police, according to Chinese Ministry of Public Security.

Guthrie, born on Jan. 19, 1967, and his accomplice, Cody Abram Thrush, were arrested by the Chinese police in July last year on charges of selling pirated DVDs. The police confiscated over 210,000 pirated DVDs on the spot.

The two were sentenced to two and a half years and one year in prison respectively by the Shanghai No. 2 Intermediate People's Court, and both would be expelled from China after serving their sentences.

The court also found the two Americans guilty of selling some 130,000 pirated DVD copies to foreign countries, such as the United States and Britain, through the Internet between Nov. 3, 2003 and July 1, 2004, reaping illegal profits worth some 970,000 yuan (117,000 US dollars).

The two ran a commercial website at www.threedollardvd.com and sold the pirated DVDs at a price of three dollars per copy, according to the court verdict.

The court also ruled that the two Americans would pay a fine of 500,000 yuan (about 60,500 US dollars) and 10,000 yuan (some 1,200 dollars), respectively.

Abram was driven out of China on July 1.

The case suggested piracy is a global problem without national boundaries, a spokesman for the ministry told Xinhua.

"The Chinese police will go on increasing cooperation with other countries, including the United States, to fight international crimes under the principle of understanding, trust and equality," the spokesman said. Enditem
http://news.xinhuanet.com/english/2005-09/29/content_3563525.htm

Roundup: Hu Jintao expounds China's stance on win-win cooperation

UPDATED: 08:29, November 18, 2005

Chinese President Hu Jintao on Thursday expounded China's stance on win-win cooperation by urging the APEC member economies to increase mutual understanding through communications and to strengthen cooperation while seeking greater mutual understanding.

Delivering a speech entitled "An Open Mind for Win-Win Cooperation" at the Asia-Pacific Economic Cooperation (APEC) CEO Summit in South Korea's southeastern port city of Busan, the Chinese president said that building a harmonious world with an open mind is a basic prerequisite to win-win cooperation.

Hu arrived on Thursday in Busan, the second largest city in South Korea, to attend the APEC Economic Leaders' Meeting scheduled on Friday and Saturday with the main theme of this year--"Toward One Community: Meet the Challenge, Make the Change."

Meanwhile, the three-day APEC CEO summit was kicked off here on Thursday morning.

The summit is an annual event that gives business leaders from the Asia-Pacific region to participate in highly interactive discussions on regional and global economic and trade issues with APEC Economic Leaders, economists, policy makers and fellow business leaders.

The theme of this year's APEC CEO Summit is: "Entrepreneurship and Prosperity: Building a Successful Partnership in the Asia-Pacific Region."

Hu also termed "deepening mutual trust and expanding trade and economic exchanges" as a solid foundation for win-win cooperation.

China encourages well-established Chinese businesses to go global and, within the framework of market rules and laws and in the principle of reciprocity, mutual benefit and complementarity, participate in international economic and technological cooperation and competition, Hu added.

"Setting store by dialogue and consultation, and seeking a proper settlement of disputes is also an important avenue to win-win cooperation," the Chinese president said.

He also described strengthening solidarity and coordination, and maintaining security and stability as an effective guarantee for win-win cooperation.

Non-traditional security issues, such as terrorism, financial risks and natural disasters, are posing a threat to the very existence and development of mankind, Hu said.

STRENGTHEN DIALOGUE AND COOPERATION TO MAINTAIN WORLD ENERGY SECURITY

The Chinese president pledged to strengthen energy dialogue and cooperation with all countries, to jointly maintain world energy security and stability.

"To achieve balanced and orderly growth in the world economy, the international community must handle well the energy issue," Hu told some 800 APEC business leaders.

Since 2004, the Chinese president said, the surge of oil prices in the international market has affected the economic growth of the world economy, developing countries in particular.

"The most critical thing is for all countries to work together for stability of the world energy market, and to fuel the sustained growth of the world economy with sufficient, safe, economical and clean energy resources," the Chinese president said.

It is also important to take a long-term perspective, intensify energy development, deepen energy cooperation, increase energy efficiency, and facilitate the development and use of new energy resource, Hu added.

The Chinese president also briefed the APEC business leaders on China's energy strategy.

"The core of China's energy strategy has been clearly defined. We will strengthen policy guidance for energy conservation and high efficiency, give priority to energy conservation and rely on domestic resources," Hu said.

"While focusing on developing coal resources, we will develop diverse energy resources, and put in place a system that supplies stable, economical and clean energy," he added.

The development of nuclear, wind and bio-power in China has just started, and there is great potential for future development, Hu noted.

Though China's demand for energy has somewhat increased due to its steady economic growth, its consumption volume in per capita is not high, the Chinese president pointed out.

"China is a major energy consumer. But it is also a major energy producer," Hu told the business leaders.

Since the 1990s, China has always met over 90 percent of its overall energy needs on its own. As a country with coal dominating its energy structure, China still has huge potential for domestic supply.

Hu also briefed the APEC business leaders on China's energy conservation.

"We always work to combine energy development with conservation, and give top priority to conservation," he added.

Hu told the business leaders that China has introduced a mid-and long-term energy conservation program, with the objective of saving 3 percent of energy every year by 2020, or 1.4 billion tons of standard coal in total savings.

MAKING FURTHER CONTRIBUTIONS TO A SUSTAINED EXPANSION OF GLOBAL TRADE

Hu also said that China will make further contributions to a sustained expansion of global trade by changing the mode of foreign trade growth, increasing import and enhancing the protection of intellectual property rights.

He said although China has a trade surplus with some regions, it has a deficit with the Asia-Pacific region, Hu said.

Among China's top 10 sources of trade deficit of 2004, six are in the Asia-Pacific region, and the deficit totaled 127 billion US dollars.

"It is not true that China is seeking a big surplus in foreign trade. As a matter of fact, the enormous domestic demand and the broad internal market are the perpetual driving force behind China's economic development," Hu told the business leaders.

Hu also pointed out that global trade imbalance should be viewed from a dialectical perspective and in the context of world economic development.

"International trade expansion has helped optimize the allocation of global resources, and promoted world economic development as well as the well-being of the people of all countries,"Hu said.

Among the CEOs to attend the APEC CEO Summit are Citigroup Chairman William Rhodes, Microsoft Vice President Craig Mundie and Chevron Managing Director Samuel Snyder, along with top executives from Toyota, China Unicom and Hong Kong's Li and Fung Ltd.

CHINA'S DEVELOPMENT NOT TO POSE THREAT TO OTHERS

Hu said China's development will not stand in the way of anyone, nor will it pose any threat to anyone.

"Instead, it will only do good to peace, stability and prosperity of the world," Hu said.

"China is becoming an important driving force behind the economic growth in the Asia-Pacific region and the world as a whole," Hu added.

China's economic development not only benefits the Chinese people, but also provides the whole world with more investment opportunities and a bigger market, he added.

"We will continue to take economic development as our central task and top priority, concentrate on development, and work hard to achieve our goals and, at the same time, make our own contributions to regional and global economic developments," he said.

China will continue to purse the basic state policy of opening-up, conduct extensive international cooperation, steadily improve its investment environment, open its market, and endeavor to achieve mutual benefit and win-win results with the whole world, he added.

Since its inception in 1989 in response to the growing interdependence among Asia-Pacific economies, APEC has become a formidable regional forum acting as the primary regional vehicle for promoting open trade and practical economic and technical cooperation in the Asia-Pacific region.

APEC accounts for more than one-third of the world's population (2.6 billion people), about 60 percent of world GDP and nearly half of world trade.

It represents the most economically dynamic region in the world, having generated nearly 70 percent of global economic growth in its first 10 years.

APEC currently has 21 members: Australia, Brunei, Canada, Chile, China, China's Hong Kong, Chinese Taipei, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, South Korea, Thailand, the United States and Vietnam.

The chairmanship rotates among its members, with South Korea holding the chair this year.

Source: Xinhua

http://english.peopledaily.com.cn/200511/18/eng20051118_222104.html

  China's development brings opportunities to the world

UPDATED: 14:13, April 14, 2005

Over the past 26 years since China adopted the reform and opening up policy, its average annual economic growth has hit 9.4 percent, four times that of developed countries in the same period, three times that of world economic growth and double that of developing countries.

Calculated in accordance with the US dollar, China's GDP (gross domestic product) increased from US$147.3 billion in 1978 to US$1.64 trillion last year, 11 times that in 1978.China's economic development has brought opportunities to the world.

In the opinion of the International Monetary Fund (IMF), China is another locomotive of the world economy following the United States.

Last year, China's GDP, counted by the market exchange rate, accounted for 4.1 percent that of global output, and over 13 percent when counted in accordance with PPP (purchasing power parity), constituting a bigger rate of contribution to world economic growth.

According to World Bank statistics, in the 1980-2000 period, the (PPP) contribution rate of China's economic growth to world economic growth reached 14 percent, second only to America's 20.7 percent, and higher than Japan's 7 percent. In 2000-2003, the contribution rate of China's economic growth to world economic growth reached one-third, higher than America's 13 percent, even when calculated on the basis of market exchange rate, China's contribution also touched 17 percent.

China's economic development has livened up the world market. China's total trade value surged from US$20.6 billion in 1978 to US$1,154.79 billion last year, with its average annual growth standing at 16.8 percent, making it the world's third largest trading country. Asia, with its favorable position, was the first to gain benefit from China.

According to Asian Development Bank, in recent years the economic growth in the Asian region is obviously faster than that in other regions of the world, this is mainly attributed to the rapid development of China's economy. The statistics from Asian Development Bank show that in 1995-2003, world trade grew 5.3 percent annually on average, while Asia's export to China increased 16.9 percent; since 2001, the 50 percent growth of East Asian exports has come from the increase of its exports to China. The 84.6 percent growth of Japan's economy in 2002 was benefited by its exports to China. Secondly, global exports also received benefits. China's import value shot up from US$10.89 billion in 1978 to US$5,614.2 billion last year, making it a big import market worthy of the name.

IMF statistics show that in 2000-2003 the contribution rate of China's commodity import growth to the increase of global exports reached one-third. US commodity export to China last year increased 31.9 percent, notably higher than the 8.8 percent growth rate of its exports to the world.

The opening effect generated in the process of China's economic development has benefited the whole world. China's economic rise is essentially different from Japan's economic marvel because of the salient export-oriented characteristics of China's economy.

The external dependence (trade/GDP) of China's economy rocketed from 1 percent in 1985 to 70 percent last year, while that of the US was 23.6 percent. China has become one of the widest opening markets in the world.

In terms of import dependence, last year China's import dependence (import/GDP) touched 34 percent, higher than Japan's 8 percent and America's 15.2 percent; in terms of import duty, China import duty has plummeted from 55 percent in 1985 to 9.3 percent this year, notably lower than Argentina's 31 percent, Brazil's 27 percent, India's 32 percent and Indonesia's 37 percent; in terms of the outward-looking economy, the exports by foreign-funded enterprises in 2003 accounted for 62.4 percent of China's total exports, while that of Malaysia was 45 percent, Singapore 38 percent, Mexico 31 percent, and the ROK 15 percent.

To sum up, China's economic development has not only made China itself rich, but also is changing relations of the world economy, it is creating a win-win situation together with the world.

By People's Daily Online

http://english.peopledaily.com.cn/200504/14/eng20050414_181040.html

 
China to push for new world of amity: Premier
www.chinaview.cn 2005-10-01 10:27:26

BEIJING, Sept. 30 (Xinhuanet) -- Chinese Premier Wen Jiabao said here on Friday that China will work for building "a new world of peace, amity and harmony" together with the people throughout the world.

Wen made the remarks at a reception marking the 56th anniversary of the founding of the People's Republic of China held in the Great Hall of the People in downtown Beijing.

About 1,000 Chinese and foreign diplomats, scholars and people from all walks of life were present at the reception.

In fact, Chinese leaders and senior officials over the past few months have kept highlighting the new feature of the country's foreign policy: "peace, development and cooperation".

In an article issued in August, Chinese Foreign Minister Li Zhaoxing said that seeking peace, amity and harmony among all countries is a key component of Chinese traditional culture. Under the banner of peace, development and cooperation, the country's diplomacy has kept forging ahead and contributed to safeguarding world peace and promoting common development.

In Asia, China helped its surrounding countries deal with the financial crisis in 1997 and offered the country's largest-ever aid to the tsunami-hit countries in January this year.

China also initiated the Shanghai Cooperation Organization for regional security and economic cooperation and promoted cooperation between China, Japan, the Republic of Korea and the Association of Southeast Asian Nations.

All the facts proved that China is a good neighbor, good friend and good partner of its neighboring countries , Li said.

On the international arena, China has pushed for South-South cooperation and North-South cooperation, explored new areas and channels of mutually beneficial cooperation with developing countries and provided them with assistance within its ability.

Meanwhile, China has forged partnership with the world's major powers, and made common efforts to promote world peace and prosperity.

Besides, China has actively taken part in the United Nations affairs and carried out international cooperation on anti-terrorism, arms control, peace-keeping, development, human rights, law enforcement and environmental protection.

Li Junru, a well-known theorist in the Party, said that China is late in the progress of modernization and industrialization.

"However, we will not repeat the past bitter history of turbulence and instability in the world resulted from the rise of a big power, but seek a road that a new rising nation has never taken," Li said.

Chinese President Hu Jintao told a UN summit meeting in New York earlier this month that China will resolutely insist on the road of peaceful development, the independent foreign policy of peace and develop friendly relations and cooperation with various countries on the basis of the Five Principles of Peaceful Coexistence. Enditem

Premier pledges to build harmonious, well off society

BEIJING, Sept. 30 (Xinhuanet) -- Chinese Premier Wen Jiabao on Friday pledged to promote reforms and opening up and to facilitate a sustained and healthy development of national economy.

Wen made the remark in his address to more than 1,000 celebrities at a reception in the Great Hall of the People on the eve of the 56th anniversary of the founding of the People's Republic of China.

He called on the whole nation to unite under the leadership of the Chinese Communist Party (CPC), heightening the CPC's leading role in China's opening up and reforms and in the great changes that have happened in China.

History has eloquently proved that socialism with Chinese characteristics and the road that Chinese people have chosen are the only right way, Wen said.

He said more efforts should be made jointly with Hong Kong and Macao compatriots to maintain the long-term prosperity and stability in Hong Kong and Macao and with Taiwan compatriots to achieve the China's peaceful reunification.

General Secretary of CPC Central Committee and Chinese President Hu Jintao was present at the reception.

Among the those who were present at the reception included members of the Standing Committee of the political Bureau of the CPC Central Committee, Wu Bangguo, Jia Qinglin, Zeng Qinghong, Huang Ju, Wu Guanzheng and Li Changchun and other party and government leaders. Enditem
http://news.xinhuanet.com/english/2005-10/01/content_3570543.htm

UPDATED: 15:32, October 22, 2005

With a fast growing trade volume, China and the Association of Southeast Asian Nations (ASEAN) are trying to show the world that the planned free trade area will be an accelerator for regional economy.

"Among all the FTA negotiations that China has been in, the negotiation with the ASEAN is definitely the fastest and most fruitful one," said Zhai Kun, a scholar with the China Institute of Contemporary International Relations.

China and the ASEAN have agreed to build up a free trade area before 2010. There were quite some suspicions when this initiative was first brought out in 2001.

Zhai said people were wondering whether the FTA, whose members were all developing countries with similar economic structures, would be finally completed and effectively boost the integration of regional economy.

However, statistics from the ASEAN Secretariat showed that the China-ASEAN trade volume has been growing at an average speed of 40 percent over the past three years. In 2004, the trade volume surpassed 100 billion US dollars.

"There is little doubt that the trade volume between China and the ASEAN will reach 200 billion US dollars before 2010," an anonymous official with China's Ministry of Commerce said at the ongoing China-ASEAN Expo, held in Nanning, capital of Southwest China's Guangxi Zhuang Autonomous Region.

Zhai said so far China and the ASEAN have completed the negotiations on trade in goods and are beginning talks on the fields of investment and services.

Beginning from July, China, Brunei, Malaysia, Indonesia, Myanmar, Singapore and Thailand gave tariff cuts to each other on 7,455 kinds of commodities. The practice was launched in compliance with the Trade in Goods Agreement of a Framework Agreement for Overall Economic Cooperation between China and the ASEAN countries.

Experts believed that implementation of the tariff cut plan would enormously expand trade between China and the ASEAN, and would be of far-reaching significance in the future development of China-ASEAN economic and trade relations.

By 2010, China and six old ASEAN member nations, including Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand, will impose zero tariffs on most normal products, while China and the other four new ASEAN members of Cambodia, the Laos, Myanmar and Vietnam will do the same in 2015.

China now mainly imports from ASEAN countries electronic products, crude and liquefied petroleum and gas and vegetable oil, and exports electronic and machinery products, textiles and garments, processed oil and cereals to the ASEAN.

A research from the Thai University of Chulalong Korn said that the China-ASEAN FTA, once completed, would contribute to a 0.9 percent GDP growth to the ASEAN countries and a 0.3 percent rise to China.

The China-ASEAN FTA has a population of 1.8 billion and two trillion US dollars in gross domestic product (GDP). It will become the third largest global trading region after the European Union and the North American Free Trade Zone.

Source: Xinhua

http://english.peopledaily.com.cn/200510/22/eng20051022_216063.html

An important factor in world integration

The beginning of the 21st century and the next few decades is a period when major changes will take place in global new technological revolution. The high-tech wave now sweeping the world is causing unprecedented changes and adjustments in the whole international relations.

Since the middle of last century, although international relations have received great impact from the development of high technologies in many aspects, which has given rise to a series of changes, the industrial society and the mindset, theories, decision-making and management system formed by its production and behavior pattern are still taking the dominant position and reluctant to exit the historical stage. Against the backdrop of industrial society most countries go after the maximization of material interests in economy, stress absolute sovereignty over resources or even expansion in military affairs, thereby laying down the ideological and theoretical foundation for the domestic and foreign policy of these countries in that era. Even today in the more developed west high technologies are generally used as means for accomplishing political and military objectives or supporting measures to augment economic output value. The foreign influence of the science and technology in developing countries, due to their relatively backward economy and culture, play limited role and some cannot but copy the development mode of the west.

Nevertheless, a great many facts in modern international relations show that the continuously advancing high technologies and its industrialization are greatly changing past indirectness of the relationship between technologies and politics, economics, military and security, resulting in expanded scope and accelerated speed of international relation changes. High technologies promote the development of international relations with its role mainly shown in the following:

High technologies led by information technology and their industries have spread all over the world. International political and economic order and great powers' interests are beginning to restructure; supported by scientific and technological advance transportation and communications are becoming increasingly developed. Plus, economic interpenetration and frequent cultural exchanges cannot but turn countries or even the international relations into a system structure that cannot be separated and have strict arrangement and particular operation mechanisms; the difference and contrast in political and economic development of different countries are being increasingly manifested through overall national strength with high technologies as its core part.

Contest of overall national strength growing fierce is the prime root of the uncertainties in international relations. The further in-depth development of high technologies is bound to complicate the uncertainties.

After entering the 21st century, be it peace and development or the common security and interest assertion of various countries, none can alienate itself from the direct participation of high technologies. Quite obviously, only a multi-polarized world pattern with political purposes, guided by science and technology and based on economics is the essential feature of today's international relations. Though the international situation is constantly changing, science and technology, economics and politics are no doubt the starting point and end-result of observing and analyzing various international issues. In recent years, world economy is quickening pace in becoming more advanced and integrated. World economic structure is becoming increasingly inseparable from trade and the financial market. Resources, ecological treatment are frequently seen interacting and coordinating with international relations. The multi-win solutions to economic competitions, political differences and security crises are reached by using exchange and cooperation of high technologies so as to find good channels and achieve corresponding effects.

The coordinated advance of high technology development, and world pattern, its system are always exerting tangible and intangible influences. It is these influences that give rise to the transformation of international relations from the old order to the new order. For now, centering around industrial structure, regional cooperation, South-North coordination, ecological optimization, social environment quality and soft, hard national strength, international relations are locked in a new round of seesaw struggle of existence and development advantages in the political, economic, technological, cultural or even military area. Here, the new order of international relations mainly includes new world economic order, new global resource allocation system, new development concept and world consciousness. Though the developed and developing countries have different opinions on the mode and content of new world order, the threat and pressure that challenge the condition of human existence will eventually force various countries to gather around the same goal while science and technology are without doubt one of the cohesive forces in the process.

The article, written by Feng Jiangyuan and translated by People's Daily Online, is carried on the 7th page of People's Daily on October 14.

http://english.people.com.cn/200510/16/eng20051016_214602.html

China's economy to grow by 8.3 percent this year: World Bank

UPDATED: 13:59, April 27, 2005

China's economy is expected to grow by 8.3 percent this year, while its inflation rate will be 3.5 percent, well within the range set by the central government, the World Bank said Wednesday in a quarterly report.

According to its quarterly report on the Chinese economy, the bank said it expects further easing of domestic demand growth, notably investment, on the back of limited credit growth and sliding profits.

"Inflation is likely to remain within the government's target range, whereas China will retain its strong fiscal and external positions. We project a GDP (gross domestic product) growth of 8.3 percent and inflation of 3.5 percent."

Domestic demand is cooling down, but external demand keeps GDP growth high. Real fixed asset investment FAI growth was 17.2 percent year-on-year in the first quarter of 2005, which is down from 24.9 percent in the year 2004, although up from the 15.5 percent in the final quarter of last year, according to the report.

It said investments are shifting away from sectors previously considered as overheated such as steel and cement. Retail sales growth is gaining momentum, although consumption growth is still likely to lag GDP growth for the year.

"Tax revenues also suggest slowing in domestic demand, and trade data confirm this trend. At the same time, the rising trade surplus is boosting industrial production and kept GDP growth rate at 9.5 percent in the first quarter, the same as that in the fourth quarter of 2004."

Slower money growth indicates that external surpluses pose as of yet little risk for China's monetary policy. Money growth in the first few months of 2005 is compatible with the 15 percent growth target for the year, and the record balance of payment surpluses seem as of yet to pose little complications for monetary control, according to the report.

The macroeconomic outlook for 2005 remains favorable, said the bank. "Global growth is expected to slow down from its record 2004 level, but still remains robust, barring sharp adjustments in the dollar, global interest rates, and oil prices."

"Given the constellation of risks, prudent economic policies are appropriate. Domestically, risks are on the upside, particularly on investment. Externally, downside risks appear to dominate, largely weaker than expected world growth and complications stemming from the large trade surplus."

The bank said a rebound in investment in early 2005 raised concern among analysts, but the trend remains one of a slowdown, and the changing composition should give some comfort to policy makers that the policies introduced in 2004 are working.

Moreover, the number of new projects declined in January-February, with a 6.6 percent fall in new investment volume.

Source: Xinhua

http://english.peopledaily.com.cn/200504/27/eng20050427_182922.html

UPDATED: 12:23, March 05, 2005

China will gear down its high-octane economy to a level lower than the stunning 9.5 percent registered in 2004, as Premier Wen Jiabao announced Saturday that the government targets an "appropriate" 8-percent GDP (gross domestic product) growth rate this year.

It would be a "key job" for the government to keep the world's fastest-growing economy developing on a "fast and stable" track, Wen stressed in his government work report delivered at the opening of the annual session of the National People's Congress (NPC), China's parliament.

"Neither a big up nor down in the economy is conducive to economic growth, reform and opening-up drive and social stability."

The premier reiterated governments at all levels should engineer economic growth and social progress with a scientific outlook on development, shifting the government's development philosophy from growth-centered to people-centered.

"The interests of the broad masses should be put in the first place," Wen Jiabao said through nationwide TV live broadcasting.

Twenty-six out of China's 31 provinces, municipalities and autonomous regions have so far posted the abolishment of agro-tax, a policy Wen set forth at last NPC session that benefits farmers at the cost of the central government's fiscal revenues.

The NPC deputies burst into applause when the premier announced agro-tax will be exempted across the country by 2006, two years earlier than the original timetable.

Farmers' earnings now lag behind city residents not only in amount, but in growth rate -- being 7.7 percent for city dwellers and 6.8 percent for rural people last year.

"So what for a high GDP if the ordinary people's wallets are 'shrunken' and the environment is poor?" said Liang Tiecheng, a deputy from the economically less-advantaged Inner Mongolia, on the sidelines of the convention.

For urban residents, Wen vowed to create 9 million new jobs this year after the country saw its registered urban unemployment rate fall by an annualized one tenth of a percentage point to 4.2 percent by the end of last year, a minor but first decrease in nearly a decade.

The central government will step up support for building of a nationwide disease control and medical treatment system to cope with emergency events like the SARS outbreak that killed hundreds in the spring-summer of 2003.

Wen said in 2005 the government would typically set aside 3 billion yuan (362.3 million US dollars) to aid the technical upgrading work at state-owned coal mines. The premier called for local governments and enterprises to shovel more money into the field.

A vice provincial governor was suspended following a gas explosion at the Sunjiawan colliery near Fuxin, in northeast China's Liaoning Province, that claimed 214 lives last month -- the country's worst mining accident in decades.

TO AVERT A ROLLER-COASTER

China began 2004 amid serious worries that the economy was dangerously overheated, with easy credit fueling production of factory-gate goods and soaring investment in government infrastructure products.

Inflation rose at an alarming rate, hitting a peak of 5.3 percent last July and August.

Fixed asset investment, an indication of how much the government is spending on major infrastructure projects, hit ten-year highs in the January and March period, growing by 43 percent.

This prompted the central government to order energy-saving measures and tell local officials to cut spending on pointless prestige projects and unneeded factories, roads and other facilities.

A raft of market-based macro-control measures including the first bank interest rate hike in nearly a decade were taken before red-hot investment growth was effectively curbed and the consumer price index, a key barometer of inflation, slowed sharply to 1.9 percent last January from an average 3.9 percent in 2004.

Macro-control should be "consolidated and upgraded" as the outstanding problems in economic activities have yet to be "fundamentally solved", though they have been "somewhat alleviated", Wen told the 2,904 deputies present at the Great Hall of the People, the seat of China's NPC Standing Committee.

The premier reaffirmed the fiscal policy would swing from "proactive" to "prudent", resulting in a 19.8 billion yuan (2.4 billion dollars) reduction in fiscal deficit in 2005, dropping to 300 billion yuan (36.2 billion dollars).

Long-term treasury bonds to be issued will be 30 billion yuan (3.6 billion dollars) less than last year, continuing a dropping streak to stand at just 80 billion yuan (9.7 billion dollars) in 2005.

The country began issuing such bonds in 1998 in a bid to expand investment to stimulate the then slowing economic growth. But Wen said that the current investment scale was already big and private funds had started to flourish.

The parallel monetary policy would remain "prudent", the premier said. The word "prudent" is interpreted by many economists as being more adaptable to economic environment -- neither solely expansive nor contractive.

According to central bank sources earlier, new loans from banks in China should not exceed a combined 2.5 trillion yuan (301.9 billion dollars) this year.

Paired with strict approval for land use by enterprises, credit curbs would continue to a key measure to cool down the economy. Wen Jiabao noted on Saturday.

Noting that China would keep the yuan "basically stable" and maintain "basic balance" in international payments, Wen indicated that in 2005 China would not revalue the yuan, which is tightly regulated and trades only within a narrow range of around 8.28 yuan per US dollar.

Regulators, however, have been gradually lifting restrictions on foreign exchange dealings by individuals and companies on the back of booming economic and trade activities in the country.

Stepping out of the Great Hall, Xiao Zhuoji, a prestigious economist with Beijing University, said to the reporters, "The target for slower but still fast growth can definitely be achieved. " He predicts that an even higher 8.5-9 percent GDP increase could be materialized this year.

Xiao noted brisk consumer spending would be a key engine to boost the economy after total retail sales hit a record high of more than 5 trillion yuan (604 billion dollars) last year. Increasingly affluent Chinese are spending more than ever on tourism, food, clothing and entertainment.

http://english.peopledaily.com.cn/200503/05/eng20050305_175625.html

Chinese Economy: A perspective into 2005

UPDATED: 16:28, January 14, 2005

--- An interview with Xie Fuzhan, Deputy director with the Development and Research Center under the State Council

The Chinese economy is now still marked on the round of an uprising period and 2005 is going to witness another year of a relatively quick development.

Reporter: One question of which people are very much concerned is whether the Chinese economy can carry on, as did before, a relatively fast development in 2005 and what's your primary judgment?

Xie Fuzhan: Generally speaking, the Chinese economy is still marked on the round of an uprising period. It is going to witness another year of quicker growth. After over a year of effective macro-control the obvious contradictions in the economic operation have tended to be alleviated with unstable and unhealthy factors being put under control and fragile links being strengthened. All these have come to lay a relatively sound foundation for the economic development this year and also created a space for the employment of the macro-control economic policy.

Reporter: Whence does the motive force come from for the economic growth this year in your point of view? Is there still a sanguine expectation for agricultural production this year?

Xie: The motive force for economic growth this year can be dealt with from the following two aspects.

First is the demand in general. The Chinese economy at present is right on the track of a smooth development for industrialization and urbanization, a period for speedy upgrade of consumption structure. The consumption of the inhabitants is now right in the transition from a simple eating, clothing and spending as main consumption to that with housing as a major objective. This is a long tendency, which is also an internal driving force propping up the economic growth and will not be changed according to men's wills nor will it be altered by a short-term policy adjustment. Though the fixed-asset investment has been turned down but still sees an increase rate of over 20 percent, indicating an construction scale of RMB 20 trillion yuan which remain still a very strong pulling force forward. Besides, the world economy witnesses a trend of sustainable growth and so the external environment proves good for China's export and exploitation of foreign capital. The second is to take a look at the supply in general. The bottleneck restriction has been being alleviated. The shortage of power supply in some economy-vigorous-and-strong provinces, cities and municipalities is quite hopeful to get gradually released in the later half of the year, thereby realizing a further emancipation of the productive forces in these areas. The adjustment of investment and resource structure will be good for the alleviation of contradiction caused by the restriction of resources. And still more the transformation of the state-owned enterprises has been intensified while the non-public owned economy has been vitalized. This will also help constitute a supporting factor for a speedy economic growth.

Though the production increase in agriculture and the increase in farmers' income this year will be more difficult than that in last year yet the policy strength from the central government is being reinforced too. What is important now is to have a unanimous viewpoint and put all policies from the central administration into a down-to-earth implementation, so as to strengthen the support from the whole society for agriculture and bring about a harmonious development between the city and the countryside and between agriculture and non-agriculture.

The difficulty in economic operation is the very difficult point for macro-controls, and this is mainly focused on the employment of the tools and the master of forcibility for macro-controls.

Reporter: If we are going to make an assessment of catchword in economy for 2004 the elected one is beyond doubt the "macro-control". And how do you think it will be adjusted in 2005 with regard to its forcibleness and ways for the adjustment?

Xie: In view of the macro-control this year the central administration has already decided a doubly stable policy orientation. The financial policy in the macro-control policy orientation will be shifted from an active financial policy practiced ever since 1998 towards a smooth and stable one. Concretely speaking, both treasury bonds for construction and financial deficit are going to be reduced. The stressed point of financial policy will be changed from stimulating the internal needs for pulling the economic growth along to gradually strengthening the weak links, adjusting the economic structure and for supporting the system reform. Judging from the objective of the currency policy the macro-control policy has not only to support for a relatively speedy economic growth but also to prevent the currency from appreciation. Therefore, a reasonable scale of currency and credit supply has to be maintained with emphasis to be laid on the optimization of credit structure.

Reporter: What are the difficulties in the economic operation and the macro-control for this year?

Xie: The difficulty in economic operation is the very difficult point for macro-controls. And I'm of the opinion that the difficulty is mainly focused on the employment of the tools and the forcibility exercised for macro-controls.

In view of the emphasis for macro-controls it is at once necessary to prevent the comeback of fixed-asset investment and too many and too fast a downturn in the investment and therefore, a reasonable and timely strengthening and improvement of macro-control has to be effectuated. However, there still exit some difficulties in the selection and employment of the policy tools for the macro-controls. For instance, the interest rate and the exchange rate interact each other and the employment of price tool and the control of price level in general will be beneficial for one thing but detrimental to the other and so it is necessary to make a comprehensive balance and policy-making in a circumspect way.

I think the key of macro-control for this year lies in investment. Therefore, the following points must be well carried out: to strengthen the regulatory administration of the land; to optimize credit structure under the condition for maintaining a reasonable credit scale in order to bring about the adjustment of investment structure; to work out as quick as possible the detailed regulations to get along with investment system reform so as to regulate the behavior of investors and the government; efforts to be made as far as possible to make a correction of the variables in economy in order to eliminate and weaken the distortion of the market and enhance the investment efficiency.

The biggest uncertainty in the operation of Chinese economy is mainly the trend of world economy, trend in the changes oil prices and the stability of the US dollars.

Reporter: What are the factors that will affect most the prices this year?

Xie: The factors exerting influence on the prices this year see a duality of both advantages and disadvantages. However, to judge it on the whole it's possible to keep the consumption price index within a range of 4 percent. This year will see a little possible rise of grain price as against that of last year and so the foodstuff price will be maintained relatively stable. The factors that are most likely to affect the rise of prices are the following three: the price of means of production; the price for services which include prices for water, electricity and transportation and the third is the price of real estate. If the prices of the three aspects rise simultaneously or one of them rises drastically it is possible to bring up quickly the other consumption prices. This is a key point that the macro-control has to pay close attention to.

Reporter: apart from prices what are the most uncertain factors that affect the economic development in China this year?

Xie: I think the biggest uncertain factor in the operation of Chinese economy is mainly the trend of the world economy, the tendency and level in the change of oil prices and the stability of the US dollars. The three aspects are the factors that we are unable to control.

Last year witnessed the best economic situation in the world in the recent a few years. The economy told an all round recovery in the US, Japan and Europe, which served a positive influence on China's economy in foreign trade and the national economic situation as a whole.

This year will still see a good operation in world economy as a whole but the growth rate is possible to be somewhat slower than that of last year and the biggest uncertain factor remains still the US economy. At present, there exists a huge deficit in its trade and finance. The US dollar is undergoing a drastic devaluation, the big fluctuation of its exchange rate constituting a threat to the stability of the world economy. Next is the instability of the oil price. China sees a year-on-year increase in oil import, telling a very quick dependence on it and so we should not underestimate the influence of the oil price rise. Still more is that after the entry into the WTO trade friction and coalition is on the increase when the transition period is over and the risk in part of economic sectors opened to the outside world is likely to loom larger. All these are the newly cropped uncertain factors.

By People's Daily Online

http://english.peopledaily.com.cn/200501/14/eng20050114_170705.html

China's economy soars 9.5 percent in 2004

UPDATED: 13:13, January 25, 2005

China's gross domestic product totaled 13.65 trillion yuan (1.65 trillion US dollars) in 2004, a jump of 9.5 percent year on year, the National Bureau of Statistics (NBS) said Tuesday in Beijing.

The robust economic picture was posted against the backdrop of substantial government efforts to cool down the economy, especially some red-hot sectors such as steel, cement, aluminum and real estate.

Preliminary figures show that the added value of primary industry rose 6.3 percent to 2.07 trillion yuan (about 250 billion US dollars) last year, the NBS said in a press release distributed at the Information Office of the State Council.

That of secondary and tertiary industries rose 11.1 and 8.3 percent to 7.24 trillion yuan (874.4 billion dollars) and 4.34 trillion yuan (524.15 billion dollars), respectively, it added.

NBS director Li Deshui told the press that China had scored "tangible" outcome in cementing and improving macro-control and curbed "unhealthy and unstable" factors in its economic development.

The Chinese national economy maintained a stable and relatively-fast growth trend, awarding off a roller-coaster, he noted.

China recorded 6.28 trillion yuan (766 billion dollars) in its overall added industrial value last year, increasing an annualized 11.5 percent and remaining the biggest contributor to economic expansion.

Major industrial enterprises, or firms whose annual sales revenues exceeding 5 million yuan (609,000 dollars), registered a 16.7 percent rise in its added value in the past year, down slightly from the previous year.

Coal output went up 15 percent, while power output was up 14.9 percent. Aggregate product of pig iron, crude steel, rolled steel rose 24.1 percent, 32.2 percent and 23.5 percent, respectively. The automobile sector churned out 5.2 million units of motor vehicle.

According to Li, total profits for China's industrial sector stood at 1.13 trillion yuan (138.3 billion dollars ), up 38.1 percent.

Investment in fixed assets totaled 7.01 trillion yuan (about 854.5 billion dollars), up 25.8 percent year-on-year, or a drop of 1.9 percentage points from the previous year.

Consumer spending remained stable but showed invigorating signs in China last year, with the combined retail sales volume growing 13.3 percent year on year to 5.4 trillion yuan (652.17 billion dollars) in 2004. It climbed 10.2 percent after deducting price hikes, 1 percentage point higher on a yearly basis.

Urban and rural retail sales rose 14.7 and 10.7 percent, respectively.

Typically, per-capita net income of rural residents rose 6.8 percent last year to 2,936 yuan (355 dollars), the strongest growth in the past seven years since 1997.

Per-capita disposable income of urban residents reached 9,422 yuan (1140 dollars), a net rise of 7.7 percent.

By the end of 2004, the saving deposit of urban and rural population totaled more than 11.95 trillion yuan (approximately 1.44 trillion dollars), an increase of 1.59 trillion yuan (192.6 billion dollars) over the end of 2003.

Last year, the number of the newly employed reached 9.8 million among the urban residents, 800,000 more than the anticipated goal. As a result, the urban registered unemployment rate dropped to 4.2 percent at the end of 2004, down 0.1 percent from a year ago.

China's total grain output in 2004 reached 469.5 million tons, a hefty increase of 38.8 million tons or 9.0 percent over the previous year.

Both total grain production and average yield of cereals crops in 2004 were an all time high. Average per-hectare grain yield was 4,620 kilograms, up 6.6 percent.

Total cotton production reached 6.32 million tons, up 30 percent; oil-bearing seeds output was 30.57 million tons, up 8.8 percent; output of sugar-bearing crops was 95.28 million tons, down by 1.2 percent; total meat output was 72.60 million tons, up 4.7 percent; and the output of aquatic products amounted to 48.55 million tons, up 3.2 percent.

http://english.peopledaily.com.cn/200501/25/eng20050125_171847.html

UPDATED: 10:01, December 30, 2004

China's economic growth will top 9 percent this year, a figure that, while still robust, is more likely to be sustainable level than the overheated environment of the past few years, analysts say.

By implementing a set of lending and land use curbs, the Chinese leadership eased investor fears that the world's fastest growing economy was on the verge of spinning out of control as it did in the mid-1990s.

By the end of November, the annualized growth of broad measure of money supply M2 and renminbi-denominated loans plummeted to 14 and 13.5 percent, respectively, from nearly 30 percent early this year, signaling that industrial producers, especially in such overheated sectors as steel, cement and aluminum, obtained much less support than before.

The People's Bank of China, the country's central bank, raised interest rates by 0.27 percentage points at the end of October, the first increase in nearly a decade, to help curb inflation, which hit 5 percent for consecutive months, and to further reel in investment, though the investment-driven economy had already shown signs of easing.

In April, China's State Council decided to halt the examination and approval for land for purpose of non-agricultural use, an effort to stop the construction of unneeded factories and copy-cat projects.

At the same time, China said projects vital for economic expansion should still be given a helping hand, as demonstrated by a recent plan passed by a State Council meeting on the construction of port groups in the Pearl and Yangtze river deltas and Bohai Bay, China's three bustling economic centers.

Financial and policy support were also encouraged to benefit the "weak links" in the economy such as agriculture and some industries in economically less-advantaged western region.

The Chinese government helped increase farmers' incomes, which rose 11.4 percent in the first three quarters of the year.

Premier Wen Jiabao's government decided to phase out agricultural taxes, and Wen personally intervened to help a farmer get his back wages.

As James Morris, executive director of World Food Program (WFP) put it, China's achievements in alleviating rural poverty are a "great miracle" of the 20th century.

China shrugged off tremendous pressure from some developed countries, especially the United States, to revalue the Chinese currency, saying it need more time to ameliorate the weak financial system ahead of a free floating of the yuan.

For the coming year, challenges such as overinvestment and possible inflation remain, economists say. The Producer Price Index, a measure of cost of goods when they leave the factory, is now still high, adding to inflationary pressure.

The Ministry of Finance noted recently China's fiscal policy, along with monetary policies, would change from "proactive" to "prudent," which means treasury bonds that have for years supported the development of roads, power plants and other facilities will be on the decrease.

Yao Jingyuan, chief economist of the National Bureau of Statistics, has said China's economic growth target may be set at 8.6 percent in 2005, a more practical figure compared with this year's original aim of 7 percent.

Source: Xinhua

http://english.peopledaily.com.cn/200412/30/eng20041230_169188.html

China to establish "green GDP" index system

UPDATED: 12:19, June 26, 2004

The State Statistical Bureau (SSB)and the State Environmental Protection Administration (SEPA) are jointly working on the criteria for the so-called green GDP, which deducts the cost of environmental damage and resources consumption from the traditional gross domestic product.

According to an international seminar on "green GDP" calculation held in Beijing Friday by the SSB and SEPA, related departments will soon establish theoretical systems and basic frameworks to evaluate the overall environment and economy, set up indexes to calculate pollutant materials and environmental costs and spread the new index systems from experimental sites to other areas.

The growth of the Chinese economy is still of low efficiency and consumes huge resources, said SSB Director Li Deshui, noting the introduction of a "green GDP" index system has become an urgent and crucial task for sustainable development.

In the past 25 years, China has achieved an economic miracle with average GDP growth at above 8 percent every year. However, as GDP has become the main standard, or the only standard in some regions, to evaluate the government's performance, many local officials have turned a blind eye to development in other fields, including medical care, education, culture and environmental protection.

The traditional GDP index could not fully reflect the relationship between economic growth and the environment, the environment and people, said Niu Wenyuan, chief scientist on sustainable development strategy at the Chinese Academy of Sciences.

"If the current high-cost growth and serious pollution continues, China will face a heavily-polluted environment and a serious shortage of natural resources in the near future, which would not support its future development," said Pan Yue, vice-director of the SEPA.

"We must adopt a scientific approach to the current accounting system of GDP, a comprehensive indicator of the economy," said Zeng Qinghong, Chinese vice president, at a recent seminar on the subject.

Southwest China's Chongqing Municipality, the only trial city designated by the SSB in 2001 for developing the "green GDP" system, has studied data collected from 1,415 local enterprises and non-profit institutions. Based on the study, an initial feasible "green" GDP accounting approach has come into being.

"Traditionally an official who expands economic growth at huge environmental cost may well be promoted to a higher position, for he is evaluated mainly by the GDP growth," said Pan Yue. The "Green GDP" is a more rational norm to evaluate local officials' performances and, in turn, China's overall economic achievements.

Source: Xinhua

http://english.peopledaily.com.cn/200406/26/eng20040626_147601.html

China promotes recycling economy

www.chinaview.cn 2004-11-01 07:01:40

BEIJING, Oct. 31 (Xinhuanet) -- China will take more measures to protect the country's deteriorating environment to contribute to the sustainable development of both China and the world, Chinese Vice Premier Zeng Peiyan said here Sunday.

"China's economic and social development is facing increasingly heavy pressure from environment and nature resources, marked by pollution and environmental degradation" Zeng said.

He pledged that the country will strive to build an environment-friendly society by further strengthening its legal framework, relying on scientific advancement and strongly promoting recycling economy.

The vice premier outlined four major tasks in combating environment degradation for the country, including adjusting economic structures, curbing pollution in rivers and lakes, shutting down heavily-polluted enterprises and enhancing international cooperation.

Zeng made the remarks at the closing ceremony of the annual meeting of the China Council for International Cooperation on the Environment and Development, the government's international advisory body.

The council consists of 50 senior government officials and experts from China and other countries and representatives of international organizations, including the United Nations Environment Program.

During the three-day meeting, members of the council focused their discussions on sustainable agricultural and rural development and drafted a report of recommendations to the Chinese government.

The council said in its report that it supports China's policy of seeking a new, scientific and sustainable approach to development by putting people first. The report recommended that China value the quality and efficiency of its economic growth.

The report highlighted six general recommendations, including implementing a broader vision linking ecological and food security,developing new ecological and economic-based national strategies to integrate water management and water quality and modernizing the management of China's protected areas.

Zeng thanked the council for the recommendations and promised that the government will take the recommendations seriously, as ithas in the past.

The vice premier said China will further enhance cooperation with the international community on environmental protection by introducing advanced technology and management methods.

Meanwhile, the country will as always actively participate in international affairs on environment and seriously implement environment-related international conventions it had acceded to, he said.

Zeng called on developed countries to take on more responsibilities for environmental protection, increase financial aid to developing countries and promote the popularization of environment-friendly technologies and management experience.

He also urged developed countries to further open their marketsto developing countries to ease the resource and environmental pressure faced by developing countries.

The next annual conference will be held in November 2005 and focus on sustainable development in the urban areas, according to the council's secretariat. Enditem

http://news.xinhuanet.com/english/2004-11/01/content_2162346.htm

On 8 issues concerning China's macro-control

UPDATED: 10:38, November 06, 2004

Is the adjustment to the economy necessary? Is the time for the macro-control right? How are things going? In a response to the concerns and doubts overshadowing the macro-control policy, Mr. Ma Kai, Director of the National Development and Reform Commission, illustrated his perspectives about the following eight issues in the macro-control policy.

Is it necessary?

There is an opinion that the macro-control is no more than a backlash of the government to the market economy. They argue that the overheating investment in some sectors and the soaring credit, if there were, were the evidence and results of the economic growth and would be adjusted by the market.

Theoretically, Ma stressed, it is a natural task to improve and consolidate the macro-control to develop the socialist market economy. This is stated very clearly in the document of CPC's 14th National Congress defines the socialist market economy as an economy allowing the market to play a basic role in allocating the resources under the government's macro-control.

In practice, some unstable and unhealthy factors in the new cycle of economic growth have made the macro-control a pressing task. The plunging grain supply and the soaring fixed asset investment have been identified as the most prominent. Take the iron and steel as an example. Investment in this sector more than doubled in the first quarter of the year. And the structure has not been improved. Projects with heavy resources consumption and pollution and low tech level were launched.

Historical experience has proven when a sharp decline of grain production coincides with inflating investment, there is bumps in the economy. Investment spree normally leads to excessive credit, which in turn pushes the investment further up. It also causes tight supply of energy which in turn boosts prices of basic products.

In a word, Ma warned, since last year the national economy has been exposed to the unhealthy and unstable factors which were spreading. As the central government pointed out, if these looming dangers had been let untouched, they would have created "unimaginable" consequences, including the troubles of resources and environment, the irrational economic structure, more insolvent businesses, rising unemployment and more bad loans in banks. It would take longer time to recover to recover at bigger costs if violent vibrations occurred in the economy.

Neither too last nor too early

Some complained that the government was too slow to take actions. It is not the truth, Ma said.

The central government spotted out the looming dangers of blind investment as early as the first quarter of last year when the country was still fighting against the SARS epidemic. An array of measures have been adopted since then to control the credit and land supply to confine the problems from plaguing the whole economy.

It is due to the prompt decisions of the central government that the macro-control has taken effect soon at relatively low costs.

Administrative or economic?

There's nothing new. Administrative measures still prevail. Some are disappointed. Ma refuted this saying by highlighting the various measures which have been adopted so far.

The central bank has used monetary polices to rein in the growth of money supply. It issued bank notes, raised the threshold of real estate loans, increased bank deposit reserves, consolidated the synergy of credit policy and industrial policy. The latest move is its benchmark interest rate hike and broader range in which RMB loans and deposits float.

Market access has been made more difficult for some sectors believed to be expanding at a low level. More long-term state treasure bonds have gone to agriculture and public affairs. Prices have played an important role in boosting the grain prices and easing the power crunch.

Adjustments have been made on materials reserves and imports and exports. And laws are implemented to crack down land use abuse.

A real solution

The central government has repeatedly stressed that a fundamental solution would be given to solve the existing problems and facilitate the long term development.

Given this, the central government has launched a series of reforms on systems of various fields ranging from the grain circulation, investment regime, tax mechanism to the financial sector and administrative approving process.

In addition, positive progress has been made on establishing and improving the management of state-owned assets and pricing system.

The deepening reform, Ma stressed, will lay a good foundation for a lasting development.

Neither a sudden halt nor a one-cut-for-all approach

The macro-control is focused on the improvement of the investment structure. To this end, excessive investment in some sectors is put under stringent control on one hand while spur is given to other sectors.

Land is still accessible to projects of energy, transportation, water conservancy, major infrastructure in cities, health care and education. The agriculture has absorbed more investment. Fund input into education and health care increased by 24.8 percent and 27.4 percent for the first 3 quarters of this year. Investment in energy also jumped significantly.

Even for the iron and steel sector, tech-intensive environmental friendly products with promising market get much support. Baosteel, for example, is working on new projects of quality iron and steel.

The development of the mid-west

Ma dismissed the concern that the macro-control would hinder the take-off of the country's mid-west.

The frenzy of development zones also drained the arable land away in the mid-west. Small cement and iron plants swallowed energy and gave off pollution there. The region also struggled in the crunch of the supply of coal, power, oil and transportation.

The fact is that the macro-control has boosted rather than hindered the fast and healthy growth of the mid-western region. Some areas in this region even grew faster than their eastern counterparts.

The central government has offered more support to this region. For example, more than 88 billion yuan will be spent on 10 major projects in the mid-west.

In particular businesses in eastern China is switching their attention to the mid-west. For the first 9 months of the year, the ratio of the investment from the country's east in the total fixed asset investment was down while that from the mid-west was up.

The non-public economy

Ma reiterated the commitment to the non-public economy as a driving force of the development of the productivity of the country and an integral part of the socialist market economy.

It is the law, instead of the ownership, that decides the fate of an enterprise. State-owned enterprises found breaches of laws and regulations were also punished.

The macro-control has improved the environment for development which in turn facilitate the growth of the non-public sector. Non-government investment spiraled up 59.4 percent for the first 9 months of this year over the same period of last year. And it is also gaining more ground in the total investment of the society.

Macro-control vs. economic growth

Slowing down the economy is not the purpose of the macro-control policy, stressed Ma. On the contrary, it aims to secure the fast and sound development of the national economy. And practice has proved that the macro-control has worked well in these aspects.

All indicators imply problems in the economy are easing. Grain production upturned. Fixed asset investment slowed down. Growth of money and credit moderated. And land market was better regulated.

The national economy is still gathering momentum and generating good results. GDP grew 9.5 percent for the first 3 quarters. The fiscal revenue and industrial profits increased by 26.2 percent and 39.8 percent respectively. Foreign trade experienced fast development. Farmers enjoyed two-digital rise for their income. The labor market expanded. And the market was stable and brisk.

In his conclusion, Ma warned against any slack of the macro-control. He urged to ward off reoccurrence of the problems.

By People's Daily Online

http://english.peopledaily.com.cn/200411/06/eng20041106_162987.html

China's macro-control policy good for world: official

UPDATED: 16:46, October 31, 2004

The policy of economic macro control introduced by the Chinese government in the latter half of last year is "good for the world, especially developing countries," Tang Min, chief economist of Asian Development Bank (ADB) Resident Mission in China, said Saturday.

Tang said that economists were initially worried about the possible negative influence that might be exerted by China's macro-economic control over the regional economy, but judging from economic performance in the first three quarters of the year, "there have been almost no such negative elements."

The Chinese economy showed a growth of 9.5 percent from January to September this year, coupled with a welcome drop in the growth of certain overheated sectors.

Tang said that foreign trade was an important signal of China's adaptation into the world. China has kept a strong momentum in foreign trade, with the country's trade surplus decreasing as a result of increased imports. The country has made a positive contribution to the world's economy, he said.

China is now the world's third largest import market or the largest import market in Asia.

"Foreign investment has also increased, which shows that China's economy has provided plenty of opportunities to foreign investors, who haven't lost their confidence in the Chinese economy because of the government's macro-control policy. Foreign investors are more concerned with medium- and long-term development. Major fluctuations in the Chinese economy will be bad for foreign investors," said the ADB chief economist in China.

In the past several months, China issued a series of policies to encourage domestic enterprises to invest overseas. Tang held that it would be a "win-win" deal for developing countries, because they need funds and more employment opportunities, and China has been struggling to find new outlets for its capital, technologies and products.

As China has loosened some of its restrictions on overseas investment, more Chinese companies make such investments, contributing to the world economy.

Since the latter half of last year, the Chinese government has adopted a range of measures including limiting money supply, tightening land administration and limiting the scale of credits and loans.

Tang said that judging from present performance, China has kept a normal economic development while at the same time restricting the unhealthy part of the economy.

He said China should continue its macro control to maintain the healthy growth of Chinese economy.

Though prices have continued to rise, but "they might come down in the next two months," he said. But in the medium and long term, China will inevitably face the pressures of inflation from rising oil and energy prices and increased labor costs, he said.

Backgrounder: macro-economic controls in China

China's central government has initiated contractive macro-economic controls five times since the reform and opening-up drive was launched in 1978, each time in an effort to push the economy toward healthy growth.

China entered its fifth period of economic macro-control in the second half of 2003.

The Chinese economy expanded 9.1 percent in 2003, seeing runaway investment in such sectors as steel, cement, aluminum and real estate.

Correspondingly, the government took a host of precautious measures, including restricting banks' lending capacities, tightening land use and reining in investment. Analysts agree that these policies have achieved initial success.

The first four periods of Chinese macro-control -- 1979 to 1981, 1985 to 1986, 1989 to 1990 and the second half of 1993 to 1996 -- aimed to cool down an apparently overheated economy, which each time was growing at a rate of more than 11 percent.

The first economic overheating was reflected by soaring investment and large fiscal deficits caused by moves to spur consumption.

The second, third and fourth were all aftermaths of explosive investment and consumer demand, leading to overall shortfalls of goods. The Chinese government had to harness severe inflation during those periods, especially in 1994 when the consumer price index hit a high of 21.7 percent.

http://english.peopledaily.com.cn/200410/31/eng20041031_162239.html

China-ASEAN FTA to help bring about Asia's economic integration

UPDATED: 16:54, October 31, 2004

Singapore welcomes the establishment of China-ASEAN Free Trade Area (FTA), believing that it will help enhance economic cooperation and integration between ASEAN and China as well as Asia's economic integration, Singapore's Minister for Trade and Industry Lim Hng Kiang told Xinhua lately in an exclusive interview.

"The next big story for the world in the coming 10 years will really be the economic integration of Asia, and China-ASEAN Free Trade Area is a very important vehicle to bring about this economic integration," Lim said, adding that such economic integration means "something very special" to Singapore because it will give Singapore a big economic base to grow.

As planned, China and ASEAN will create the world's largest FTA of nearly 2 billion people with a combined gross domestic product (GDP) of more than 2 trillion US dollars by 2010.

Lim expressed confidence that the target set by China and the Association of Southeast Asian Nations (ASEAN) to increase their annual trade to 100 billion US dollars by 2005 is within reach.

"Trade has been growing very rapidly between ASEAN and China. I think that ASEAN-China trade amounted to 79 billion US dollars last year, and the 100 billion US dollars target is quite possible this year," Lim said.

Describing the economic relationships between the two countries as "very good," Lim said that China is now Singapore's fifth largest trade partner while Singapore China's seventh largest investor.

The trade volume between the two countries stood at nearly 20 billion US dollars last year and already reached about 22 billion US dollars in the first nine months of this year, he said, adding that Singapore's cumulative contractual foreign direct investment (FDI) in China last year was 43.5 billion US dollars, and the island state now has more than 12,000 projects in China.

Lim believed that there are great potential and opportunities for closer trade and investment relationships between China and ASEAN, and between China and Singapore.

China is growing at very rapidly and "this offers a lot of opportunities for ASEAN countries, including Singapore," he added.

The minister proposed that Singapore and China further strengthen their bilateral cooperation, especially in the field of trade, services and investment.

He noted that Singapore will encourage more companies to invest in China, and at the same time, it will also facilitate Chinese companies setting up operations here and penetrating into other ASEAN markets.

"As China develops and grows, as Chinese companies become bigger and stronger, we'd like to see them using Singapore as a base to trade and operate in the rest of ASEAN," he said.

Lim also hoped that talks on bilateral free trade agreement between Singapore and China should start as soon as possible.

"Singapore welcomes a free trade pact with China, both on the bilateral basis as well as on the regional basis as part of ASEAN," he said.

Lim will lead a 120-member delegation to attend the first China-ASEAN Trade Fair, which is to be held in Nanning, capital of southwest China's Guangxi early next month.

http://english.peopledaily.com.cn/200410/31/eng20041031_162255.html

Chinese economy takes on four fine tendencies after macro-control

UPDATED: 08:08, October 28, 2004

After the implementation of the macro-control policy there come to appear four fine tendencies in the deep strata in Chinese economy, said Qiu Xiaohua, Deputy director of the State Statistic Bureau.

First and foremost is that the industrial structure has taken on a tendency for improvement with the insufficient development of the primary and tertiary industries and too fast a development of the secondary industry being improved.

The second is that the relationship of investment and consumption is heading towards an improvement. The increase of investment is on the decline while the consumption is getting quicker with an obvious enhancement contributed by consumption to the growth of economy. The first half-year saw a growth of 9.7 percent in economy and a 4 percent rise contributed by consumption to the economic growth.

The third is that there is an improvement in the balance of imports and exports. Though there is still an unfavorable balance of USD 490 million in the period from January to July yet the whole year will see a balance at large with a little in the surplus.

The fourth is that there sees an improvement in the unbalanced development between cities and rural areas. This is expressed in an integrated way a turn for the better in rural consumption and in the increase of farmers' income.

The macro-control and adjustment this time is a preventive and positive one, said Qiu Xiaohua and is mainly for solving the problems in the following two aspects. The first is the investment problem and the second the weak-link in agriculture. It is a mild and structural adjustment and control. In the meantime attention has been paid to solving system and mechanism problems in economic life by adopting a series of measures for the adjustment and control.

With regard to the problems in economy at present, they are mainly expressed in the following three aspects as Qiu Xiaohua holds. First of all, it is the transportation and transmission of coal, electricity and oil and especially there is no full solution of the contradiction in the tightened power-supply. Next is that the problem of partially enlarged investment hasn't been solved and the third is the emergence of some new problems. There is a further revelation of structural contradiction in bank credits and loans. And by the way, with the gradual implementation of the macro-control the unhealthy reflection of excessive investment, blind construction and the repetition at a low level began to come to a head. This is mainly expressed in payment arrears in among enterprises and the stacked-up of products.

Qiu Xiaohua is of opinion that the macro-control policy to be taken next centers in the following six aspects. That is to stabilize the policy by observing the situation calmly and composedly; to consolidate the achievement in prevention from relapse; to treat things differentially by regulating the structure; to deepen the reform by stepping up the governance by law; to make overall plans by taking all things into consideration so as to realize a long-and-short-term combination and finally to form a concerted effort by unifying all viewpoints.

By People's Daily Online

http://english.peopledaily.com.cn/200410/28/eng20041028_161862.html

China's efforts to rein economy begin to pay off

www.chinaview.cn 2004-10-23 07:33:25

BEIJING, Oct. 22 (Xinhuanet) -- After one year's macro control, China's economic boom has showed modest slowdown with the growth rate being 9.5 percent in first three quarters.

"The government's efforts to cool the economy has begun to pay off," said Xie Fuzhan, deputy director of the Development and Research Center of the State Council, in an interview with Xinhua Friday.

China has brought its economy from breakneck growth to stable development, said the expert of macroeconomics.

Preliminary figures released by the National Bureau of Statistics (NBS) show that China's GDP (gross domestic product) growth rate reached 9.5 percent in the first three quarters, a fall of 0.3 percentage points compared with the first quarter.

The increase of investment in the fixed assets from January to September also reported a drop of 15.3 percentage points and 0.9 percentage points from the first half year and first quarter respectively, said Zheng Jingping, spokesperson with the NBS, at Friday's press conference.

The figures were encouraging and freed people of worries about hard landing, said Min Tang, chief economist of ADB (Asian Development Bank) Resident Mission in China.

Overheated industries such as steel, electrolytic aluminum, cement and real estate have been reined under the macro-control policies, while foreign trade maintained good momentum and sound increase, said Tang.

China's imports and exports have an impact on the economic development of its neighbors and the world. If China's foreign trade experienced big ups and downs, the world economy would be affected.

"As China has made a preliminary success with its macro-controlpolicy, its neighbors and those who have close economic ties with the country could feel at ease now," said Tang.

Experts are optimistic about China's grain output this year. Statistics with the NBS show that following the 4.8 percent growthof summer grain, the output of early rice reached 32.1 billion kilograms, up 8.8 percent. Good harvest of autumn crops is in sight, said Zheng.

Xie predicted China's total grain output this year would exceed455 million tons, the goal set by the central government at the beginning of the year.

In the first three quarters, the average income of farmers per capita also rose to 2,110 yuan (254 US dollars), a year-on-year increase of 11.4 percent.

The macro-control policy, which gave strong support to grain production, should bring agriculture back on track, Xie said.

China took the macro control policy late last year when the economy became partly overheated. The problem worsened at the beginning of this year. In the first two months, fixed asset investment increased 53 percent from a year earlier to a ten-year high.

Excessively rapid increase in investment resulted in big rise in loans, higher prices of capital goods, heavy pressure of inflation and tight supply of coal, power, oil and transportation.

Therefore, the central government tightened control over loans and land provision as well as project certification in order to cool the economy.

A survey released by the NBS earlier this week showed 70 percent of the economists were satisfied with the present economicsituation. They predicted fixed assets investment would drop 27 percent for the whole year and 24 percent next year.

The economists predicted China's economic growth would slow down next year, but the GDP growth rate would remain higher than eight percent.

However, China's economy still has problems in many aspects such as the investment mechanism, said Zheng.

The slowing down economy might rebound if the macro control policy did not continue, said Xie.

He suggested the government should be vigilant against unstableand unsound factors, and make timely adjustments in the process. Enditem

http://news.xinhuanet.com/english/2004-10/23/content_2128648.htm

UPDATED: 17:02, October 14, 2004

China 's rapid economic growth over the past years has been eye catching, so much so that reports, analyses and predictions are rife about its development momentum, implications and future directions. A most recent example is an article in the UK-based renowned magazine The Economist.

In the "The Dragon and the Eagle", carried in the publication's September issue, its economic editor Pam Woodall made a detailed comparison between growth in China and in the United States. Woodall asserted that if China continues with its reforms, it will enjoy faster growth than America has ever achieved. "Within a decade it will probably be the world's largest exporter and importer, and one day it may overtake America as the world's largest economy."

The world economy has expanded by nearly 5% over the past year, the fastest we have ever seen in two decades. The article lists two factors as major contributors to the growth: one is America's exceptionally loose monetary policy, which has encouraged relentless consumer spending, the other is an unprecedented investment boom in China.

Woodall highlighted China's catching-up efforts, stressing that "only a few years ago, the term 'the world economy' was used as shorthand for the economies of the developed world; China would at best rate a brief mention. But now it is too big to ignore."

China's GDP already accounts for 13% of world output, second only to America's. By the end of this year, the country will probably be the world's third biggest exporter, after America and Germany. It is also the largest recipient of foreign direct investment as multinationals have moved operations to China to take advantage of its cheap labor and huge market. It has now become the new workshop of the world, producing two-thirds of all photocopiers, microwave ovens, DVD players and shoes, over half of all digital cameras and around two-fifths of personal computers.

Besides its producing power, China is at the same time a big new market. Its imports grew by 40% last year, and over the past three years it has accounted for one-third of the total increase in world import volumes.

Woodall is concerned about China's somehow too rapid growth. However, he said China's policymakers have been trying to cool the economy, and there are signs that their measures are working.

http://english.peopledaily.com.cn/200410/14/eng20041014_160234.html

China's growth blesses the world

UPDATED: 09:36, October 20, 2004

There have been articles in foreign media claiming that China's economy and manufacturing industry grew "too much and too soon." Such claims indicate they have misunderstood the development process by which the Chinese economy merged into the global economy.

They do not understand that the adjustment in the Chinese economy reflected the needs of the globalization of the world economy, especially the contribution of the Chinese economy to the recovery and growth of global and regional economies. They also neglected the timely reaction of Chinese macro-economic authorities and their appropriate adjustment measures to balance economic development. The strengthened capacity of China's manufacturing industry is a result of economic globalization.

It is also a result of the development of multinational companies. Globalization is an inevitable trend of modern economic development. It enabled entrepreneurs' production everywhere by taking advantage of the areas' natural resources, capital, technology, information, management and labour, and the selling of products where there were demands for them.

China had extensive low-cost and high-quality labour resources, which have become a major attraction for multinational companies. Presently, about 80 per cent of the world's top 500 companies have invested in China. By the end of December 2003, China had ushered in a total of US$501.5 billion in actual foreign direct investment (FDI), making it the second largest destination for FDI, after the United States.

As a result, investment by foreign and domestic private companies has increased. Manufacturing industries such as automobiles, home appliances and steel have expanded rapidly.

However, the expansion is a market behaviour. Companies have compared the Chinese market with markets in other areas, and found the Chinese market more attractive. In fact, developed countries have already enjoyed the benefits of the economic globalization. Developed countries, which monopolized advantages of capital, technology and information, have secured huge profits through international exchanges of products, technology, capital, labour and information.

Multinational companies' global mergers and acquisitions have also led to globalization of direct investment. Since the 1990s, multinational companies' direct investment has maintained strong momentum. These companies have forged new types of strategic alliances and formed monopolies gradually. During the past decade, multinational companies have begun to expand investment areas to reach basic industries. They also increased investment in developing countries and took a leading role in many of those countries' economies.

Globalization has enabled developed countries to maintain advantages in industrial structure through adjustment. They have shifted labour-intensive and relatively technologically-backward industries, and industries with relatively severe pollution, to developing countries. Meanwhile, they have managed to maintain a leading role in the world economy through global sales networks and their monopoly over high-end and new technology industries.

On the other hand, developing countries have been put in a disadvantaged position, because of lack of capital and technological backwardness. Developed countries also have advantages in financial capital. When conditions allowed, they entered the markets of developing economies. If speculative capital flow is not managed appropriately, financial crises find their way to developing countries and hit their economies. Because of the political advantages and economic monopolies, developed countries also have strong influence over market prices.

Developed countries could manage to raise prices for industrial products they monopolize, and keep prices down for farm produce and other primary products by developing countries on international markets. Compared with developing countries, products produced by developed countries are competitive. But developed countries have still managed to make international rules more favourable for their interests, relying on their influence over international organizations such as the World Trade Organization.

The key interest of the developed countries is to retain sustainable and stable economic development and cut unemployment. In order to save costs, developed countries shifted labour-intensive industries and part of their capital-intensive industries to developing countries. The result of this was a rise of these countries' profits and their productivity, as well as high unemployment rates, if structural adjustments were not implemented in a timely manner.

The United States is a typical example. It has shifted high-tech industries to countries such as China and India. However, the increasing production capacity of China's manufacturing industry such as autos and steel does not pose a threat to the world economy. It also does not lead to a price rise for raw materials or price drops for manufactured goods on international markets.

The impact of the Chinese price level on world export prices is very limited, because of the low ratio of China-made products to the world's total. In 2000, China's commodity exports accounted for only 3.9 per cent of the world's total, and imports accounted for only 3.8 per cent. If China's export prices dropped 1 per cent or import prices rose 1 per cent, it would only result in a drop of 0.04 per cent in the world's export prices and a rise of 0.04 per cent in import prices.

Foreign media also say that Chinese manufacturing industry's impact on the United States would evolve into a political issue, because China's trade surplus with the United States has reached about US$130 billion. However, the trade deficit between the two countries only accounted for 22.15 per cent of the total US deficit in 2000, dropping from 45.94 per cent in 1997. Although the rate rose slightly to 24.97 per cent in 2003 due to China's accession to the World Trade Organization, it was still lower than that in 1999.

Consequently, the increase in the US trade deficit and other issues did not originate from China. It was as a result of the absence of economic restructuring in the US.

Meanwhile, a majority of exports from China was made by foreign joint ventures. Exports by these companies accounted for 48 per cent, 50 per cent and 53 per cent respectively in 2000, 2001 and 2002. Foreign investment were big beneficiaries of China's exports, in turn, they also spurred the recoveries of their home economies.

On the other hand, even if China-made products sold at relatively lower prices because of the expansion of capacity, and affected the competitiveness of similar products made by other countries, they would actually benefit global consumers.

The lower prices were a result of market competition. If developed countries including Japan and the United States do not speed up industrial structural adjustment, problems such as increasing of unemployment and the expansion trade deficits will continue.

Trade protectionism resulting from those problems will harm the healthy development of the world economy.

As an important country in East Asia, China's rapid and sound economic development has become a strong engine for the region. China's accession to the World Trade Organization and the country's agreement to build a free trade zone with the Association of South-East Asian Nations will also greatly promote development of East Asian markets, and benefit all countries. The relationship between China and East Asian countries is "win-win" deals, where they are not competitors.

A recent report by the World Bank has confirmed China's contribution to regional economic development in East Asia. The report recognizes that China is a major engine in increased exports of East Asian countries. China's imports from East Asian countries rose from 30 per cent in 2002 to more than 40 per cent in 2003. China's strong imports have greatly spurred the domestic demand of East Asian countries, the World Bank said.

Foreign media reported that China has created more than 200 auto companies in several years, becoming the fourth largest auto-producing country. They said that Chinese residents began to increase spending on cars rather than television sets and other home appliances, and expressed worries the monopoly capacity of auto companies could drop.

But China has developed its auto industry mainly through international joint ventures. Presently, German auto companies account for more than 50 per cent of the market, while US and French companies account for about 15 per cent each. Auto companies from Europe, the United States, Japan and South Korea are the major investors in and beneficiaries of China's auto industry. When the global auto market is sluggish, market share became a real issue of concerns for foreign investors, especially in view of the expanding manufacturing capacity of China's auto industry.

With the aim of preventing the economy from becoming overheated, the Chinese Government has taken a raft of measures since the second half of last year. The measures included curbing unwanted fixed asset investment projects and raising the bank reserve ratio three times.

The macro-control measures made remarkable achievements. The fast rise in fixed asset investment has been curbed, growth in money supply and loans have dropped, and the prices for production materials have declined. Uncertainties and unhealthy factors in economic development had been brought under control.

As a whole, China's fast economic growth is a blessing and not a disaster for the world's economy.

The Chinese economy has gradually become a most dynamic part of the world's economy.

The authors are research staff of the People's Bank of China.

Source: China Daily

http://english.peopledaily.com.cn/200410/20/eng20041020_160837.html

Middle class becomes rising power in China

www.chinaview.cn 2004-11-06 14:52:19

SHENYANG, Nov. 6 (Xinhuanet) -- The scenic northeast China's port city of Dalian is admitted to be a promised land for the group with passions and intelligence, who constitute the middle class in China.

Twenty-seven-year-old Wan Fang, who works as an enterprise planner, receives a yearly pay of nearly 200,000 yuan (about 24,000 US dollars) only in his second year, and that is tantamount to what his parents earned during the past eight years.

"People of our generation may consider more about how to break away from the past uptight life", said Wan, "thus we worked hard in the university, thinking of bringing fortune to the families through the knowledge."

"I am glad that my dream is gradually coming true", he said.

Sociologist Bao Degong from Northeast University said more than80 million Chinese people can be categorized into the middle class.

Bao said the middle class people are primarily found in the coastal areas where the economy rapidly develops, and they are particularly owners of the small and medium private enterprises, township entrepreneurs, and the new and high-tech specialists.

Zheng Tianshun, in his 30s, is an expert technician of the table planing machine in a state-run factory in Shenyang, northeast China's Liaoning Province. He is very satisfied with his monthly pay of 5000 yuan (about 600 US dollars), which is the maximum payment of workers of his level in the city.

"An old hand of the complicated skill, I am paid ten times as much as that of the normal workers", said Zheng, "the harder you work, and the more you will earn".

However, people with higher pay would live in an embarrassing condition 20 years ago, when equalitarianism prevailed in China, said Bao. "At that time a better economic situation might incur jeers and even despise from the majority others, which was an extremely abnormal phenomena."

China's economic reform has brought about a brand-new society, in which people with fortune and good education background have quickly found their positions and formed the middle class in China, said Bao.

The knowledge-based economy in China today, in addition to the central government's strategy of constructing the country with science and technologies, has boosted the rapid development of higher education, which is the incubator of the middle class, he said.

According to a report made by Chinese Academy of Social Sciences, China's middle class will be remarkably expanded in the coming eight to ten years.

However, there are still sharp differences between the rich and the poor in China today, and a developing middle class will well reconcile the conflicts between the two groups, serving as a bridge, said Bao. Enditem

http://news.xinhuanet.com/english/2004-11/06/content_2184391.htm

Facts, figures reveal better life has dawned

UPDATED: 11:07, October 07, 2004

Life is changing every day.

People may have deep memories of some great changes, and have little impression of other minor ones which, in the long run, may affect our daily lives as well.

Figures recorded by a market research company during the past seven years reflect such changes in most Chinese lives.

The China Marketing and Media Study (CMMS) is conducted by a Sino-Japanese independent market research company, SinoMonitor, in collaboration with British market researcher BMRB International and US software firm Telmar.

CMMS has followed over 70,000 Chinese consumers aged between 15 and 64 in 30 major cities since 1997.

Ownership of durable consumer goods

The number of people who own some durable consumer goods as home appliances is increasing year after year. Especially, ownership of such appliances as mobile phones, microwave ovens, computers and autos, which started becoming popular among Chinese families in the mid-1990s, grew rapidly.

CMMS data shows that in 2003, 48.5 per cent of the people surveyed had mobile phones, more than doubling the ownership three years ago, which stood at only 23.8 per cent.

When the first generation cellular phone dageda, which looked like a brick appeared in the Chinese market in the early 1990s, it was seen as a symbol of wealth.

During the following decade, cell phones have improved many times. Today, cell phones have various designs and all kinds of functions.

Even migrant workers and school students use mobile phones.

With the opening of China's telecom market, telecom carriers are competing to lower communication fees and offer diversified services for customers, which means Chinese are enjoying more and more convenient and less expensive telecommunications and the mobile phone market is set to grow rapidly in years to come.

Of all the household electrical appliances, the microwave oven is the one that has spread among Chinese families fastest.

Just two or three years ago, microwave ovens were regarded as a "luxury items" costing at least 3,000 yuan (US$362). Most families could not afford one.

But now it is only an everyday home electrical appliance priced at some hundreds of yuan and considered an essential cooking appliance for Chinese.

Its convenience and quickness has changed the life style of modern people.

According to the CMMS data, 34.9 per cent of people surveyed had microwave ovens in 2000, while the figure increased to 47.5 per cent last year.

Today, 72.5 per cent of Chinese families use water heaters, CMMS data says.

Some 10 years ago, many Chinese went to public baths once or twice a week, due to their poor living conditions.

The crowding and the noise at the public baths is still fresh in many people's memories.

A famous Chinese movie Bathing, starring well-known actor Pu Cunxi, gives a clear picture of public bath houses at that time.

Though they still exist today, their function has changed.

They provide sauna, spa and other services and people go there for relaxation.

The CMMS data shows more than 50 per cent of families have air-conditioners, which enable them to be warm in winter and cool in summer.

The number of people who have private cars also increased rapidly in the last two years.

In 2003, 3.9 per cent of people surveyed had their own cars. The figure has grown to 30 per cent over the previous year.

Ownership of video players grows by about 7 per cent year-on-year. CMMS shows 68 per cent of Chinese families had video players last year.

The number of people who own computers grows even faster. In 2003, some 30 per cent of people surveyed had computers, compared with only 17 per cent three years ago.

The rapid growth in the number of people who have these durable consumer goods shows that life among Chinese is becoming more and more convenient and comfortable. The increase in video players and computer ownership reflects the colorful cultural life of the Chinese.

Use of fast moving consumer goods

Consumption of fast moving consumer goods, which mainly include articles for daily use, beverages and food, shows that Chinese living standards are improving year by year.

The per capita milk consumption is always regarded as a key criteria to weigh people's standard of living in a country.

In the early 1980s when the market was in short supply, many Chinese families did not even have milk powder to feed their babies.

Today, parents are often dazzled by all kinds of dairy products lying on the shelves of supermarkets.

At present, more than 75 per cent of Chinese buy dairy products, especially fresh milk, daily. The figure was 7 percentage points lower in 2000.

While that figure, as well as the per capita milk consumption in China is much lower than that of developed countries, it shows the improved life of the Chinese people.

As living standards rise, people are beginning to pay more attention to health.

To fill the stomach is no longer a concern for them, instead they care more about how to eat healthily.

Bearing such consumption concepts in mind, Chinese have welcomed to tea drinks and juices, which are said to be healthy.

CMMS data shows last year, more than 37 per cent of those surveyed bought tea drinks, and 39 per cent had juice drinks regularly.

In addition to food, the use of daily necessities also shows the improving lives in urban areas of China.

In 2003, nearly half of the people surveyed used shower and bathing gels. And there are many kinds of facial cleansers and hand cleaners on the domestic market.

A dozen years ago, soap was the only cleaning product for private hygiene in the country.

Shopping habits

The improvement in Chinese living standards is also reflected by the change of life style.

In the 1990s, Chinese people still went to free markets and bargained with dealers, when buying food stuffs like meat, eggs, vegetables and fruits.

The appearance of supermarkets changed the shopping habits of most of urban residents.

When supermarket first emerged in China, Chinese went there just for curiosity.

Their comfortable environment, abundant goods, good services and relatively reasonable prices have lured more and more people.

CMMS data shows the number of people who shop at supermarkets is climbing every year. In 2000, 89.6 per cent of those surveyed went there, and the figure rose to 95.1 per cent last year.

In addition, goods and services offered by supermarkets have become more comprehensive.

From home appliances to needles and threads, from seafood to processed foods, all can be found in supermarkets.

Today, people can easily go to a supermarket and find what they need, as supermarkets of different sizes are everywhere in urban areas.

Data collected by the study shows the number of Chinese who buy food and commodities for daily use from supermarkets grew fast in recent years.

Fifteen per cent of the surveyed bought vegetables and meats in supermarkets in 2003, compared with 8.6 per cent in 2000.

The proportion of people who bought fruit in supermarkets more than doubled to 11.1 per cent in 2003 from 5.4 per cent three years ago.

And 29 per cent of customers purchased daily commodities in supermarkets, 30.5 per cent for beverages and 13.3 per cent for durable consumer goods last year.

Aside from supermarkets, more and more people buy daily necessities, durable consumer products, cigarettes, alcohol, and garments in zhuanmaidian, a Chinese term meaning a store which sells products under a single brand name, especially famous ones.

CMMS data shows the number of such people grew by 25 per cent year-on-year.

Only a few years ago, most Chinese believed that zhuanmaidian is a place for the richest people.

The phenomenon shows people pay greater attention to the quality of products, and cheap prices is no longer the most important factor people make when deciding where to shop.

Change in transportation

Statistics show 19.8 per cent of those surveyed choose to walk to their offices every day last year.

The figure was 12.5 per cent in 2000, 12.9 per cent in 2001, and 16 per cent in 2002.

The reason is that as life improves, Chinese have also grown more aware of the importance of exercise for maintaining health. However, the intense life and work patterns of most urban residents made going to the gym impossible.

Thus, people walked from home to the office in the morning and back after work, to stay fit and save money.

As the number of people who went to work on foot grew, the number of people who took bicycles as their major mode of transportation decreased.

The proportion was 40.9 per cent three years ago, but was down to 34.4 per cent last year.

The number of people who used motorcycles as their main mode of transportation also went down, as many cities did not allow motorcycles in downtown areas for easing traffic pressures.

Four per cent of the surveyed took motorcycles as major traffic means last year, compared with 5.6 per cent in 2001.

Meanwhile, 2.6 per cent of people traveled mainly by private car. The figure was 2.4 per cent in 2001.

The growth is much lower than the ownership of private cars during the past three years. Currently, more than 33 per cent of Chinese took buses for their major traffic means.

This is due to crowded roads and few parking lots.

Now city governments are putting more effort into developing road networks and public transportation, such as more bus lines and subways, to make public transportation quicker, convenient and comfortable.

http://english.peopledaily.com.cn/200410/07/eng20041007_159204.html

China not violating US currency law: US gov't

www.chinaview.cn 2004-12-04 08:06:04

WASHINGTON, Dec. 3 (Xinhuanet) -- The US government said on Friday that neither China nor any other major trading partner of the United States is violating a US law against currency manipulation to gain unfair trade advantages.

In an annual report to the US Congress, the Treasury Departmentsaid that "no major trading partner of the United States met the technical requirements" laid out in the 1988 law concerning problematic currency manipulations for unfair trade advantages.

A 1988 US law requires the Treasury Department to analyze other countries' exchange rate policies and determine whether such manipulation is occurring and the US government can impose trade sanction on countries found in violation of the law.

On China, the report said that "the US government will pursue persistently and firmly its approach to promote economic, financial and market reforms in China and assist China to move as soon as possible to a flexible exchange rate regime." Enditem

http://news.xinhuanet.com/english/2004-12/04/content_2293762.htm

Morgan Stanley: China shouldn't appreciate RMB

www.chinaview.cn 2004-12-01 16:34:45

BEIJING, Dec. 1 (Xinhuanet) -- A Chinese economist says if China revaluates its currency it could damage the economy and create an economic "bubble" like Japan.

Morgan Stanley's chief Asia economist Andy Xie warned, if the Reminbi appreciates under international pressure, it will trap China, with low growth, low interest rates and low inflation but a strong currency, China Radio International reported Wednesday.

He pointed out that the macro economic situation in today's China resembles that of Japan when its currency was pressed to revalue during its fast growth period.

At present, at least 1.2 billion US dollars of hot money has entered the Chinese mainland and Hong Kong, as speculators gamble on a revaluation of the RMB.

The Japanese yen revaluated in 1985, causing domestic enterprises to move out of Japan and invest in South-East Asian nations.

The low interest policy that followed created an economic "bubble", with over-investment in stock market and real estate, that Japan is yet to recover from.

(CRIENGLISH.com)

http://news.xinhuanet.com/english/2004-12/01/content_2282558.htm

www.chinaview.cn 2004-11-12 13:53:26

BEIJING, Nov/ 12 (Xinhuanet) -- China's foreign exchange regime is on the verge of significant change as the country's financial system undergoes historic reforms aimed at liberalizing the capital market and enabling cross-border movement of funds.

Political and economic factors will play a fundamental role in the process.

Chinese Premier Wen Jiabao indicated the establishment of a more flexible renminbi (RMB) exchange rate mechanism by deepening reforms, more adaptable to the market supply and demand changes, when he met the Citibank chief executive Charles O. Prince and the US former Secretary of the Treasury Robert E. Rubin on September 28th.

The indication sparked speculation on whether RMB reform by the Chinese Government was in the offing.

In 1994, China realized the unification system of RMB exchange rate and RMB's conditional convertibility under current account. And China has, since then, adopted an exchange rate policy basically pegged to the US dollar.

From the middle of 2003, however, the US business world began criticizing the Chinese Government for manipulating the exchange rate to gain an unfair advantage, and the US Government began applying pressure on China in an attempt to cause fluctuations of the RMB exchange rate.

For a while, consequently, speculative activities targeting RMB appreciation focused on China, which, coupled with waves of foreign investment, led to a soaring increase in the levels of China's foreign reserves.

Since 2000, China's foreign reserves have witnessed a threefold growth, and a continuous 15 per cent during the first half of this year, to top US$ 470 billion by the middle of the year.

In spite of the enormous pressure from the Western world, the Chinese Government has maintained its policy and waited for the speculative wave to subside.

Under the current exchange rate mechanism, the exchange rate is largely determined by the supply and demand of the foreign exchange wholesale market between banks authorized to transact foreign exchange. But limited by specific regulations and due to the small number of market transactions, 95 per cent of the forex transactions are monopolized by China's four State-owned banks.

Therefore, the money regulators can control the exchange rate not only by the staple of forex transactions, but also by adjusting the balance of strength between supply and demand, by implementing policies to restrict transaction conditions.

In this way China is able to track the US dollar to continue its forex policy.

But two possible factors may belie this assurance of maintaining the status quo.

One is the unsuccessful macroeconomic management that could lead to an overheated economy, and in turn result in abandoning the policy of pegging to the US dollar and begin appreciation of the RMB.

The possibility of this is slim, since the government's macroeconomic management efforts have begun to bite, as signalled by the Bank of Asia's optimistic forecast in its September 22 report, that the Chinese economy will successfully achieve a 'soft landing' in 2005. And even though the country's economy continues on its overheated trend, China still has effective measures, like the interest rate lever, to take.

The other possible factor is the continued weakening of the US dollar, which means that China may suffer from an overheated economy caused by an inward flood of money if the RMB continues to peg to the US dollar in such circumstances. Moreover, this situation may also force other countries, including China's neighbours in Asia to urge RMB appreciation.

This possibility, however, also seems unlikely over the next few months, because the good prospects of the United States' economy and the higher interest rate rise by the Federal Reserve, after a 10-15 per cent decline against the euro and Japanese yen in the second half of 2003, will probably push the dollar upward.

Maintaining a fixed exchange rate may, of course, not be the best choice to make.

In the near future, expectations of RMB appreciation by the market will lead to a continued large influx of speculative money into China. In order to maintain the exchange rate, the government will have to buy in a great amount of US dollars, and that, ultimately, may result in money supply inflation. The government, therefore, would have no choice but to issue a larger number of bonds, so as to keep control of the money supply.

For example, China's foreign reserves growth accounted for less than two per cent of its domestic M1 money supply between 1998 and 2000. That percentage increased dramatically to 6.35 per cent, 8.6 per cent and 11.2 per cent respectively in 2001, 2002 and 2003, putting tangible pressure on the money regulators.

For the sake of long-term interests RMB appreciation is inevitable given the remarkable improvement of China's exports, inward foreign investment and productivity over the last 20 years.

Experience of the new industrialized countries, including Japan and other countries in Asia, shows that the opening of the financial market and currency appreciation is a necessary step after 25 to 30 years of rapid economic growth, because currency appreciation can help improve trade conditions and alleviate the burden of foreign debt.

Another potential beneficiary of RMB appreciation will be the Chinese government leaders. The move will greatly hasten the pace of achieving the government's objective of increasing fourfold the Gross National Product (GNP) of 2000 before 2020 , overtaking the United States in terms of overall economic scale by the middle of the 21st century.

Therefore, the RMB exchange rate system reform accords with China's short and long-term interests. In addition, China's WTO (World Trade Organization) pledges to fully open RMB business to foreign banks by 2006 reinforces the urgent need to reform the RMB exchange rate mechanism.

One possible choice of reform is to widen the fluctuation range of the RMB exchange rate, which is also the US government's call. But big risks lurk in the resultant influx of speculative currency if this choice is followed.

By far the safer way is to increase the RMB quote price and on the basis of the new quote price, to continue the policy of pegging to the US dollar.

The quote price increase needs to be large enough to preclude speculators expectations for further possible RMB appreciation, and as a result, to efficiently block a rush of money into the Chinese market. Under this scenario, the government will have a favourable environment to adjust the exchange rate flexibility.

The current situation appears more conducive to the adjustment of RMB exchange rate, compared with that of 10 months ago.

The initial success of China's macroeconomic management reduces risks in continuing the sticking-to-the-US-dollar policy and renders the Chinese government active in controlling the exchange rate.

Politically, the new generation of Chinese leaders is less concerned about being seen to be yielding to pressure from the outside by adjusting the RMB exchange rate, compared to its predecessors, who had a more political bent when it came to smoothing the way for exchange rate system reform.

Even so, the current environment is not the best for making an adjustment to the exchange rate system.

Unveiling the major reform orientation of China's RMB exchange rate ahead of this week's US presidential election, while keeping the time and measures unspecified, has given the Chinese Government an advantage when it comes to communicating with the Western nations at events like the G7 meeting.

(Source: China Daily. The author is a professor in economics of the National University of Singapore.)

http://news.xinhuanet.com/english/2004-11/12/content_2209232.htm

Rumors of yuan appreciation "groundless"

www.chinaview.cn 2004-10-13 15:13:14

BEIJING, Oct.13 (Xinhuanet) -- Rumors of RMB appreciation swirling around the country these days are groundless and nothing but a misunderstanding of China's existing RMB exchange rate policy, People's Daily quoted spokesman of the National Administration of Foreign Exchange as saying Tuesday.

The spokesman clarified the issue by stressing the following perspectives from which the RMB exchange rate policy is expected to be viewed.

Firstly, while it is the purpose of China's reform to improve its exchange rate regime, the progress of the reform depends on the country's economic development and operation, balance of international payment and other relevant measures. It is regarded as a systematic project which can only consummated through steady and persistent efforts instead of any one-stroke attempt. And there is no timetable for that.

Secondly, the kernel of a perfect exchange rate mechanism is to have the exchange rate more market-oriented and flexible. It is rather simplistic to adjust exchange rate. So it is neither wise nor possible to revalue RMB only once.

Thirdly, as it is China's own discretion to improve its exchange rate system, the country sees necessity of taking the real situation of China's society and economy into consideration and avoid violent fluctuation of RMB exchange rates. Keeping RMB basically stable and in equilibrium at a reasonable level not only favors a sustainable healthy development of China's economy and society, but also the stability of the world's economy and finance.

Lastly, in the long run, RMB exchange rates can either rise or decline if they get more flexible. A single way of movement is not likely. Market expectation and interest spread both have direct bearing on the pressure of RMB appreciation.

However, any sensible analysis will show that market expectation is always subject to changes and interest spread tends to narrow or even reverse with interest rates in the world market getting higher. In this case, even capital may change its direction of flow. So any speculations on RMB appreciation can be dangerous.

In his conclusion, the spokesman noted that, given the strict control on the capital account in China, any influx or outflow of capital in massive amount would be put under very close watch and stringent management. Enditem

(People's Daily)

http://news.xinhuanet.com/english/2004-10/13/content_2085549.htm

www.chinaview.cn 2004-09-28 19:02:50

BEIJING, Sept. 28 (Xinhuanet) -- Chinese Premier Wen Jiabao said here Tuesday that China will adopt measures from a number of aspects to improve exchange rate mechanism of Renminbi (RMB), the Chinese currency, in a steady and appropriate manner.

Wen made the remarks during his meeting with Charles O. Prince, chief executive officer of the Citigroup and former US Secretary of Treasury Robert Robin in the Great Hall of the People in Beijing.

"We will further advance the reform and forge a mechanism which is more adapted to the changes in market supply and demand with still better flexibility," Wen said, acknowledging this reform represents a systematic project involving a host of aspects.

In this course, Wen added, numerous factors should be taken into account, including China's macro economic performance, social development, international income and expenditure; the progress of the reform on banking sector and progress of reforms in related spheres; and the economic and financial situation of neighboring countries and regions and of the world economy and finances.

Improving RMB exchange rate mechanism, and maintaining the basic stability of the RMB exchange rate on a reasonable and balanced level are the direction and goal of the reform on RMB exchange rate system, the Chinese premier said.

In recent years, China has done a lot of related work in improving the RMB exchange rate mechanism, Wen noted, citing the accelerated pace in the reform of State-owned commercial banks; convertibility under the RMB current accounts; steady relaxed restriction on capital accounts.

Those achievements also involves a more and steady opening of the capital market; an increase in the number of institutes from overseas in Chinese securities and stock market and foreign-funded enterprises; the easing of restrictions on financial market access and other related businesses, a rapid increase in the number of products and the scope of the financial market, he added.

China has been following a managed, floating exchange rate system based on the market supply and demand, Wen acknowledged.

RMB has been in a process of appreciating or devaluating against major international currencies ever since 1994, when China started the reform of RMB exchange rates, he recalled. And the floating range was relatively greater in the four years preceding 1997.

Since 1998, to cope with the Asian financial crisis, The Chinese government, in a responsible manner, kept the commitment not to devaluate RMB and narrowed the floating range of the RMB exchange rate, thus contributing to the stability and development of finance and economy of Asia and the world at large, Wen said.

"During my visit to the United States last year," Wen said, "President George W. Bush and I reached five consensuses on Sino-US economic and trade issues with the core of development, equality and mutual benefit."

At present, the overall momentum in the development of Sino-US ties was good and bilateral trade and economic cooperation kept moving forward, Wen said, voicing the hope that the two sides will follow the above mentioned guidelines to maintain the sound and stable growth of trade and economic relations. Enditem

http://news.xinhuanet.com/english/2004-09/28/content_2034203.htm

www.chinaview.cn 2004-09-22 21:16:49

BEIJING, Sept. 22 (Xinhuanet) -- China will succeed in cooling off an overheated economy and achieve a soft landing, according to a major Asian Development Bank (ADB) report released on Wednesday.

The Asian Development Outlook 2004 Update, which forecasts economic trends in the region, said China's gross domestic product(GDP) economy is expected to grow by 8.8 percent in 2004 and slow to 8 percent in 2005.

"The rapid pace of investment growth has slowed from the very high levels experienced in the first quarter of this year, reflecting the gradual impact of policy-tightening measures," saidBruce Murray, resident representative of ADB Resident Mission in China, at a press conference.

Inflation is expected to moderate from slightly around 5 percent in mid-2004, and consumption is expected to increase by 13percent in 2005 supported by higher urban and rural incomes, he said.

"China's rapidly growing markets are providing opportunities for other countries, particularly Asian countries, therefore Chinawill remain the leading destination for global foreign direct investment. Imports will grow faster than exports in 2005," said Bruce.

According to the report, China has already scored progress in reducing by half the number of people living below one US dollar per day, and has also made progress in providing access to basic education and reducing maternity mortality as well.

The report acknowledged China is an energy-intensive country, which uses more than three quarters of a barrel of oil for every 1,000 US dollars of GDP, about double the average of other Asian countries. "More efforts are needed in the areas of energy efficiency and energy conservation," said Bruce.

More progress is needed in gender issues, HIV/AIDS prevention and control, safe drinking water in rural areas, child mortality and environmental damage, he added.

The report suggested that the Chinese government continue its macroeconomic tightening measures and, in an attempt to avoid a hard landing for the economy, encourage investment and growth in lagging sectors like agriculture, small and medium enterprises, the private sector, public health and education. Enditem

http://news.xinhuanet.com/english/2004-09/22/content_2010420.htm

Combined macro-control measures have avoided a major economic frustration

UPDATED: 09:10, September 14, 2004

It is an important function of the government to strengthen and improve macro-control, promote a sustained, rapid and coordinated development of the economy and create a good macrocosmic environment for enterprise development. Since last year, initial results have been achieved in the series of macroeconomic-control measures taken by the government and a major economic frustration has been avoided. At the "2004 Chinese Enterprises Summit Meeting", held today in Beijing. Ma Kai, minister of the National Commission in charge of Development and Reform, indicated this way in his speech.

Initial results in macro-control has avoided a major economic frustration

Ma Kai said that guaranteeing the steady operation of the ship of the national economy to ensure no major jolting and ups and downs is an important responsibility of the government as well as a necessary external environment for the sound development of enterprises. Through the practice in controlling serious inflation and curbing the trend of currency deflation, the Chinese government has gained increasingly rich experience in macroeconomic control, and in practice constantly strengthened the macro-control system suited to the requirement of the socialist market economy.

He said that the macro-control measure begun last year was adopted by the government to deal with the strained relationship between the supply and demand of food, with the expansion of fixed asset investment, the unplanned expansion of some industries and other unstable and unsound factors, the government deals with different things in different ways, retains some projects while abandoning other projects, has its eyes on long-term goals, tackles the problem by looking into both the root cause and symptoms, and exercises timely and effective controls over economic operation mainly by the use of economic and legal means, supplemented by necessary administrative measures, thus easing outstanding contradictions and problems in economic operations and achieving preliminary results. Currently, the national economy continues to maintain a stable and fairly rapid development momentum. History will prove that the present macro-control has avoided a major economic frustration, this measure has played a good guaranteeing role in the further development of enterprises.

Economic means used and combined measure taken for macroeconomic control

In replying to external comments that the current macro-control measures are mainly administrative means, Ma Kai said that the important basis of those sticking to this view is: they hold that we do not employ the means of interest rate which is, however, only one kind of economic means, while at the very beginning of macro-control this time, the Chinese government stressed the need to use mainly economic and legal means, supplemented by necessary administrative measures, so this can be called "combined measures":

In regard to monetary policy, to deal with the oversupply of money in circulation begun in April last year, the People's Bank of China adopted the means of issuing bonds of the central bank, continuously offsetting 300 billion yuan worth of money, that is an economic means. From September last year to April this year, the central bank twice adjusted the rate of banking reserves, playing a positive role in reducing the excessive money in circulation. In terms of interest rate, the central bank also decided to expand the floating range of benchmark interest rate, for state-owned commercial banks and shareholding banks, the interest rate on past loans was allowed to float only 30 percent and now can float 70 percent; for credit cooperatives, the floating rate could reach 100 percent, thus expanding the flexibility of interest rates. In reality, now the interest rate on loans in many enterprises has not really floated to the possible floating range, so there is still room for floating.

In regard to financial policy, the central government strengthens weak links while curtailing the unhealthy growth of some overheated industries that are growing too fast. Precisely because of this effort, financial revenue has been growing fairly rapidly, and a considerable portion of the newly increased income is used mainly in strengthening weak links, including support for agriculture, culture, public health and education undertakings, thus playing a very satisfactory role.

With regard to solving the problem of consecutive years of decline in food production, the government does not adopt simplified administrative measures to order farmers only to grow food crops and not to plant vegetables and fruit and engage in raising fish. On the one hand, the central government adopts measures to exempt or reduce agricultural tax and special farm product tax, it also adopts measures to give direct subsidies to farmers and subsidies to food crops growers, helping grain growers to increase incomes, what's more, the central government institutes the minimum purchasing price system, if it is lower than this minimal purchasing price, the central government will assign some state-owned enterprises to purchase food on the market so as to boost price, this is also an economic-control means.

In regard to control on the too rapid growth of fixed asset investment, the central government does not resort to a simplified adoption of the method of closing down enterprises, suspending their production, merging them with other enterprises, or changing their lines of production, instead, it adopts the measure of appropriately increasing the proportion of investment enterprises' own capital funds, thus playing a positive role in controlling unplanned investment.

Ma Kai said some administrative means are necessary, because, of the unsound and unstable factors generated in the new round of economic development, or of the partially heated factors, some are resulted from enterprises' business actions, and a considerable portion of the blind investment is caused by the government's unreasonable interference. Some mistaken and blind areas emerged in enterprise management need to be resolved through market regulation, market competition and legal restriction. However, problems of one kind or another resulting from government actions need to be solved by the help of administrative means, this is necessary as well as in line with international practice.

Further implementing various macro-control measures

In his address at the opening ceremony Vice-Premier Zeng Peiyan affirmed the results of the present macroeconomic control, he also reminded us of the need to soberly notice that the result of macro-control is only of a preliminary and phased nature. We will further implement various macroeconomic control measures, stabilize policies, keep calm observation, consolidate achievements, prevent reversals, put the focus of our work in accelerating structural adjustment, deepening restructuring and transforming the mode of economic growth; we should pay more attention to strengthening economic and social weak links, to expanding consumption demands, to improving people's livelihood, and to promoting a sustained, rapid, balanced and sound development of the national economic and all-round social progress through reforming and solving the problems of deep-seated systems and mechanisms that restrain economic development.

Ma Kai also mentioned that in the future, the government would make overall planning for the four major macro-control objective's economic growth, employment, price and international balance of payments; in light of actual conditions, it would properly grasp the orientation, strength and focus of macroeconomic control in different periods, constantly enrich the connotations of macro-control, enhance the prediction, effectiveness and scientific nature of macroeconomic control, continually raise macro-control level, and strive to create a favorable macrocosmic environment for enterprise development.

By People's Daily Online

http://english.peopledaily.com.cn/200409/14/eng20040914_156896.html

China's development at a critical point--common prosperity or half in poverty?

UPDATED: 09:28, August 12, 2

The critical point mentioned here is the point the United States experienced in 1929. An inappropriate comparison is that, nations that cross this point are today's European and American countries, and those who fail to cross the point are today's Latin-American countries. When statically observing the Latin-American economy, one always wants to ask--what is the cause of continuous fluctuations in Latin-American economies? To these questions there exist various answers, but most of them being explanations made from the economic point of view. In fact, however, this is a political question.

It can be seen that the biggest difference between Latin-American nations and European & American countries is that the latter's economic advancement resulted in the whole society's common prosperity, while that in the former plunged nearly half of the population into poverty. What are the relations between Latin-America's extreme poverty and its economic stagnation and fluctuations? It seems the answer can be found from the history of economic development.

The United States before October 1929 enjoyed successive years of economic boom. In the face of the optimistic sight of slow coming of an economic crisis, the media and economists believed the US economy had got rid of the rule of economic crisis, so they never stopped giving publicity to permanent prosperity. Government officials promised a rosy future to the public in which each household would possess two cars. The conclusion was based on these facts--in a decade the US economic scale grew by over 50 percent, and the average annual industrial growth rose nearly 4 percent (the situation was quite similar to that of Latin-America before 1998).

But some discordant economic figures and phenomena were neglected--the proportion of agricultural income to the gross national income was 16 percent, and by the end of the 1920s farmers began going bankruptcy in large numbers, with their income declined sharply (about one-third of the per-capita income of the country). The gap between the rich and the poor was thus widened noticeably. Meanwhile, the unemployment rate rose continuously to hit a record of 25 percent. Behind the economic prosperity, 60 percent families were merely having enough to eat and wear. At the same time social mores were going downhill rapidly.

Then there fell the black Thursday, a day that will remain forever in the memory of Americans. The then President Herbert Hoover, a follower of liberal economics who believed in the role of the invisible hand, was at a loss what to do in the face of the crisis.

When a pure market economic mode develops to a certain stage, it will reach a critical point, and that was the crisis point experienced by the United States in 1929. The history of economic development seems to have proved that those that have crossed this critical point are today's Euro-American countries; while those that have not done so are today's Latin American countries.

In a period before the critical point, normally there is a fairly big raise in industrial efficiency. The explanation on this is that the integration of the internal industrial structure and the information about material circulation that brings about a smooth connection of the chain of product mix, a low cost of supply-demand relationship and a gradual improvement of technology and technique, has led to increase in profits. This, when manifested in micro-economy, is aimed to pursue efficiency and gradually remove personnel from their work posts, thus generating a huge army of unemployed population. Increase in the unemployment rate is a direct cause of the gap between rich and poor, this is the root cause of social injustice resulting from the connotative growth of capital. Economic development benefits some people, while elbowing another sector of the people out of the ranks of the beneficiaries.

Under a certain market capacity, the widening of the rich-poor gap means no way out for products; this is the very economic crisis described by Karl Marx. The economic development mode characterized by pure pursuit of efficiency would winnow a part of social members from the circle of economic development, which would intensify the trend of increased capital profit rate and decreased salary for workers. This is the principle explaining why economic development purely pursuing efficiency in divorce of social responsibility will inevitably entail polarization between rich and poor.

That's why it is said that polarization is a by-product of capital in pursuit of efficiency. Thinking in line with this idea seems making it possible to prove the relationship between efficiency and polarity being a kind of necessary and sufficiency relationship, conversely, application is also workable. For example, "allowing some people to get rich first" is a method of striving for efficiency, and the method of dual urban-rural structure also conforms to this principle. Efficiency can be generated by the method of whether artificially or naturally restraining some people from entering into the economic cyclic circle. Liberalists confined economics to the scope of economic activities and neglected the fact that economic development is a part of the social system. They refused man-made rational interference and the result of allowing capital to pursue profit is the creation of numerous social problems resulting from the polarization of high efficiency.

Fortunately, the United States had the new Roosevelt administration, and the most noted and effective policy of the new administration was "relief". In the form of government deficit, the nation made extra-large investment, with the government expenditure rising from 13 billion dollars in 1933 up to 103 billion dollars during WWII. The Ordinary laborers were allowed into economic activities by a work-relief program. The move was followed by a wartime system. These are direct causes that the American economy stepped out of unemployment crisis and became an economic power as it is today.

The practice most worthy of use for reference here is to eliminate polarity; its economic meaning is that it extended economic activities beyond the few people in advanced control of resources and benefited the majority people, for only when the dual role of human resources as consumers and laborers is given full play can it be the base and reason for the ceaseless expansion of the economic scale. Surplus value is man made, so only when man's economic activities effectively increase can it be the cause of the accumulation of social wealth.

The most brilliant achievement of liberalist economics is the supply of a theoretical basis for the privatization action in the times of Thatcher. The process of economic development to which this theory was introduced is a process of increasing efficiency while neglecting economic and social responsibilities, and is an action in opposition to the rational construction of humanity. Thatcher's privatization was workable because it was the result of the many accumulations of social justice. The solution of the question of surplus justice by the use of efficiency in China's reform and opening up process is a also a way, the two have the same meaning in economics.

Liberalist economics can create a short period of economic boom at a time when there is too much fairness, but such prosperity, in most cases, can only last briefly on the basis of the original scale. Some measures adopted in compliance with the nature of selfishness can improve management and stimulate man's enthusiasm for labor. But after this sort of hardware resources is used up, new economic increment would exclude most people from participation in distribution, full expression will be given to the selfish characteristics of capital, and serious losses will be incurred to social responsibility.

In Latin-America nearly half of the population are living in poverty, and the economy is plagued by sustained fluctuations--this proves that the critical point has not been got over, contrarily, due to the lack of political measures of remedy, impoverished population has kept increasing and consequently touched off political instability. In the process of the emergence of such predicament, the shadow of liberalist economics can be seen--a group of Chilean economists who had advanced studies in Chicago University learned the whole set of liberalist economics. Their difference from the critical point of the United States is the new problems facing current Latin American economies, that is, international market orientation and international political intervention. The direct cause for the Left-wingers in these countries who began to step on to the stage in recent years was that they have begun to perceptually realize the danger of liberalist economics, attempted to try some new development methods and hoped to take some Left-deviation policies to defuse contradictions.

In crossing the critical point, European countries did not manifest themselves in such pronounced form as the new Roosevelt administration did. But Europe's socialist movements helped countries there to cross the point in a progressive way. For example, they used law to protect laborers' rights and interests and increased social security and welfare. Pure economic means usually turned out to be of no avail in the face of the question, and only political means can be used to express social justice, that's why, in the final analysis, this is a political question.

Now it's easier to understand China's economic question. As one has a look at China of today, one comes to see what a similarity of China's unemployment rate, and the number and income of its impoverished population is to that of Latin American countries. Many places in China are surprisingly close to the United States in its economic and social problems in 1929, such as the proportion of agricultural income to GDP and the proportion of farmer's per-capita income to average social income are almost equal. Take another example. The unemployment rate and the moral issue have become problems of serious concerns to society. These features represent a signal that China's economy is entering the critical point. The point is not 1,000 dollars per capita GDP, for the United States reached the point at 200 dollars per person and Latin-American countries at 4,000 dollars. If a large-scale inflation breaks out now and plunge people at the bottom rung into dire poverty, the consequence will, of course, be very serious.

Evidently, the fundamental way to avoid the Latin American style is to build a strong national industrial system to bring more people into economic activities. It requires us to complete reform to the investment system as soon as possible and kick off large-scale economic construction. China's new government made a landmark move in the crucial period of economic development and the Third Plenary Session of the 16th Central Committee of the Communist Party of China (CPC) took a memorable turn in the process of China's economic advancement. The firm grasp of the bottom line of "putting people first" in the scientific development concept is a political tactic successfully preventing China from falling into the pit of a Latin-American mode.

By People's Daily Online

http://english.peopledaily.com.cn/200408/12/eng20040812_152675.html

Comparison of five rounds of macro-control in history

UPDATED: 13:44, August 07, 2004

China adopted policy to adjust its pace of economic growth for the firs time in 1979. Great changes have taken place since then. So the fifth round of macro-control under way distinguishes itself from the previous four.

The background against which the macro-control is launched

The former four rounds of macro-control campaigns before this one took place when the economy, expanding at a speed up to more than 11 percent, was overheating generally or in terms of gross quantum. They were targeting at severe inflation. In another word, it was the risk of strained economy that gave rise to the first four campaigns. They are passive reactions to economic problems.

The fifth round of macro-control, which is under way now, is a different story. In fact, in 2003, China's economy grew 9.1 percent, well below 11 percent. The purpose of the campaign this time to prevent an unexpected sharp vertical ascension which may be followed by a nosedive of the economy. And the situation is nothing like a sweeping overheat or inflation of both investment and demand. The real picture is that overheating investment is confined in some sectors and the pressure of price hike is looming. The fifth campaign is underlain by the necessity of adjustment of some sizzling industries in-time and prompt, pre-emptive and preventive positive moves to safeguard the healthy and sustainable development of the economy as a whole.

On the different basis of economic system

China's economy was undergoing changes in its system but the process was not completed basically during the previous four round of macro-control. The fifth round was the first foray into restrain-oriented macro-control since china has its socialist market economy take shape. The diversity of subjects of interest and the active various voices from the academic and media fields representing such a diversity have combined to add to the difficulty in the endeavor. A unified perception is always necessary but hard to achieve for each round of macro-control. And this is especially true for the fifth one.

Evolving methodologies and tools

For the first three macro-control campaigns, the policy was carried out in a real sense on a large scale only after one or two years of hesitation and ineffective implementation of the policy since it had been adopted. Drawing on this experience, the government pushed its decision on economic adjustment as hard as possible and as quickly as possible. The latest one, as a result of foresight and early action, has followed a progressive process which has gone through careful observation and mild warning before gathering momentum. The time, rhythm and the intensity of the adjustment are all deliberately weighed up and decisive measures are taken to identified problems.

Macro-control policies for the first three times were focused on administrative measures. Economic and legal tools, such as interest rate, deposit reserves, and open market business, began to play a role for the fourth macro-adjustment of the economy. Economic and legal leverages are prominent features for the fifth macro-control. Necessary administrative tools are also employed.

Ever-changing economic interaction with the rest of the world

The fifth round of macro-control has attracted much wider attention internationally than the previous rounds. From the concerns of the result of the macro-control this time has developed both optimism and pessimism among observers from overseas. The optimistic believe that the cooling down steps this time has laid a good foundation for a sustainable economic growth as actions have been taken more promptly than ten years ago. The pessimistic are worried about the possibility of a hard landing as a result of macro-control, which would lead to economic wobbling of the world, especially in China's surrounding nations and regions.

By People's Daily Online

http://english.peopledaily.com.cn/200408/07/eng20040807_152151.html

Soft landing of Chinese economy far from being achieved: Interview

UPDATED: 10:40, August 09, 2004

Chinese economy is cooling down these days. But Stephen Roach, Morgan Stanley Chief Economist has warned that the soft landing of Chinese economy is still far from being achieved. In a recent email interview with People's Daily Washington-based correspondent Yong Tang, this prestigious economist said that China's economic slowdown is only about 25% complete. But given that China has successfully managed three serious macro adjustments in the past decade, Roach fully believes that China will not waver on this new challenge.

The following is an explicit and thoughtful response from Roach regarding the inquiry from Yong Tang about the effectiveness of China's macro-control policies and the challenges ahead:

The China slowdown has barely begun. Yet there are hopes that a soft landing may now be close at hand. Nothing could be further from the truth. Chinese economic activity is still expanding at a torrid and unsustainable pace. The nation's authorities cannot afford to ease off on their campaign of policy restraint. If they do, an overheated Chinese economy runs the serious risk of a destabilizing hard landing.

A slower-than-expected second quarter Chinese GDP growth rate is the source of this confusion. Not only did the 9.6% Y-o-Y increase represent a fractional (albeit statistically insignificant) moderation from the 9.8% pace of the first quarter, but it came in well below market expectations, which were centered in the 10.5% to 11.0% range. It is wishful thinking to believe that this is the beginning of a soft landing. First of all, a 9.6% increase still represents an extremely rapid growth rate by any standards -- fully 0.5-percentage point above China's 20-year trend and a moderate acceleration from last year's officially stated gain of 9.1%. Second, the latest GDP estimate probably understates actual growth by a wide margin. This is hardly a shocker. Suffice it to say China's growth problems have never been accurately reflected in its GDP statistics. Not only is this metric of dubious quality, but it obscures the impact of industrial activity -- the sector where the overheating drama is playing out most vividly.

Recent trends in the industrial sector do, in fact, tell a very different story than the GDP statistics. Industrial output growth held at 16.2% in June -- down only marginally from peak comparisons of 19.4% in the first two months of this year and well above the 10% trend-line increases of the past 10 years. At the same time, the growth in energy generation barely moderated from 16.6% in May to 14.3% in June -- although it may well be that this "slowing" was more an outgrowth of the widespread power shortages of an overheated economy. In my view, the industrial output comparison needs to move into the 8% to 10% zone -- and then stay there for at least six months -- before a legitimate soft landing can be declared. From that point of view, China's slowdown is, at best, only about 25% complete.

Other data points offer mixed signals, at best, in gauging progress on the China slowdown front. The most encouraging trend shows up in fixed investment -- a stunning deceleration peak growth rates of 53% in January and February of this year to 18.5% in May. This has long been the most bubble-prone sector of the Chinese economy, and the administrative actions that the government has taken to bring investment under control are certainly working. Even so, bank lending growth -- the principal means by which the investment bubble has been funded -- has moderated ever so slightly; year-over-year credit comparisons went from 20% in March to 16.3% in June and are still well above the 10-12% trend line . Meanwhile, Chinese inflationary pressures seem to be easing off a bit. While the CPI moved up to the 5% threshold, most of the acceleration remained concentrated in agricultural products. Significantly, signs of pricing moderation are now evident at the wholesale level: The co-called corporate goods price index published by the People's Bank of China declined for a second month in a row, pushing the Y-o-Y comparison fractionally lower from 9.4% in May to 9.3% in June. While the energy component rose for a second month in a row, pricing elsewhere at the wholesale level was decidedly lower.

At the same time, there has been little let-up in China's impact on economic activity elsewhere in the world -- yet another corroboration of the limited slowdown in the Chinese economy. In large part, that's because Chinese import growth -- a good proxy for this nation's impact on the rest of the world -- continues to power ahead. China's purchases of foreign-made products accelerated sharply in June, surging at a 50.5% Y-o-Y rate -- well above the 40% gains recorded in 2003. This has had collateral impacts on other key gauges of global industrial activity. That's true of industrial commodity prices, especially metals, where China accounted for between 25% and 30% of the total growth in global consumption in 2003. The Journal of Commerce metals index has flattened out since mid-July -- actually down 1% -- but is still holding at levels 50% above those prevailing in the first half of 2003. Similarly, shipping activity remains relatively firm - -yet another area where the China boom has also had a major impact. While the Baltic Dry Index plunged from February through June 2004, it has subsequently rebounded sharply in July; looking through these gyrations, the latest reading of this gauge still stands at more than twice the levels prevailing in early 2003. I have long argued that the vigor of China's production has become the major driver on the supply side of the global economy in the past couple of years. At this point in time, the power of that dynamic remains very much intact. When Chinese industrial activity turns more decisively to the downside, as I continue to believe it will, the impacts on the global economy could be quite significant.

The Chinese leadership knows full well what's at stake in all this. I give them tremendous credit for speaking openly and frankly about the perils of overheating. In many respects, China's senior officials have actually led this debate . For that reason, alone, it is ludicrous to expect China's macro managers to declare victory prematurely. In that regard, I take considerable comfort from the recent remarks of China's Premier Wen Jiabao in front of the State Council when he warned of the "difficulty and complexity of macroeconomic control" and cautioned against a "blindly optimistic" assessment of the prospects for a soft landing. This is precisely the tough jawboning that China needs as it grapples with the inevitable pushback from internal pro-growth constituencies. If, on the other hand, China were to back off on its policy-induced slowdown campaign, the financial and investment bubble would most assuredly end in tears.

This is a critical moment on the glide path of descent for a still over-heated Chinese economy. I remain convinced that China will not waver. Just as it successfully managed three serious macro adjustments in the past decade -- the boom-bust of 1993-94, the Asian crisis of 1997-98, and the synchronous global recession of 2001-I am willing to give the Chinese leadership the benefit of the doubt this time as well. The conclusion that emerges from all this is that a white-hot Chinese economy has barely begun the transition to a more sustainable growth path. The corollary of this conclusion is that the world has yet to feel any serious impacts of a China slowdown. Those developments remain very much in the cards, in my view. But we shouldn't blow this transition out of proportion. China's extraordinary success over the past 25 years is testament to an unwavering commitment to reform and to an increasingly adept macro management team. China is now facing yet another fork in its long road to prosperity. There is too much at stake for the Dragon to take the wrong turn.

By Yong Tang, People's Daily Washington-based correspondent

http://english.peopledaily.com.cn/200408/09/eng20040809_152314.html

China's foreign trade volume exceeds US$500bln

UPDATED: 11:11, July 13, 2004

China's foreign trade volume reached 523 billion US dollars in the first half of this year, a 39 percent increase over the same period last year. During the period, exports rose 35.7 percent to US$258 billion and imports surged 42.6 percent to US$265 billion, resulting in a US$6.82 billion trade deficit, figures from the General Administration of Customs showed Monday.

Meanwhile, mechanical and electrical products accounted for more than fifty percent of exported goods. Among imported goods, soybeans and steel decreased while crude oil increased rapidly.

China posted its second consecutive monthly trade surplus in June as exports soared by a record 46.5 percent.

Exports jumped to a larger-than-expected US$50.5 billion in June after climbing 33 percent in May, customs said. Imports were also stronger than expected last month, surging 50.5 percent to US$48.65 billion.

In June alone, China posted a trade surplus of US$1.84 billion, the second monthly surplus this year.

China's foreign trade swung to a surplus of US$2.1 billion in May after four consecutive months of deficit as government measures to cool the economy led to a slowdown in imports of iron ore and steel.

Experts said the high growth rate of exports will help the country ensure a soft landing.

"It is certainly encouraging that exports are not weakening," said Li Yushi, an expert from the Chinese Academy of International Trade and Economic Co-operation.

The record growth rate this year is helping drive economic growth as the government reins in lending to cool an investment boom, he said.

"It is good to offset the investment slowdown so the country will not get a hard landing," Li said.

Surging trade may ease concerns that China's attempt to cool its economy will slow global growth and drive down commodities prices, he said.

Banks have curbed lending to industries including steel, autos and real estate. The central bank has raised the amount of cash banks must set aside as reserves three times since September.

Analysts said exports rose in June at their fastest pace this year because of rising spending in the United States, Japan and Europe.

But the high growth rate of imports still painted an unclear picture of how the cooling-down efforts paid off.

The surge of 50.5 percent in imports in June, which compares with 35.4 percent growth in May and 42.9 percent in April, far outpaced expectations.

"It is much higher than what we expected," said Citigroup economist Huang Yiping, who expected 28 percent year-on-year growth for imports.

Customs did not release a breakdown of trade, which is crucial to determine whether China's steps to cool its economy were working, he said.

The rapid import growth could be due to oil purchases, but if it was because of a continued appetite for steel and iron ore, that would raise questions over whether the a recent slowdown in investment growth was being sustained, the analyst said.

According to the customs statistics, crude oil imports in China rose 39.3 percent year on year to 61.02 million tons in the first half of 2004. Imports of iron ore surged 34.9 percent to 97.75 million tons. The imports of steel dipped 2.5 percent to 18 million tons.

But it did not specify imports in June alone.

Analysts say they will look for signs of slower import growth as more proof that government measures to rein in the economy are working.

The Ministry of Commerce said exports were expected to rise an annual 15 percent in 2004 to US$505 billion, while imports were likely to surge 20 percent to US$495 billion.

That would produce a trade surplus of US$10 billion for this year compared to a US$25.5 billion surplus in 2003.

By People's Daily Online

http://english.peopledaily.com.cn/200407/13/eng20040713_149330.html

UPDATED: 08:37, June 18, 2004

As over-heated sectors gradually cool off without causing big swings in the overall economic growth, China is bringing its economy to a soft landing.

Investments in fixed assets grew by 18.3 percent year-on-year in May, a significant drop from the 34.7 percent growth rate in April. Meanwhile, the growth rate of industrial production, money supply, prices of capital goods, and consumer price index also subsided to varying extents.

The electrolytic aluminum sector, one of the identified prominent overheated sectors, is also cooling down.

"Since last August, no enterprises have unveiled plans to design and build new electrolytic aluminum projects. Construction of certain projects has been stopped or suspended," said an official from the China Non-ferrous Metals Industry Association.

Steel prices are coming down swiftly from their historical high levels to the normal levels, said Liu Jie, general manager of Anshan Iron and Steel Company in northeast China's Liaoning Province.

"Still, the current prices remain above production cost. There are no widespread closedowns or bankruptcies as a result of the price change," Liu said.

In this process, the Chinese economy has maintained fast growth momentum.

Industrial output grew 17.5 percent year on year to 431 billion yuan (52.5 billion US dollars) in May. Fiscal revenue, foreign exchange reserves, foreign investment, people's income and market sales continued to rise.

Economic analysts here said the Chinese central government had been following a macro-control route like this: curb blind investment and low-grade capacity expansion in certain overheated sectors and rectify the land market first, which is done through tightening credit and land control, straightening out investments in fixed assets and strictly cracking down on cases of transgressions in relevant sectors; meanwhile, adopt a series of measures to beef up agriculture and weak links of the economy.

It's due to the synergy of these measures that macro-control took effect swiftly, the sound economic situation in general was maintained and the economy was proceeding in the expected directions, according to the analysts.

Wednesday's executive meeting of the State Council, China's cabinet, held that the current economic situation is sound in general. The government's macro-economic control measures have gained remarkable achievements.

The meeting also pointed out major existing problems, like the excessively large investment scale and the gap between supply and demand of coal, electricity, oil and transporting capacity, and held that macro-control must not let up.

Economic analysts here defined these problems as follows:

Although lower than levels in 2003, the growth rate of investment in the sectors of iron and steel, cement and aluminum remained at high levels.

By the end of April, inventory of coal had dropped to 98 million tons, the lowest point in 20 years.

Due to inadequate electricity supply capacity, 24 provinces, autonomous regions and municipalities have experienced brownouts so far this year. Zhao Xizheng, general manager of the State Power Grid Company, said China may face the most severe power shortage since the 1980s this summer, with a gap of 30 million kilowatts between demand and supply.

Railway freight capacity falls far short of demand. Due to limited capacity, railway departments could meet only 35 percent of the requests for freight carriages in the first five months.

Experts said fundamentally, the problems in China's economic development can be classified into structural problems, institutional problems and growth mode problems.

The relationship between the primary, secondary and tertiary industries is inharmonious. China's primary industry grew 11.7 percent in the first five months, the second industry 47.8 percent and the third industry 27.7 percent.

The industrial product mix is irrational. Although it has become a leading steel producer in the world, China imported 19 million tons of high-grade steel products in 2003.

In the economic system, some drawbacks of the planned economy still exist.

There remains much to do in separating operations of enterprises from the direct administration of the government, reforming the corporate governance mechanism and improving the market mechanism.

In the economic growth mode, China remains after the extensive mode that features high investment and high consumption but low yield and low benefits.

Wednesday's executive meeting of the State Council called for continuous efforts in the following areas in the present stage:

-- Curb the fast growth of bank loans;

-- Step up control over land management;

-- Strengthen the management of grain market;

-- Be well prepared for fighting floods and droughts;

-- Implement measures to deal with power shortage in summer;

-- Increase assistance to agriculture, water conservancy, environment and social undertakings;

-- Deal with the issues of employment and re-employment; and

-- Increase efforts to watch over the issues of food security and industrial safety.

Experts said that if handled properly, it's possible for the Chinese economy to achieve a soft landing. That would lay a solid foundation for steady and relatively fast economic growth in the next year and the following years.

Source: Xinhua

http://english.peopledaily.com.cn/200406/18/eng20040618_146727.html

Economic macro-control effective in seven aspects

It was learned from the press conference held by the Information Office of the State Council on June 23 that the macro-control measures carried out by the central government have been evidently effective. The unstable and unsound factors in economic operation have been controlled; national economy keeps a rapid growth and the economic performance improved steadily.

The effective implementation of macro-control measure has been effective in seven aspects, said Cao Yushu, spokesmen of the State Development and Reform Commission.

First the trend of excessive investment growth has been controlled. From January to May urban investment in fixed assents grew by 34.8 percent year-on-year, 8 percentages less than the growth in the first four months. Investment growth in iron and steel, non-ferrous metal and cement industries fell by 22.5, 9.7 and 23.7 percentages respectively compared with that of the first four months. Investment in real estate development fell by 2.6 percentages.

Second, money supply and credit growth slowed considerably. By the end of May M2 and M1 balance growth fell by 2.68 and 0.21 percentages year-on-year and by 1.63 and 1.41 percentages month-on-month respectively.

Third, the price rise of basic products is under control. In May grain prices fell 0.5 percent month-on-month. Prices of production means in the circulation sectors fell 1.4 percent compared with those in the previous month.

Fourth, agricultural production situation showed a favorable turn and an increase of summer grain crops has been set.

Fifth, production growth speeds in some overheating industries slowed considerably. In May industrial added value growth in industries of scale-above fell by 1.6 percentages. Production growth in overheating industries such as iron and steel industry slowed considerably.

Sixth, consumption market is stable and showing a trend of prosperity. In May total retail sales grew considerably by 17.8 percent year-on-year.

Seventh, foreign trade keeps a rapid growth. In May total volume of foreign trade was $87.63 billion increasing by 34.1 percent year-on-year. It was the first trade surplus month this year.

Although macro-control by the central government has been very effective, there are still five acute inconsistencies and problems in the economy. Firstly, investment growth is still very high and the problem of unreasonable investment structure is still acute. Second, capital construction loans continue to grow excessively and the problem of unreasonable loan structure is still acute. Third, the supply-demand relationship of coal, electricity, oil and transportation is still very strained and the electricity situation during the summer consumption peak is severe. Fourth, the pressure of price hike is still high. Fifth, the imbalance of grain supply and demand and that of the variety structure are still very acute. Grain reserves decrease at a rapid speed.

According to Cao, the macro-control in China is still in a crucial stage and the achievements are still preliminary. We should, on the basis of consolidating what has been achieved and according to the principle of "acting resolutely, forcefully, timely and appropriately with differentiated treatment and attention to the actual effect", continue to implement the macro-control policies and measures adopted by the central government; reinforce our efforts to promote structural adjustment; boost the various reforms and change the economic growth mode, in order to truly switch the national economy onto the sustained, coordinated and sound development track.

The People's Daily newspaper also carries an editorial titled "Seize the opportunity to solve temporary and permanent issues", calling to seize and value the opportunity, make use of the new train of thought, new mechanisms and new methods and transform the various macro-control measures into a powerful driving force for solving deep-seated problems regarding structure, system and the mode of growth, so as to achieve greater and better results in macro-control and maintain a sustained, rapid, coordinated and sound development of the economy.

The article is carried on the People's Daily newspaper, June 24, and is translated by People's Daily Online

http://english.peopledaily.com.cn/200406/24/eng20040624_147415.html

Regulatory control curbed price rise, National D & R Commission

UPDATED: 17:14, June 25, 2004

The following is an interview with Cao Yushu, spokesman of the National Development & Reform Commission.

Reporter: Since the end of the last year, the constant price rise has lapped up people's attention, and some people suggest: be vigilant against inflation. How do you view the country's price situation at present?

Cao: In my opinion, the present market price is stable on the whole.

The country's commodity price was in negative growth for 14 successive months since October 2001, and began to turn from negative to positive growth in January 2003. There are many factors that ascribe to the present rise in price, and the carryover effect of last year's rise in price is the main factor. In the first 5 months of this year, the consumer price went up by 3.3 percent, of which 60 percent was caused by the carryover effect of the previous year's price rise, and 40 percent the new factor. The impacts of carryover effect will last till the third quarter of this year. However, in terms of chain situation, the price in May saw a negative growth of 0.1 percent as against that of April. It is thus evident that the price rise at present is still controllable. In addition, townsfolk can still afford the present price change.

Reporter: What measures have the National Development and Reform Commission taken in strengthening the price supervision and market regulation?

Cao: Since this year, the National Development and Reform Commission has published many documents concerning the strengthening of price supervision. For example, "Regulations concerning strict control of publishing price-rising programs" requires the locals to strictly control the publishing of price-adjusting programs so as to maintain basically stable the market. It specifies that if the monthly increase of resident consumer price exceeds 1 percent, or accumulative total of the year-on-year increase exceeds 4 percent for three successive months, the publishing of price-rising program should be suspended for 3 months. "Regulations on strengthening the price supervision, and further the inspection work of agricultural means of production such as chemical fertilizers and seeds" and "Regulations concerning continually carrying out the preferential policies on the electricity price for chemical fertilizer production", require the locals to prevent the price of the agricultural means of production from skyrocketing, and protect the interests of farmers.

It can be said that the series of regulation measures published by the country have played an important role in stabilizing the market price. In May, the chain index of grain price decreased by 0.5 percent, and it was the first time the chain index decreased since August last year. The price of the means of production in the circulation link dropped by 1.4 percent, which is the first fall after 7 successive months.

Reporter: So are we still confronted with the pressure of constant price rise? And is it true that there will be no inflation any more?

Cao: There still exists the pressure of price rise. One reason is that the price of the means of production on year-on-year basis increased by a large margin. In May, although the chain index of the means of production on a monthly basis went down, the year-on-year chain index increased by more than 14 percent. Another reason is the grain price, and its year-on-year index went up by 32 percent. The rises in both the means of production and the grain prices bear obvious driving nature, and will inevitably exert some impacts on the overall market price level. The price increase may see no drop in the third quarter, but it will gradually go down in the fourth quarter.

Moreover, I think the price rise and inflation are two different conceptions and whether there'd be any inflation or not should be analyzed from various aspects.

First, the price rise is mainly reflected by the price of certain products, while the root cause of inflation is the unbalance of the society's total supply-demand; in other words, the total supply fall far behind the total demand. According to the present situation of the country and the judgment on the development tendency in the future, the total supply still exceeds the total demand. This kind of setup has not been changed so far. Under this circumstance, the fundamental reason for inflation is still untenable.

The second is the influence of the price in the international market. Judging from the international market, except the primary products like petroleum whose price goes up to some extent, the prices of most of the other commodities haven't gone up too much, thus having no great impacts on China.

Lastly, viewing from the price change itself, the main factor that propels the rise in price is now convergent. I've mentioned above that although the year-on-year increase of the means of production and grain price was high, the chain indexes of May and April are both in minus. As the macro-control gradually begins to take effect and various regulating measures are further implemented, the kind of situation will keep on going like this.

Reporter: How will this year's grain price change?

Cao: This round of price rise dates back to last November. It features mainly a recovering increase. Before that, the country's grain price witnessed a decrease of 84 months on end.

Because of long and continual decrease of the grain price, it spells a problem for the increase of farmer's income that affects farmer's consumption. The low-level consumption of farmers causes an overall consumption problem. In order to maintain a sustained, rapid and sound development of the economy, the proportionate relationship between consumption and investment must be made reasonable, and the proportion of consumption in the whole GDP should be increased. Therefore, how to increase farmer's income constitutes a striking contradiction and problem that we should be determined to deal with. The rise in grain price since last year is the result of the function of the market mechanism, which has positive effects on the development of the entire economy. In view of the present situation, the rise in grain price also has a convergent characteristic. In order to maintain the grain price basically stable at a reasonable level, the country has established the lowest purchasing price of farmers' grain. Generally speaking, the country's current grain market and grain production are good.

At present, though the macro-control has made evident achievements in maintaining the market price, we can never be negligent, instead we should pay close attention to the tendency of the changes of commodity prices, and go on implementing various regulatory measures published by the Central government, and make great efforts to maintain a stable market price on the whole.

By People's Daily Online

http://english.peopledaily.com.cn/200406/25/eng20040625_147547.html

UK economist: No to China MES "tragedy" to world

www.chinaview.cn 2004-07-06 05:11:00

LONDON, July 5 (Xinhuanet) -- A British economist has said in London if the European Union decides not to grant China the Market Economy Status (MES), it would be a "tragedy" to the world economy in view of China's remarkable role in the world's economic, financial and trade matters.

Jan Randolph, chief economist of the London-based World Market Research Center, made the remarks in an exclusive interview with Xinhua last Friday.

Responding to questions raised by Xinhua on the phone, Randolphsaid "to grant China 'market economy status' would put China in the same group as all the western industrialized countries, including the US, EU and Japan."

"It would be more difficult for the EU, US and Japan to complain about 'unfair competition', or impose anti-dumping measures (that is, place quota restrictions or extra taxes on Chinese exports)," he said.

But a refusal to grant China an MES "would mean that the EU, US and Japan cannot talk to China about important global policy issues at the highest tables like 'G7' - even though China deserves a seat at this highest table because of its huge and growing importance to global growth, trade and stability," the chief economist stressed.

He said "the Chinese may feel that they are being unfairly 'excluded' and may take retaliatory measures".

A 15-page confidential report by the European Commission reportedly said that the EU "is committed to granting Market Economy Status to China" but finds China so far only fulfilled one of the five criteria set by Brussels.

When asked what impact a negative EU decision would have on the bilateral trade relations between the EU and China, Randolph said the trade relations "will continue to develop and expand," but they are "more likely to develop even faster if China were included in the 'market economy group'."

Any "cooling" economic policies adopted by China will affect lots of other countries, including market economies and their growth, the economist said.

Refusing to "grant China the qualification to group China in dealing with global economic issues at an equal footing with the G7 (now G8) at the highest table" would harm a healthy global economic growth, he added.

"Also, China represents one of the fastest growing markets for EU goods and investment. If it is to continue to develop, then good bilateral relations are needed. There have been many visits between Chinese and European leaders over the last few years - quite rightly - as this reflects the growing business contacts, trade and investment opportunities that benefits both ways and both areas."

When asked whether any external elements other than economic ones would affect the EU decision, Randolph said he thought "the EU is big and independent enough to make its own decision here, just like on Kyoto treaty, Iraq and The International Criminal Court". He further pointed out that "the EU may gain some advantage (over the US) in declaring China an 'MES' first".

As for whether a negative EU decision would mean that a number of high quality and cheap Chinese goods would be blocked from entering the EU countries, Randolph said even under that scenario, he did not think the EU countries would adopt more anti-dumping measures against Chinese products.

"Many people in Europe and US benefit from more and better quality goods from China. This is especially true of poorer people in Europe who could not otherwise afford more expensive non-Chinese goods," he said.

As "China has made some serious positive progress on Bankruptcy laws recently and the reform of the banking sector is underway, I think it is just a matter of time for China to gain a 'market economy status'", Randolph said. "Its not a question of 'if' but 'when'," he added. Enditem

http://news.xinhuanet.com/english/2004-07/06/content_1575383.htm

China welcomes US veto on trade probe application

Last updated at: (Beijing Time) Friday, April 30, 2004

A spokesman for the Chinese Ministry of Commerce said Thursday that China welcomes the decision of the United States government to veto a trade investigation application targeting the Chinese currency and labor rights.

Chong Quan, the spokesman, said the decision is of "positive significance" to the normal development of Sino-US trade.

The US government rejected on Wednesday the investigation of China's alleged abuse of labor rights raised by the American Federation of Labor-Congress of Industrial Organizations and the probe into the alleged manipulation of the Renminbi, the Chinese currency, by the National Association of Manufacturers.

Such investigations were expected to trigger trade retaliation measures such as increasing tariffs and limiting imports.

"China welcomes and appreciates the decision by President Bush and the US government," Chong said. "China welcomes all measures from the US side to benefit the smooth development of Sino-US trade and economic cooperation."

"The constant and stable development of Sino-US trade and economic cooperation is of significance to the growth of the two economies and benefits the two peoples," Chong said.

Sino-US trade exceeded 126 billion US dollars in 2003 and 35 billion US dollars in the first quarter of this year, recording year-on-year growth of 30 percent and 37.2 percent respectively.

China mainly sells machinery and electronic products and cheap and quality consumer goods such as garments, shoes, toys and televisions and buys machinery and electronic products, chemicals and agricultural products from the United States.

Chinese and US leaders have frequently exchanged views on economic cooperation and bilateral ties and reached broad consensus, Chong said.

At the 15th session of the China-US Joint Commission on Commerce and Trade held in Washington earlier this month, which was co-chaired by Chinese Vice-Premier Wu Yi and senior US officials, the two sides discussed many trade issues and saw many achievements, Chong said.

China is willing to enhance cooperation, communication and consultation, based on the principles of development, equality and mutual benefit, with the US side to properly handle trade problems to further Sino-US economic ties, the spokesman noted.

Source: Xinhua

http://english.peopledaily.com.cn/200404/30/eng20040430_141977.shtml

What does China's GDP indicate?

Last updated at: (Beijing Time) Monday, April 12, 2004

HIGHLIGHTS:

* The influence of the rapid development of China's foreign trade on the economies of various major countries and regions around the world has markedly increased. Another kind of strength it displays means an enormous impact on the world primary products market.

* The phenomenon of participating in the setting of prices for world commodities by boosting import price fully shows that China is displaying its strength by an extremely special method.

* Economic operation has its own law, rapid growth can, after all, hardly be enduring. The kind of "strength" recently burst out in China's economy, looked upon at least from its manifestations, is still not really controllable "strength", but rather it is, in many aspects, a spontaneous "situation" uncontrollable by any person.

China's contribution to global economic growth is the largest

According to the "World Economic Prospect" report issued last September by the International Monetary Fund (IMF), if calculation is made in accordance with PPP (purchasing power parity), in the eight years between 1995 and 2002, the percentage of the value of US increased GDP in the global economic growth was 20 percent, that of the EU 15 percent, that of Japan 2 percent, and that of China was as high as 25 percent. China's actual GDP ranks sixth in the world ranking list, but the increased GDP value calculated in accordance with PPP, it ranks first. On this basis, world economists dub China and the United States the "dual engine" of the world economy.

For a long time, the United States has been hailed as the locomotive of the world economy. The GDP and total foreign trade value of the United States not only rank first in the world, but are far ahead Japan, the runner-up. The United States has a large-scale economy, a free open market and a peaceful situation, its government and nationals borrow and squander money unrestrainedly, they have witnessed astounding financial and trade deficits, and yet they show no sign of fear. China's per-capita GDP exceeded US$1,000 last year, which was a terrific achievement, but compared with US level of nearly US$40,000, China lags far behind. Not long ago, a Japanese expert boldly predicted that China's economic scale will surpass Germany and Japan in four years to become the world's second largest, but this is, after all, a predication, not a fact. In brief, in terms of the present situation, to put China's economy on a par with that of the United States is, more or less, puzzling.

Recently, various countries published their 2003 import and export trade figures, the world ranking of China's total import and export trade volume has risen from fifth the year before last to third. According to the figures of China customs statistics, in 2000 China's total import and export trade value stood at US$455.4 billion, ranking eighth in the world. In 2002, the figure went up to US$620.9 billion, placed fifth, it shot up to US$851.2 billion, or a 37.1 percent rise in 2003. This pushed China ahead of France and Japan to rank just behind the United States and Germany. China's ranking in world trade rose by five grades in three years, thus making the country held in high esteem.

China's economic growth begins to affect the world

The influence of the rapid development of China's foreign trade on the economies of various major countries and regions around the world has markedly increased. According to the estimation by an economist with the US Morgan Stanley, last year, the growth rate of global imports stood at 13 percent, that of China's at 40 percent, three times the world's general level. The increased value of China's imports was equivalent to 13.8 percent that of the world, ranking China first in the world in terms of percentage. That is to say, last year China provided one-seventh market for the world's actual export increase. Judged from the situations in various major trade partners, last year China's imports from the ASEAN (Association of Southeast Asian Nations) and the ROK (the Republic of Korea) went up over 50 percent, from Japan and the EU by nearly 40 percent, and from the United States by 24.3 percent. The substantial growth of their exports to China has become an important factor boosting the economic recovery of these countries and regions. Take Taiwan as an example. Last year its exports to the Chinese mainland reached as high as US$49.8 billion, accounting for 34.5 percent of its total value of exports, and equivalent to one-sixth of its GDP. The total value of Taiwan foreign trade surplus was US$17 billion, but its favorable balance of trade with the mainland was as high as US$37.1 billion. If its trade surplus with the mainland is deducted, then Taiwan will have a trade deficit amounting to US$20 billion. Taiwan's economic growth rates stood at 3.59 percent and 3.24 percent respectively in the past two years. But it was almost impossible for Taiwan to maintain its economic growth without the Chinese mainland.

Another kind of strength displayed by China's economic growth exerts tremendous impacts on the world primary products market. With the dramatic increase in global demand for steel products since last year, there has emerged an acute shortage of these products. Additionally, the international market prices for some other important raw materials, such as cement, crude oil, copper, coal as well as cotton, soybeans and wheat have also soared. Of course, this is mainly because that along with the gradual recovery of the US-led world economy, the demands for various kinds of important materials have also increased synchronously. But the recession and recovery of the world economy have been going round and round for many years, this in itself is a normal phenomenon. But the situation regarding the skyrocketing prices of many important materials have never been seen. It is no need for reticence that there is Chinese economic factor for the emergence of such peculiar phenomenon. Last year, 36 percent of rolled steel and 50 percent of cement were consumed by China. Were it not due to the rapid growth of China's economy and to the drastic increase in import demands, the supply of many important materials in the world market would not have fallen short of demand and the price would not have soared. Because China itself is a largest importer, the skyrocketing price has caused it mammoth losses.

The development momentum has not yet turned into real national strength

Obviously, the sharp increase in the influence and impact of China's economy in recent years mainly came from its rapid economic growth, or the associated result of its economic growth. To put in one concept, it is the expansion of GDP. Since the early 1990s, China has gradually set up an industrial production system based on cheap labor and linked mainly with processing, it has joined the general circulation of the world economy and has begun to quicken its pace to catch up with the advanced countries. Over the past decade and more, this strength has kept pace with the times and has been accumulated to a fairly large scale, making China the largest processing export base in the world. After its entry into the World Trade Organization (WTO), China dramatically opened its door for imports and reduced tariffs, resulting in the rapid expansion of imports. Internal and external factors were integrated more closely, they promote and spur each other, thereby bursting out incomparable strength, strong enough to shake market supply. However, the phenomenon of participating in the setting of prices for world commodities through boosting import price fully shows that China is displaying its strength by an extremely special method.

Economic operation has its own law, rapid growth, after all, can hardly be enduring. At least viewed from manifestations, the "strength" recently burst forth by China's economy is still not a real controllable "strength", or "a force of a thunderbolt". Conversely, it is, in many aspects, a kind of spontaneous "situation" no body is able to control, a kind of "the momentum of strong wind and torrential rain". To lift the national situation into a solid national strength, it is still required some necessary links and a considerably long period of time.

(The author is a research fellow with the China Modern International Studies, this article is published on Page 15 of the Global Times, April 9, translated by People's Daily Online)

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Bank governor says Chinese economy facing challenges

Last updated at: (Beijing Time) Sunday, April 25, 2004

Governor of the People's Bank of China (PBC) Zhou Xiaochuan said on Saturday that the Chinese economy is facing challenges but the prospective growth is rosy.

In a written speech to the International Monetary and Financial Committee held in Washington, Zhou said that the Chinese economy experienced sound development in 2003, with gross domestic product(GDP) growing by 9.1 percent over the previous year and per capita GDP reaching 1,100 US dollars, passing an important milestone.

The main challenges facing the Chinese economy are that aggregate investment in some industries and regions is somewhat excessive, inflationary pressures are building up and much remain to be done in the areas of employment and social security, he said. The Chinese central bank governor stressed that solutions to these problems will require China to pay even closer attention to proper macroeconomic management and to the proper handling of the relationship between reform, development and stability. To deal with the accelerating rise of the commodity prices index during the past six months, China employed a combination of monetary policy tools and strengthened preemptive adjustments and fine-tuning by controlling excessive growth of monetary credit, Zhou said.

For instance, the PBC has twice employed required reserve ratio as a monetary policy tool to strengthen macroeconomic management, he said. It has raised the required reserve ratio by 1.5 percentage points from 6 percent to 7.5 percent.

On the exchange rate of Chinese currency Renminbi, he said that, in the medium and long terms, the Renminbi exchange rate will develop in the direction of increased flexibility. But current focus of the Chinese government is, while deepening financial reforms, to take further steps toward exploring and improving Renminbi exchange rate formation mechanisms.

Zhou said that so far this year, the Chinese economy has continued to grow at a rapid rate and this year's growth target for the Chinese economy is about 7 percent.

The International Monetary and Financial Committee is the policy-making body of the International Monetary Fund.

Source: Xinhua

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China warns of prime risks to global economic growth

Last updated at: (Beijing Time) Sunday, April 25, 2004

The international community should clearly recognize the prime risks to global economic recovery and all countries should actively participate in policy coordination and cooperation and strive to maintain sustained global growth, Governor of the People's Bank of China Zhou Xiaochuan said on Saturday.

In a written speech to the International Monetary and Financial Committee held in Washington, Zhou said that the vulnerability affecting global economic growth since the Dubai meeting in last September has by no means been entirely eliminated. Geopolitical confrontation persists, and the debt remains a very conspicuous problem in some emerging markets.

Although the global economy shows obvious momentum toward recovery, it is still true that the global economy relies excessively on condition in certain individual countries, he said. Therefore, great uncertainty remains as to whether the US economy has entered a period of stable growth.

Zhou also said that uncertainties in the timing and magnitude of macroeconomic policy adjustments by the major industrial nations are putting the world economic trends at increasing risks. If an interest rate hike is not well timed, or if it is not executed with proper intensity, the result might be a short-term upheaval in financial markets, which would in turn adversely affect the global recovery, he said.

He also pointed out that structural reforms in some industrial countries have been slow, which has had a direct impact on stable economic growth and sustained development. Meanwhile, Zhou warned that the debts of some emerging markets and developing countries are not likely to remain sustainable and geopolitical tensions show no clear sign of abating. Therefore, he said that main industrial countries should assume the primary responsibility for global economic recovery and adjustment. They need to increase market confidence, give free rein to their comparative advantages, gradually improve external account conditions and enhance the sustainability of growth. Emerging markets and developing countries also should vigorously take advantage of the current favorable environment brought on by the economic recovery, he added.

The International Monetary and Financial Committee is the policy-making body of the International Monetary Fund.

Source: Xinhua

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Economic reform to focus on seven fields in 2004

Last updated at: (Beijing Time) Saturday, April 17, 2004

To push economic reform ahead in 2004 based on implementing the decision of the Third Plenary Conference of the Sixteenth Party Congress, the instruction for China's economic reform for this year was issued recently by State Development and Reform Commission. According to the guideline, this year will see the economic reform to be focused on the following seven fields.

1. Improve ownership structure and push reform on SOEs forward

Further adjust and improve the ownership structure, categorize the existing SOEs, and arrange the distribution and restructuring of state-owned economy. Push ahead the joint-stock transformation of SOEs. Absorb more foreign and private capitals into restructuring and reorganization of SOEs.

Sectors with mixed ownership are greatly encouraged. Improve measures to facilitate the reform on industries including power, telecom, and aviation. Speed up to work out system reform schemes for mail and rail industries. Make better policy and legal environment for non-public sectors and encourage, foster and guide their development.

2. Deepen reform in rural areas

Make faster a reform of tax replacing fee system in rural areas. Deepen reform on grain circulation, Speed up reform on land use system.

Provide perfect financial services for farmers. Build and improve a mechanism for transfer of surplus labor force from rural areas to non-agricultural sectors and urban areas. Give a new boost to economic development in rural areas.

3. Deepen system reform on finance, taxation, investment and price

Improve macro-control system. Conduct sweeping reform on state-owned commercial banks. Transform Construction Bank of China and Bank of China, as pilots, into joint-stock banks smoothly.

Formulate reform program for car uses in government organs. Some sectors in the old industrial base in northeast China will pioneer the change of value added tax to consumption oriented from production oriented. Carry out reform schemes on investment system and work out measure for implementation. Issue implementation measures for reform on electricity pricing. Realize the reform program on domestic air transportation pricing in civil aviation sector.

Perform more efficient control on, and to further lower, drug prices. Rectify and standardize charging in education and healthcare. Put various charging policies for employment and re-employment in place. Keep on practice of making prices and charges to the public.

4. Deepen administrative system reform

Push the reform on administrative system and change the government function at a faster pace.

5. Build a modern market-driven system

Open the market wider and build a modern market system. This includes the continuation of a stable development of capital market. Improve the approving process for corporate bond issuance. Develop the futures market in a steady way. Develop property transaction with closer supervision over the deals. Step up efforts on exploring and improving the system of stock transfer under unified supervision. Speed up building a social credit system.

Promote management system reforms on trade associations and chambers of commerce. Further improve the system for opening-up by establishing and perfecting the mechanisms for foreign trade promotion as well as for supervision, pre-warning and reaction for foreign trade.

6 Deepen the reforms on employment and income distribution system

Offer a perfect social security system. Weed out more systematic restrictions on reasonable labor flow. Accelerate the construction of a standardized labor market.

Sum up experience of Liaoning Province on the trial for putting up a social security system and extend the experimentation to Jilin and Heilongjiang Provinces.

7.Advance social system reform

Push forward the system reforms on sci-tech, education, culture and healthcare to achieve a harmonious economic and social development.

Reforms should be implemented or go deeper in industries for which reform schemes have already been ready, such as investment, grain circulation, power, telecom, etc. people responsible in the State Development and Reform Commission stressed.

Those for which it takes time to work out reform plans should continue research, make progress by pilot reforms or other ways and present reform schemes as soon as possible.

For reforms on some sectors, which are featured with wide involvement, deep interests, and high risks, arrangements should be made in line with the instructions of the State Council to conduct various trials and build up experience and fan out gradually.

By People's Daily Online

http://english.peopledaily.com.cn/200404/17/eng20040417_140671.shtml

A Chinese opportunity for capital: the Chinese economy in the eyes of a foreigner

Last updated at: (Beijing Time) Friday, April 02, 2004

Dr. Jonathan R. Woetzel is a senior director of the Shanghai branch of Mckinsey & Company. No sooner had he finished helping a Chinese flagship enterprise to get listed in the New York Stock Exchange than he began a campaign to promote his newly published book Capital China.

As a consultant specialist who has been working in China for 15 years Jonathan Woetzel keeps on giving advices to people.

Chinese market competition fierceness is unmatched by any other world markets.

He believes every business in China has to realize that competitive advantage has replaced governmental relations to become a pass to success. For every trade, investment, innovation and integration are the key to victory. None of the other markets is comparable to the Chinese market in terms of fierceness of competition.

In industries where competition is intense e.g. the high-tech and consumer electronics industries, China moves very fast in designing and the application of new technologies. For the world's leading companies, they will be the real competitors in the future. In capital-intensive industries such as iron and steel, auto and transportation industries, integration and reorganization have been put on the agenda. The Chinese enterprises need to pay more attention to the clients and also need to realize profits through global alliance. Energy companies should be prudent when investing in China because the economic situation in regard to global natural gas and coal markets is changing constantly. In the flourishing retail industry, the traditional retail sector is facing unprecedented profit pressure. So it needs to ensure its survival through reform. In the financial service and media circles, the new comers, domestic or overseas, are more active in coping with the new situation arising from China's increasing prosperity. The State-owned companies must now undergo complete reform and compete with these new comers.

When speaking of Chinese strategy for enterprises, Jonathan Woetzel believes the most common mistakes are the failure to keep pace with the market change. For example, class-B and class-C cities i.e. cities each with a population between 500,000 and 3 million have the fastest consumption growth, but many companies only pay attention to coastal cities. They may thus miss the fastest growing markets.

His suggestion to the CEO of companies not yet established in the Chinese market is: fast and steady - he who strikes first gains the advantage. Investments should have long-term plan, but the goal is to realize profits now - unprofitable things shouldn't be done. As for the CEOs who have already been in China, his suggestion is that they earnestly support their employees, because the latter are the key deciding their success in China.

When predicting the general economic situation in China, Jonathan Woetzel says if China can achieve success in the second-round economic restructuring, the global market will be changed enormously.

He believes the next three to five years will be the golden period for transnational companies to achieve success in China. If they miss the opportunity they will see rivals from China rising worldwide in the near future.

Capital China offers increasing opportunities

All kinds of difficulties encountered in the process of banking reform have made the Chinese government realize that in adjusting capital supply and demand, especially in reinforcing investors' confidence in profit returns, the capital market is the more effective mechanism. In view of this, the government has begun to study and formulate relevant policies in order to support and develop a healthy and flowing capital market. Chinese companies' financing methods have gradually transformed from traditional bank loans to a securities and bond market. More and more Chinese are investing their money in stocks or other investment means with fixed returns instead of putting it in savings. Faced with the great opportunity, the Chinese capital market is expected to further expand and become an increasingly important source of capital for Chinese enterprises.

The Chinese industries under the severe test of WTO

Internet, banking, insurance and securities industries will undergo "explosive" development. There are great business opportunities for these industries. The Chinese government has in recent years relaxed market control in some areas (home appliance for instance) or conducted forceful restructuring on some industries (telecommunication service and oil industry). These measures are already promoting the rapid reform and China's entry into the WTO can only further speed up this reform process.

Disadvantage is also an opportunity, it depends on your capacity to grow

In order to protect the domestic market and establish a practical international competition platform, Chinese enterprises need to strive to advance toward the world so as to enlarge their scale enough to meet the fierce international competition. In terms of scale Haier, TCL and Konka are about 5 percent to 10 percent that of the real international companies such as Sony and Philips. Generally the international sales of these Chinese companies account for less than 10 percent of their revenue. The figure for international enterprises exceeds 60 percent. Expanding toward the developed market will provide the Chinese companies with the best leeway for reversing this situation.

The auto age fixes China up with developing wheels

Although China sold more than 2.1 million automobiles in 2000 and is the country that buys the most four-wheel automobiles following the first six ones, its sedan market is still in its infancy. In fact, the yearly sales of sedan cars on China's mainland are only 600,000 or so. There are only less than 10 sedans for every thousand persons - far below 250 in China's Taiwan region and more than 500 in Germany and the USA. With improvement in transportation facilities and establishment of new sales and retail channels, plus the opening up of the auto market as well as China's entry into the WTO, demand will expand along with the growth of the Chinese economy. According to China's National Bureau of Statistics, China's production of sedan cars in 2003 for the first time exceeded 2 million to reach 2,068,900. It took China only one year to scale the two million pass. It was up 80.7 percent year on year.

Scattered Chinese retail industry will face integration

The various Chinese retail patterns all have large leeway for integration. In China the top 50 retail companies account for less than 5 percent of the national retail market. In America this figure is 30 percent. China's top-notch chain stores are mostly concentrated in Shanghai and Jiangsu Province. Judged by international standard, local companies are very small - far lower than the world level. Take Lianhua for example, its sales volume in 2000 reached US$1.3 billion (11 billion yuan). It had more than 1,000 stores, including joint ventures with Carrefour. However its gross sales volume was only that of 20 Wal-Mart stores. Again, the average sales volume of each of Carrefour's big markets worldwide is more than two times that of the average level of a chain store of Lianhua - China's leading retailer. Carrefour has more than 580 big markets whilst Lianhua has only 20.

The Chinese stock market under the bubbling shadow

There is an unsubstantial element in the Chinese stock market. Firstly, the market is yet to be fully developed. Retail investors promoted most of the growth in the 1990s and still account for more than 80 percent of the investment in the Chinese stock market. Secondly, the market still has the problem of insufficient supply. The quota system adopted by the local governments has long limited the issuance volume each year and is biased toward State-owned companies in terms of listing opportunity. Marketable stocks constitute only 33 percent of the total assets in China's stock markets, this makes it very easy for individual stocks to be put under man-made manipulation. The rest of the stocks are controlled by the State, which is likely to cause major conflicts of interests among the parties concerned. Meanwhile, the volume of business grows at an average annual rate of 36 percent, which is comparable to China's Taiwan and S. Korean markets (or Nasdaq market in 2000). Due to the excess purchase by the new IPO (initial public offer), the price difference between the primary market and the secondary market is maintained. Currently, China's securities market is overheated judged by whatever definition.

By People's Daily Online

http://english.peopledaily.com.cn/200404/02/eng20040402_139297.shtml

Morgan Stanley chief economist: 'why we ought to be thanking the Chinese'

Last updated at: (Beijing Time) Tuesday, March 16, 2004

In an article published in the latest issue of Fortune magazine titled Why We Ought to Be Thanking the Chinese, Stephen Roach, chief economist of Morgan Stanley said, it's because China has filled up the huge gap Washington generated in the US economy.

Roach believes that RMB being pegged to the US dollar was once a focal point of debates. Recently Federal Reserve Chairman Greenspan viewed the rumor that RMB would appreciate 5 percent as a "fairly reasonable expectation". This couldn't be more wrong. Roach said people in vexation are easy to neglect what extraordinary benefit China a rapidly developing country has brought to the world, especially to the United States. Of the record-breaking $540 billion in the US trade deficit in 2003 China does account for certain percentage. Nevertheless, the deficit was not made by Beijing, but by Washington. Due to the loss of control on federal budgetary deficit the US has almost depleted its national savings. To sustain what economic growth need in investment domestic savings shortfall must be offset by surplus savings from abroad. Apart from continually increasing balance-of-payments and trade deficit so as to attract foreign capitals, America has no other alternatives.

Roach said China played a very important role in filling up the gap in the US economy. Indeed the biggest beneficiary of the Sino-US trade is the consumer. Last year the United States imported from China more than $150 billion worth of cheap, high-quality commodities, which was conducive to the control on inflation ratio. With the exception of oil products prices of import commodities grew by only 1 percent. This was an extremely small rise for the weakening dollar and a rapidly growing economy. Low inflation provides the job-short and income-constrained US consumers with extra purchasing power. For this America should express its thanks to China. China used most of the profits gained from export to reinvest in mainly dollar-based financial assets. Up to last November China possessed $144 billion US treasury bonds, namely, China possessed 9.6 percent of the total holdings of foreign-currency government securities. It was three times that of 1994. Among the foreign holders China ranks No.2, second only to Japan, yet far surpasses the No.3 holder - Britain. This is by no means something insignificant Roach said. Under normal circumstances large-scale government loans would drive up financing cost. But China's active purchase of American treasury bonds can prevent this from happening. By keeping exchange rate low China is in fact providing America with more opportunities for economic growth.

Roach said the USA is not the only one who should be grateful to China's rising up. The rapid influx of transnational corporations has turned China into a link of the global supply chain. In China's total export growth over the last 10 years, 65 percent came from the subsidiary companies and joint ventures of transnational companies set up in China by Japan, the United States and Europe. By replacing high cost operation with low cost production in developing countries such as China, consumers worldwide eventually partake in the benefits resulting from this. In the meantime China has become main source of growth of its neighbors and other Asian countries.

Roach believes that the theory of "China Threat" put forward in an age of economic globalization is not apt at all. The world should thank China for its insistence in changing state-owned economy. For China this is the only way to sustainable prosperity but for other countries, it is an opportunity to tap for a huge market.

By People's Daily Online

http://english.peopledaily.com.cn/200403/16/eng20040316_137625.shtml

IMF says China can sustain expansion

Last updated at: (Beijing Time) Thursday, April 15, 2004

The Chinese economy can sustain its 25-year expansion at a rapid clip of six-to-nine percent a year and its impact on the rest of the world will be deep, a report released by the International Monetary Fund(IMF) said Wednesday.

However, the report in the IMF's twice-yearly World Economic Outlook said that failure to reform would spell trouble for China.

"Looking ahead, further implementation of key structural reforms could allow China to maintain economic growth of about six to nine percent although setbacks in the reform process would carry serious downside risks to the growth outlook," it said.

In the long-run, China was likely to play a bigger global role than any of the other post World War II economic powers such as Japan, or Southeast Asian nations, said the report by IMF analysts.

It said that industrialized economies would be enriched by cheaper labor-intensive imports, and by greater Chinese demand for services and imports requiring high skills. And other developing countries would have a bigger opportunity to export commodities and manufactured goods requiring reprocessing to China.

The outlook for China itself depended heavily on its commitment to reform. And a freer financial sector would let more credit flow to the economy, it said.

The report said an expanding labor force would only contribute about 0.25 percentage points to the pace of economic growth. But a shift of an estimated 150 million surplus workers in agriculture to industry and services would boost productivity by one to two percentage points.

Sizable foreign investment would still play a key role in boosting efficiency and introducing new technologies, allowing China to raise total productivity by two-to-four percent if it addressed priority reforms, it said.

It said one of China's top tasks is strengthening banks balance sheets, making them more market-based, and developing financial markets so as to improve the allocation of investment.

Other top tasks include setting up a well-functioning labor market to facilitate the migration of labor, reforming state companies, and shoring up long-term government finances.

Source: Xinhua

http://english.peopledaily.com.cn/200404/15/eng20040415_140493.shtml

Four reasons why China will not revalue RMB

www.chinaview.cn 2004-04-05 13:12:08

BEIJING, April 5 (Xinhuanet) -- Aside from political pressures from the US, there's really no reason for China to appreciate its currency.

Four fundamental conditions that exist today will prevent China from floating the renminbi.

First, restrictions on the Chinese travelling to the US and other major countries restrict investment and spending opportunities. Second, the floating rate of housing mortgages and the lack of individual credit lending system reduce China's control on inflation and lending. Third, the high income tax rate has created near zero profit for export industries that can easily move factories to other countries when labour costs or the renminbi become too high. Lastly, and most importantly, the income gap between the roughly 900 million rural population and the 500 million urban population has widened to an unprecedented 1:4 level, with the average rural real income less than 1,900 yuan (US$230) per year. If not resolved or controlled, any of these four conditions can create disasters for the Chinese economy.

Restrictions on the Chinese travelling abroad give Chinese companies no means to sell products directly to end consumers, no means to find the latest technology necessary to stay competitive, and no means to invest excess money in other countries' markets. This unfair condition will put a massive demand on the renminbi if China floats its currency.

Everyone will buy renminbi to invest and spend in China while virtually no Chinese will be able to buy foreign currencies to spend abroad. This will artificially shoot up the value of the renminbi and stop investment in any new factories while there are still millions of people in China who can provide cheap labour. As long as foreign countries restrict entry to Chinese, China will not agree to float its currency.

In the years to come, we should expect to see a gradual opening of Chinese investment and spending abroad, but for now the pressure is still on foreign currencies to appreciate against the renminbi.

Perhaps not as apparent, but a much more serious problem exists within China's housing mortgage system. From steel to concrete to coal to other commodities, the real-estate boom in the past six years that has created huge demand on raw materials will continue to require massive imports of commodities that are lacking in China.

At the same time, real-estate pricing bubbles and illegal acquisitions of farm lands have created a phantom inflation problem that has actually put a constraint on the development of non-real-estate industries. The culprit is the floating mortgage interest rate.

To make new housing available to common people, China has been pushing a low floating rate mortgage lending system that allows people to borrow money to buy houses at an interest rate level much lower than the most favourable corporate lending rate. Developers and entrepreneurs have been able to finance their projects by hyping up property prices and borrowing from banks twice the amount than the real worth of previous projects. China will not be able to raise interest rates to regulate the housing industry simply because by doing so, common people will not be able to afford the monthly payments and will be forced to forfeit their homes while developers can walk away free leaving banks with all the mortgaged properties without a market.

We will see a crackdown from the government on illegal development of real estate, but without fixing the interest at market rate, China will not be able to stop the real-estate inflation problem, which will continue to force the renminbi to devalue.

In comparison to other countries' income-tax rates, China is considered one of the highest in the world. Foreigners have been investing heavily in China for the past 15 years to set up factories for the manufacturing of their products abroad, taking advantage of the cheap labour in China. Although China is a big market, imports have always been tough due to high VAT, sales, and import duty or quota taxes. With the high income-tax rate, there's no incentive for these exporting enterprises to leave any profit inside China. That means multinational corporations will buy from their Chinese factories at a price just enough to cover the cost and have all the profits assigned to their distribution companies elsewhere that have a much lower income-tax rate. That would then leave China very vulnerable to renminbi appreciation.

By not floating the renminbi, China is essentially asking foreign companies to use foreign currencies to pay for Chinese labour. This is also the reason why China is the second-largest holder of US dollars outside the United States. If China floats its currency, foreign investments would have the freedom to buy renminbi to set up Chinese ventures, which will create a huge demand for renminbi and artificially appreciate the currency.

Appreciation of the currency means Chinese labour is artificially more expensive, and factories will start to leave China for other cheap-labour countries, leaving millions of people without a job in China. We are likely to see the split of income tax to an income tax and a dividend tax to encourage corporate reinvestment.

The biggest problem China faces in terms of both political and economic stability is its 900 million rural population that is still living in poverty. This number represents 65 per cent of China's total population, much higher than a fully-industrialized country of about 25 per cent. At the same time, China has been behind in spending on rural education, infrastructure, technology, and medical systems. As a percentage of total spending, China has reduced its annual spending in rural areas from 13.4 per cent in 1978 to 7.7 per cent in 2001, a mere 146 billion yuan (US$17.6 billion). What that translates to is that there are still a lot of cheap labourers for the world to set up their factories in China. To industrialize, China will need to invest heavily in the rural areas and bring the rural population up to industrialization standards.

Already, China has committed to spend an additional 110 billion yuan (US$13.3 billion) just on the educational systems of rural areas this year. China will have to keep its labour cost or currency low to compete and generate new jobs for its people. Until China can successfully push at least half of its rural farming population into industrialial production, the currency is not likely to budge.

In conclusion, until the above four fundamental problems are solved in China, there's really no reason to appreciate the currency.

(China Daily HK Edition)

http://news.xinhuanet.com/english/2004-04/05/content_1401434.htm

President calls for all-round development

www.chinaview.cn 2004-04-04 21:18:36

BEIJING, April 4 (Xinhuanet) -- The full text of a key note speech by President Hu Jintao on the country's strategies for population, resources and the environment was made public Sunday, which calls for a comprehensive, coordinated and sustainable approach to the country's economic and social development with the people put before everything.

Hu, also general secretary of the Central Committee of the Communist Party of China (CPC), made the speech on March 10 in Beijing at a national meeting on population, resources and the environment, with the presence of major provincial Party and government leaders.

Hu said China must follow the scientific concept of development,which has been endorsed by the central authorities as the new guidelines for the country's social and economic development.

Hu described the concept as an idea of strategic significance, saying it is based on the country's experiences during the past two decades, including the important lessons learned during the country's fight against severe acute respiratory syndrome (SARS), and those of other countries during their economic and social development process.

China was found poorly prepared early last year when hit by thesudden outbreak of SARS due to a lack of strategy on such a publichealth crisis and a sound public health system.

The concept calls for the country to set all-round human development as its target in economic and social development, and to strive to safeguard the economic, political and cultural rightsand interests of the general public to make sure the economic and social progress bring benefit to all of its people, said Hu.

The income gaps have been widened dramatically in China alongside the double-digit economic expansion since 1978, particularly between the prosperous industrializing coastal areas and the impoverished western region.

Hu said the country should strive for all-round economic and social progress, balance development between cities and the countryside and between different regions, promote harmonious development between mankind and nature, and coordinate domestic development while opening to the outside world.

The president urged efforts to be dedicated to economic development to enhance the national strength and on this basis to promote an all-round progress of society and the people.

Efforts should be intensified to improve the quality and efficiency of economic growth, coordinate economic development with the population, resources and the environment, and protect and improve the sustainability, he said.

Efforts are also needed to strive to improve the social awareness of saving resources across the country and protecting the environment to realize harmony between mankind and nature, headded.

On challenges China faces, the Chinese leader listed the increasing pressure of population growth, employment, education and aging population, and the shortage of oil and other major natural resources, and illegal and excessive exploitation of mineral resources and depletion of farmland.

On the country's population and birth control work, Hu called for efforts to formulate a medium- and long-term population development strategy, and to stabilize the existing low birth rate,while looking for ways to resolve the outstanding problems facing its 1.3 billion population.

He urged the toughest measures to protect farmland and hard work to develop maritime resources, and prevent and control geological disasters, with emphasis placed on areas around the Three Gorges Reservoir.

Officials who violate the laws and policies on population, the environment and resources shall be punished according to law and the Party's discipline, while market-oriented reforms will be deepened to give full play to the fundamental role of markets in distributing resources and pricing resources products to prompt the corporate world to lower costs and reduce consumption of resources.

The government will continue its intervention in areas of population, resources and the environment, such as increasing investment, regulating market supplies and demand for land and some important mineral resources, and encouraging the development of resources-efficient sectors, while restricting the expansion ofsectors that consume too many resources and produce too much pollution with low technology.

Hu said China will continue to improve laws on population, resources and the environment, and create better conditions for the general public to take part in the undertakings of population,resources and the environment. Enditem

http://news.xinhuanet.com/english/2004-04/04/content_1400323.htm

China says good-bye to blind pursuit of GDP growth

Last updated at: (Beijing Time) Friday, March 05, 2004

Faced with a growing gap between rich and poor and mounting environmental problems, the Chinese government is set to abandon its blind pursuit of gross domestic product (GDP) growth.

In the past 25 years, China has achieved an economic miracle with average GDP growth at above 8 percent every year. However, as GDP has become the main standard, or the only standard in some regions, to evaluate the government's performance, many local officials have turned a blind eye to development in other fields, including medical care, education, culture and environmental protection.

Threatened by worsening unbalanced development, the government has proposed a scientific concept of development with more attention on rural and social development and environmental protection in a bid to correct the disparities.

Premier Wen Jiabao said the scientific development concept focused on coordinated and sustainable economic and social development, while pushing forward the reform and development drive, to coordinate development in both urban and rural areas and in different regions, and achieve harmonious development between man and nature.

GDP could not fully reflect the relationship between economic development and the environment, the environment and people, said Niu Wenyuan, chief scientist on sustainable development strategy at the Chinese Academy of Sciences.

Some economic growth could bring about harmonious development of the economy, society and the environment, and some meant sacrificing the environment and wasting resources. But GDP always ignored to the difference between high-cost and low-cost outputs, said Niu.

"A large part of China's GDP growth is achieved by exploiting resources and interests that should have belonged to our children," said Niu.

Statistics provided by Niu indicated the official average 8.7 percent GDP growth rate from 1985 to 2000 should have been reduced to 6.5 percent if social and ecological costs were taken into account.

"The cost of one US dollar in output in China is four to 11 times that of developed countries," said Niu.

"If the current high-cost growth and serious pollution continues, China will face a heavily polluted environment and a serious shortage of natural resources in the near future, which would not support its future development," said Pan Yue, vice-director of the State Environmental Protection Administration.

Pan said his administration was trying to include environmental protection as a major factor to evaluate the performance of local officials.

Ma Kai, Minister of the State Development and Reform Commission, has said the government was considering slowing the country's GDP growth rate to 7 percent this year in a bid to cultivate a "scientific approach" to social development.

Governments of some provincial-level regions, including Beijing, Shanghai, south China's Guangdong and east China's Zhejiang, have decided to take into account costs in environment, natural resources and social development in their reckoning of economic growth, under the new concept of "green" GDP.

The booming Guangdong Province has decided to lower its GDP growth target 9 percent this year from 13.6 percent in 2003.

"We have to change our mind concerning economic growth," said Jiao Yuejin, an official from central China's Henan Province. "The shift will hopefully help the government to spend more on this society's weaker links."

http://english.peopledaily.com.cn/200403/05/eng20040305_136581.shtml

7 percent GDP growth target not low for China: minister

Last updated at: (Beijing Time) Monday, March 08, 2004

The seven percent GDP growth target set for this year is not low for China and it does not mean China has changed its macroeconomic control policies, said Ma Kai, minister in charge of the State Development and Reform Commission Monday.

If China could maintain a seven percent growth in the years to come, without drastic ups and downs, the country can well attain its goal of building a well-off society in all aspects by 2020, Ma said.

The seven percent growth target is proposed by Premier Wen Jiabao in his Government Work Report to the legislature.

The Premier pledged to continue the incentive package for domestic demand, the activist fiscal policy and prudent monetary policy, Ma said.

China hit 9.1 percent in GDP growth in 2003, despite the impact of SARS epidemic, a record since the Asian Financial Crisis in the late 1990s.

But Ma admitted that China has achieved the fast GDP growth at the expense of resources and environment.

China contributed to about four percent of the world's total GDP in 2003 by consuming 7.4 percent of the oil, 31 percent of the coal, 27 percent of steel, 25 percent of alumina and 40 percent of the cement, consumed worldwide.

China has to develop at a moderate rate in order to ease economic and social conflicts, meet the growing demand of the people and realize a well-off society in all aspects by 2020.

Such a moderate growth may help ease the pressure on resources and environment that have already much been strained after years of hectic growth, put an end to the single-minded pursuit for growth, leaving space for improving the quality of the economy and adjusting the economic structure, Ma said.

Pragmatic goal

Deputies to China's top legislature laud the 7-percent economic growth rate for 2004 as a "scientific and pragmatic" goal. The growth target, the same as that for 2003, has been set by Premier Wen Jiabao in his report to the legislature Friday and led to heated discussions among 2,900-plus deputies from all walks of life.

"It is a realistic and pragmatic goal and will help maintain the continuity of China's macro-economic policies," said Qin Chijiang, a deputy to the ongoing Second Session of the 10th National People's Congress (NPC), and deputy secretary-general of China Finance Association.

The goal, if materialized, will bring China the Gross Domestic Product (GDP) totaling some 12 trillion yuan (1.45 trillion US dollars) in 2004, laying a solid foundation for implementation of the 10th Five-Year Plan (2001-2005) and construction of a well-off society in an all-round way, according to Qin.

The low-profile growth rate will ease the pressure on resources and environment after years of rapid economic growth, and put an end to the practice of seeking solely economic growth rate, so as to improve quality of the economy and adjust economic structure, said NPC deputy Zhang Kui from north China's Shanxi province.

In 2003, the Chinese economy grew by 9.1 percent despite the outbreak of the Severe Acute Respiratory Syndrome (SARS), hitting a new record since the Asia Financial Crisis in late 1990s. However, over-heated investment in some economic sectors also resulted in a growing pressure on resources and environment.

Last year, China consumed 31 percent of the world's total coal output, and its consumption of iron ore, steel and cement accounted for 30 percent, 27 percent and 40 percent of the total global output respectively, but the country contributed merely less than four percent of the total GDP output worldwide.

"Economic growth powered by huge resource consumption cannot last long. Even if the growth target is accomplished, it will not be conducive to China's economic growth. If the reported overheated investment in a few economic sectors is not inhibited, the overall economic situation will be affected, and a greater cost had to be paid," said auditor deputy Zhang Chengqi from north China's Hebei province.

"There is no absolute standard of determining whether the economic growth rate is high or low, acknowledged NPC deputy Qin Chijiang. "The crux of matter is an efficient speed." Therefore, he called for relinquishing the use of economic growth as the sole criteria for judging officials and evaluating their merits.

By People's Daily Online

http://english.peopledaily.com.cn/200403/08/eng20040308_136876.shtml

China's rise benefits world: Comment

Last updated at: (Beijing Time) Tuesday, March 02, 2004

Though the rise of China is an indisputable fact, consensus on the approach and future of the nation's ascent has yet to be reached in the international community.

During his address to Harvard University last November, Premier Wen Jiabao for the first time stated to the world China's confidence and determination in its peaceful rise. Peaceful rise has become China's national will and concept.

In the terminology of international politics, used to study the destiny of an empire or big power, the word "rise" is always linked with "decline" or "fall."

In the West, since the word "rise" denotes a potential "change of hegemony" or "transfer of power," the growth of a new power invariably makes traditional hegemonic countries uneasy. Moreover, as Westerners who believe in "democratic peace" doubt whether China can become "democratic" in the future, they recognize the theory of "China threat" more than the theory of "China's peaceful rise."

Within China, the term "great rejuvenation of the Chinese nation" replaces the word "rise." However, the word "rejuvenation" can also make neighbouring countries suspicious that China might attempt to restore the imperial system.

In fact, regarding the regional environment prior to China's growth, the approach during its rise and the impact after its rise, the ascent of China is not only reasonable but also legitimate and peaceful. In terms of the environment, China is able to and will inevitably realize the "rise in peace."

Economic globalization and the vigorous development of regionalism have created a favourable international economic climate for China's peaceful ascension. The process of China's rise has just overlapped the transformation of world politics and economy, so the rise of China is with the tide of development. Moreover, the peaceful ascent of Asia has become the basis for China's peaceful rise.

The new mode for co-operation among the big powers in the field of non-traditional security such as anti-terrorism and anti-proliferation has created a favourable international political environment for China's rise. Generally speaking, most of the big powers have adopted the position of recognition on China's growth.

China has been actively seeking to solve disputes with neighbouring countries through peaceful negotiations. China so far has resolved territorial conflicts with most of its neighbours and has also reached consensus with all sides concerned on maintaining peace and stability in the disputed areas through peaceful means.

Rifts over territory and water are not the obstacles preventing China from developing good relations and co-operating with its neighbouring countries to build regional security, which has created a favourable security environment for China's ascending in peace.

With the improvement of national strength and international status, China is increasingly welcomed by major powers, neighbouring nations and the Third World to play a more active global role, which builds a positive image for the country.

Regarding China's huge population and growing involvement in the process of globalization, it would not be in the interests of the world if China did not rise.

The approach China has adopted for its ascent is inevitably peaceful. Internally, making a peaceful, democratic and civilized nation has been designated as China's ultimate development goal. Externally, the nation has obtained resources and development momentum through legal means and constructively participated in international affairs.

This differs fundamentally from the mode of rise of other powers in history.

China's rise stems from the rapid growth of the economy, which is largely based on its domestic market. China's economic development also hinges on a peaceful and stable international environment. Rather than choosing the road of external expansion as some big powers in history, China has chosen the mode of combining self-reliance with opening up for developing its economy, which has laid the material foundation for China to rise peacefully.

To build an all-round well-off society is the domestic basis for the legitimacy of China's ascent. The promotion of the new security concept with mutual trust, mutual benefit, equality and co-operation as its core and the successful practice of the Shanghai Co-operation Organization have contributed to enhancing increasingly the international basis for the legitimacy of China's peaceful rise.

China's rise also comes from the growth of its soft power and contributions to the world.

The priority of China's diplomacy has been adjusted as relations with the major powers, neighbouring countries and the Third World. China seeks to improve and develop its relations with developed countries by enhancing common interests while adopting the policy of "being friendly to and making partners with neighbouring countries" and seeking to strengthen the unity and co-operation with the Third World by establishing a just and reasonable new world political and economic order.

This foreign policy has been welcomed by the international community and thus has upgraded China's soft power.

China's economic growth has made great contributions to the growth of world GDP and global trade. China has also played a constructive role in seeking a peaceful solution to the nuclear issue on the Korean Peninsula.

Since China has not adopted the approach of challenging the hegemony and world order for its rise and has sought to be a responsible country within the current international system, its growth is hailed by the international community.

In terms of impact, China's peaceful rise means "rise for peace." Specifically, China seeks security and development by means of realizing world peace and prosperity so as to fulfil its promise of peaceful rise made to the world body.

The goal of China's rise is to "build an all-round well-off society" internally and to "maintain world peace and promote common development" externally. China's rise serves to better safeguard and realize the human rights of the 1.3 billion Chinese citizens and to better realize the national right of China.

Of course, China's peaceful rise is not unconditional and without challenge. The largest challenge lies in itself, including whether or not being able to realize the balance and co-ordinated development between regions and industries, stabilizing the situation in the Taiwan Straits to achieve peaceful reunification, and becoming integrated into the mainstream international society.

It also includes whether or not being able to realize the peaceful and steady development of the Sino-US strategic relationship, the common rise by following the example of the European integration, and promoting win-win Sino-Japanese relations.

The competition between the big powers in the future is not merely a competition of comprehensive strength but one between the continental blocs based on regional integration, mostly between Europe, America and Asia.

The future of China lies not only in managing the Chinese economic circle but in becoming the engine of Asian integration and another sphere independent of Europe and America. If so, national unification and the Sino-US or Sino-Japanese relations will never be the problem containing the rise of China.

Source: China Daily

http://english.peopledaily.com.cn/200403/02/eng20040302_136295.shtml

China's eradicating poverty, hunger "on track": UN report

Last updated at: (Beijing Time) Thursday, March 25, 2004

China is "on track" in eradicating extreme poverty and hunger with the state of its supportive environment "well developed", says a UN report launched here Thursday.

The report, "Millennium Development Goals: China's Progress", says "China has now achieved its MDG poverty reduction goals by halving its poor on the basis of the 85 million 1990 figure."

"China's poverty reduction reflects the government's efforts toward overall growth and development combined with significant policy and budgetary support for poverty reduction," says the report.

According to the report, such efforts include the current poverty reduction policy covering the period from May 2001 to 2010,and the western region development strategy. China has also taken many measures to ensure grain production.

It says, using the government poverty line, China's rural poor decreased dramatically from 250 million in 1978 (30.7 percent of the rural population) to 85 million in 1990 (9.4 percent of the rural population) and then to 30 million in 2000 (3.2 percent of the rural population).

At the same time, China is "ahead of target" in lowering the proportion of people living below minimum dietary consumption levels, with the rate falling from 17 percent in 1990 to 11 percent in 2000.

It is also "ahead of target" in reducing the percentage of underweight children from 21 percent in 1990 to 10 percent in 1998.

To eradicate extreme poverty and hunger is one of the MDGs outlined during a UN Summit in September 2000.

Source: Xinhua

http://english.peopledaily.com.cn/200403/25/eng20040325_138495.shtml

Official says China's development policy to be adjusted

Last updated at: (Beijing Time) Wednesday, March 24, 2004

Wang said, at a new stage of development, the old concept and policy for development putting all effort into solving food and clothing problem should be adjusted accordingly. The old development concept and policy rooted in the planned economy, needs to be adjusted. The problems that were not in conformity with the overall, coordinated and sustainable development are also required to be adapted to a new concept and policy.

According to Wang, China's policy for realizing the overall, coordinated and sustainable development can be summed up in the following five aspects:

1.Priority to be given to rural development and peasant's problems. Promote coordinated development in both rural and urban areas. Apply advanced technology to transform the agriculture and the entire rural economy. Realize the transfer of rural population to non-rural population by means of industrialization and urbanization. Put the rural economy in the track of unified socialist market economy by deepening reform.

2.Given the strategic goal for China's development to lay emphasis on helping the backward areas, the coordinated development for common prosperity can be achieved.

3.Emphasize resolving social problems and promoting harmonized development in society and economy. The priority is to expand employment; stress on developing labor-intensive industries; give support to small and medium sized enterprises; develop non-public sectors and apply more flexible employment methods.

4.Protect ecological environment and for resource conservation, so as to boost coordinated development of human and nature. Establish a resource conservation society and give priority to resources conservation.

5.Pay attention to harmonizing domestic and foreign markets; promote domestic development in the process of expanding foreign markets. China will seriously fulfill its commitments made at entry of the WTO to further open its domestic markets. China will actively engage in global and regional economic cooperation; develop bilateral and multilateral economic and trade ties, to realize mutual development.

By People's Daily Online

http://english.peopledaily.com.cn/200403/24/eng20040324_138372.shtml

China urgently needs changing economic growth pattern

Last updated at: (Beijing Time) Wednesday, March 24, 2004

China has though made great achievements in its economic and social developments universally acknowledged, yet it did not free itself from the pattern in which extensive economic growth was obtained out of "high input, high consumption, high exhaust, uncoordinated development, difficulty in recycling and low efficiency".

It is specially important and urgent for China to choose rational means for economic growth, said Ma Kai, Director of State Development and Reform Commission (SDRC) at the China Summit Forum on Development on Mar. 21.

According to Ma, over the 50-odd years since the founding of the People's Republic of China (PRC), China's Gross Domestic Product (GDP) increased by more than 10 times with an increase of 40-odd times in the consumption of mineral resources. Fixed asset investment rate remained a high level for long. As high as 500 million yuan of investment is required for an increase of 100 million yuan of GDP while during the sixth Five Year Period (1981-1985) and Seventh Five Year Period (1986-1990), one-yuan GDP increase could be realized by an investment of only two yuan.

High consumption of various kinds of resources went abreast with rapid economic growth. Last year China used about five billion tons of various domestic resources and imported resources. China's consumption of crude oil, coal, iron ore, steel, aluminum oxide and cement was about 7.4, 31, 30, 27, 25 and 40 percent of the world's total with a GDP increase only about 4 percent of the world's total. Growth at the cost of high consumption led to great exhaustion, serious pollution. China's drainage of sewage and disposal of solid waste have greatly exceeded that in eveloped countries. Marked problems are seen in China's economic structure caused by uncoordinated economic growth, making part of the growth ineffective. Irrationality exists in industrial structure, internal structure in industries, organizational structure of enterprises, product mix, technological structure, urban and rural structures, regional structure and layout of significant productivity, limiting the improvement of the quality of economic growth and overall efficiency.

By People's Daily Online

http://english.peopledaily.com.cn/200403/24/eng20040324_138353.shtml

China's income distribution policy urged to be adjusted

Last updated at: (Beijing Time) Thursday, March 18, 2004

With US$ 1000 as a criterion, China has turned from a low-income country to a lower-medium-income country. The new development phase means not only a "golden development period" but also a "period with outstanding conflicts". The problem of income gap is a major social conflict in the development stage.

Liaowang (Outlook) Weekly pointed out that wide income gap is unavoidable in the development stage and how to curb the widening of the income gap is a question we must face up in order to avoid social turbulence.

In 2003, the nationwide per capita disposable income of city dwellers was 8, 472 yuan while the net income of rural inhabitants only 2, 622 yuan. In that year, some media released "China 400 richest" whose total wealth was 301.1 billion yuan, three times as much as that of the Gross Domestic Product (GDP) of Guizhou Province in 2000.

A report issued by the Ministry of Finance in 2003 showed that the overall gap of residents' income, represented by Gini Coefficient (Gi) was widening every year and has gone beyond the internationally recognized bottom line. The figure was 0.282 in 1991, 0.456 in 1998, 0.457 in 1999, 0.458 in 2000, an increase of 1.62 times in ten years.

Professor Li Qiang with the School of Humanities and Social Sciences of Tsinghua University pointed out some new characteristics of the wealth differentiation in recent years. The differentiation at large is exasperated while the rate of differentiation was slower than that in the middle of 1990s; serious wealth concentration; severe differentiation among regions; peak differentiation between cities and rural areas; serious internal differentiation in cities and rural areas. In terms of social structure, China is still a pyramid society in which there is a big shortage of middle class while underclass and class with medium and low income are unduly separated from the whole society, forming economic bottom society with related culture and social value.

Li Peilin, researcher with Chinese Academy of Social Sciences held that we must tackle the problem of fairness from adjusting the income distribution policy and regulation. Under the system of social market economy, initial distribution is mainly determined by fair play and market mechanism and the state mainly depends on laws, regulations and policies to effect influences and controls on the re-distribution. If the state over-interfere with the initial distribution in the market, it will definitely affect efficiency, while there will be widened gap should the state give it a free rein.

By People's Daily Online

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"Common wealth" policy drawing wide support

www.chinaview.cn 2004-03-09 18:06:31

BEIJING, March 9 (Xinhuanet) -- With the new generation of Chinese leadership taking office a year ago, a substantive change has occurred in the government's development policy which targets at "common wealth" for all.

The essence of the policy, a scientific approach to development and putting people first, finds expressions in both a communique of the Communist Party of China Central Committee issued last October and the government work report of Premier Wen Jiabao made last Friday.

The philosophy of "common wealth" is a "major step forward in China's history" some 20 years after late leader Deng Xiaoping advocated for "letting a group of the people get rich first and finally realize common prosperity," said Hu Angang, a noted economist.

Deng's theory helped to do away with the equalitarianism in the country's long-standing distribution system and kicked start a sustained rapid economic growth at an average annual rate of around 10 percent for over two decades.

However, problems arising with the economic takeoff, such as enlarging disparities between the urban and rural areas, between different regions and between people in terms of income, cannot be ignored.

According to official estimation, the gap between the most affluent province in east China and the poorest province in the west grows as wide as more than ten folds and the urban residents in the eastern province earn three times more than their peers in the western province.

The promulgation of the new policy that aims at an overall, coordinated and sustainable development and promotion for the comprehensive economic, social and human development indicates a major readjustment when China enters a new stage of economic and social development, said Song Xingguo, a lawmaker representing the banking sector.

It also shows that the central government has paid close attention to the potential risks of imbalanced growth behind the unprecedented prosperity of the country, said Li Shantong, a member of the national advisory body -- the Chinese People's Political Consultative Conference.

Hu Angang said "common wealth" does not imply "equal wealth" for all, nor a stop or reversal to the development of the areas and people that have led others in getting rich.

What the new policy pursues is precisely to create opportunities whereby all the people pitch in development together,improve the capacity to develop together, promote development together and share the fruits of development together, he said.

"This is the political guarantee for long-term social stabilityin China," he added. Enditem

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Bulletin on 2003 Socioeconomic Development Released

China's gross domestic product (GDP) in 2003 grew 9.1 percent over the previous year, reaching 11.6694 trillion yuan (US$1.4 trillion), according to the annual statistical bulletin on the mainland's economic and social development.

The bulletin, provided by the National Statistics Bureau Thursday, shows the nation's general price level rose by 1.2 percent last year, and the registered unemployment rate in urban areas stood at 4.3 percent by the end of 2003, up 0.3 percentage points from the previous year.

Foreign trade surplus totaled US$25.5 billion in 2003, dropping by US$4.9 billion, and the foreign exchange reserve reached US$403.3 billion, up US$116.8 billion, the bulletin shows.

Total grain production dropped by 5.8 percent to 430.67 million tons in 2003, but the industrial value added rose by 12.6 percent to 5.3612 trillion yuan (US$647.7 billion), with rapid growth registered in the sectors of high technology, energy, raw materials and automobile manufacturing.

The high tech industry grew by 20.6 percent in terms of value added, while the production of optical telecommunications equipment, program-controlled switchboards, mobile phones and computers jumped between 25.9 percent and 120 percent.

The output of primary energy stood at an equivalent of 1.6 billion tons of standard coal, up 11 percent, with electricity up 15.5 percent to 1.91 trillion kwh, raw coal up 15 percent to 1.67 billion tons, and crude oil up 1.8 percent to 170 million tons.

The output of steel, rolled steel, ten kinds of nonferrous metals and cement increased by 21.9 percent, 25.3 percent, 19.1 percent and 18.9 percent, respectively; while automobile output jumped 36.7 percent to 4.44 million units, including 2.02 million sedan cars, soaring by 85 percent.

Industrial profits totaled 815.2 billion yuan (US$98.5 billion), up 42.7 percent, and the amount of industrial losses dropped by 1.9 percent, the bulletin says.

Total foreign trade last year reached US$851.2 billion, up37.1 percent, with export up 34.6 percent to US$438.4 billion, and import up 39.9 percent to US$412.8 billion.

China last year imported 91.12 million tons of crude oil, up 31.3 percent; 28.24 million tons of oil products, up 38.8 percent; and 37.17 million tons of rolled steel, up 51.8 percent.

Last year China approved the setting up of 41,081 enterprises funded with foreign capital, up 20.2 percent year on year. These enterprises involved a total contractual investment of US$115.1 billion, up 39 percent, with the amount of foreign investment actually used up 1.4 percent to US$53.5 billion.

The bulletin revealed a population of 1.29 billion by the end of 2003, increasing by 7.74 million over the year before. The year's birth rate stood at 12.41 per thousand and the mortality rate was 6.4 per thousand, leaving a natural growth rate of 6.01 per thousand.

The disposable income of urban residents increased by 9 percent and the net income of rural residents rose by 4.3 percent. The basic old-age insurance covered 154.9 million people, 7.53 million more than the previous year.

China lost 2.54 million hectares of farmland last year, and consumed 10.1 percent more energy resources than the previous year, figures show.

The bulletin also shows the severe shortage of water resources, the progress in mineral exploration, the enhancement of environmental protection and the huge losses caused by natural disasters in the country last year.

(Xinhua News Agency February 28, 2004)

http://www.china.com.cn/english/2004/Feb/88738.htm

Zoellick stresses importance of trade with China

Last updated at: (Beijing Time) Friday, February 27, 2004

US Trade Representative Robert Zoellick on Wednesday stressed the importance of trade with China, saying Americans should not forget how the idea of the win-win nature of trade works.

In a speech to the Asian Society in New York, Zoellick said there is much at stake for both the United States and China, and the world, in how the two countries exercise power and responsibility.

"Just (when) the Chinese are learning the win-win nature of trade, Americans should not forget how the idea works," Zoellick said.

He said the United States needs the support of China to move the current round of the World Trade Organization (WTO) negotiations forward. "We need China to be a partner in trade leadership."

The current round of WTO negotiations stalled last September in Mexico when developing and developed countries failed to reach an agreement on agricultural subsidies.

Zoellick said China's market represents a great opportunity for the US economy, noting that US exports have dropped seven percent worldwide over the past three years while shipments to China have soared 75 percent.

"Many American workers have good-paying jobs because of US business with China. Many American consumers can stretch their hard-earned dollars further because of imports from China," he said. Zoellick said the United States has a lot to gain from more open trade borders with China and other countries, but China needs to step up reforms to ensure fair competition as it tries to modernize the world's most-populous economy.

http://english.peopledaily.com.cn/200402/27/eng20040227_136002.shtml

RMB revaluation unhelpful to US unemployment: Greenspanast

updated at: (Beijing Time) Thursday, February 26, 2004

Revaluation of the Renminbi (RMB) will be of no help to America's unemployment problem, "economy steersman" Alan Greenspan said twice in a short period of two months.

Federal Reserve Chairman Alan Greenspan testified to the US Congress on February 11 that attempts to restrict Chinese commodities would offer no help to solving America's unemployment problem. This is his second remark on a China issue in two months, which served as a best dose of sobriety to those clamoring for RMB appreciation.

In the past two years America has been tormented by high unemployment rates, and job prospect remains gloomy despite the fact that many economic indexes have reached or surpassed anticipation. Employees in some sectors are under increasing pressure, and it's only natural that they bear a drudge against Chinese commodities flooding the American market and the move-out of American enterprises to China, thinking it's the Chinese who have taken away their "rice bowls" (jobs). Some experts and politicians also made a big fuss about the matter to serve their own needs, as if the problem of unemployment would be resolved as long as the RMB was revalued and China's exports were restrained. In response to these remarks, Greenspan pointed out clearly that this was not a question of China, but a basic issue of international competition. Greenspan's viewpoint is clear-cut-it is not China that caused the reduction of job opportunities, but the invisible hand of global competition.

According to the "standard calculations" of American economic research institutions, an end should have been put to this round of economic depression by November 2001. Since then the country's economy has begun to take an upturn from the slump. By the end of 2003, two years after the recovery, employment opportunities dropped by about 700,000. America witnessed a new economic phenomenon of an "unemployment-typed recovery", because many enterprises raised profits through digesting technology accumulation and the outward shift of production two years ago. The result was the slash of staff, especially staff in the manufacturing sector. In fact, in the competition of economic globalization, the rise in productivity has become an important factor deciding whether an economy can achieve sustainable development. It was against such a background that the American economy began to recover. Statistics are the best indicators--from 1995 to 2001, America's average annual growth of productivity was 2 percent, while that of the EU was only 1.3 percent. Along with the recovery, the country's productivity improved considerably to reach 4.8 percent in 2002.

For many years, the advantages of American enterprises lie in the fact that they have begun adjustment ahead of others, while one of the adjustment goals is to do more work with fewer hands. For some manufacturing enterprises this implies that they either move their plants to countries with lower labor cost, or to shift their work outward to cheaper laborers. China has become one of the destinations of the outward shift of the American manufacturing sector mainly because of its relatively low labor cost and fairly good investment environment. That's why Greenspan stressed that although RMB revaluation may cause a reduction in the export of Chinese textiles and other commodities, it would not boost America's textile production, because there is greater possibility for America to import textiles from other low-wage Asian countries to replace Chinese textiles.

Economic globalization actually is a process involving both gains and losses. Even the United States, the most powerful country in the world, has to pay a certain price, without which it is impossible for it to gain. From a historical prospective, containing others' development in order to retain one's own domain is both shortsighted and unattainable. As for the United States, it is said that half of the work names in today's America cannot be found in dictionaries published in the 1960s. As regards how to solve the unemployment problem, Greenspan once made the remark that elevating trade barriers would be of no help at all to solving this problem. Preventing foreign products from entering into America will only lower the utilization ratio of US capital and labor resources and cause an overall reduction in domestic living standards. To solve the unemployment problem arising from global competition, it is necessary to provide re-employment training for the jobless instead of setting up barriers.

The challenges America faces today are by no means unprecedented, said American economist Roach. Restructuring-related challenges were once posed to American farmers in the late 19th century, to "plants of sweat and blood" in the early 20th century, as well as to manufactures in the early 1980s. America now is faced with two options, one is to look back and yearn for everything which people once thought to be their own possessions; the other is to stick to the road of prosperity featuring innovations and openness. If those hoping to rely on RMB revaluation to solve unemployment could approach the question from such a height, then they would probably not "moan over things already lost", as Roach put it.

By People's Daily Online

http://english.peopledaily.com.cn/200402/26/eng20040226_135919.shtml

Premier Wen highlights scientific development concept

Last updated at: (Beijing Time) Sunday, February 22, 2004

The formation of the new scientific development concept is a major achievement the Communist Party of China (CPC) has made in its efforts to emancipate ideological work, seek truth from facts, keep pace with the changes of the time, and realize ideological innovation, said Premier Wen Jiabao Saturday in Beijing.

He called for firmly advocating and seriously implementing the scientific development concept, to push forward the great cause of socialism with Chinese characteristics in a more fruitful way.

Wen, who is a member of the Standing Committee of the CPC Central Committee Political Bureau, made the remarks Saturday at the conclusion of a high-level training course held at the Party School of the CPC Central Committee.

In his speech, Wen urged leading officials at all levels to guide their work in accordance with the scientific development concept, which has been developed on the basis of relevant theories of Mao Zedong, Deng Xiaoping and Jiang Zemin, heads of China's first, second and third generation leaderships, respectively.

According to the premier, the scientific development concept focuses on integrating humanism with overall, coordinated and sustainable economic and social development, while pushing forward the reform and development drive to coordinate development in both urban and rural areas and in different regions, achieve harmonious development between man and nature, coordinate domestic development and open up to the outside world.

He called for adherence to the principle of humanism, saying that humanism is the nature and kernel of the scientific development concept.

Vice President Zeng Qinghong attended the ceremony, which was presided over by Vice Premier Huang Ju. Both Zeng and Huang are members of the Standing Committee of the CPC Central Committee Political Bureau.

The training course started Monday, with the participation of a group of provincial- and ministerial-level officials.

People's Daily editorial on scientific concept of development

People's Daily issues an editorial Sunday calling on leading officials to take the lead in studying and implementing a new scientific concept of development, a new advance the Communist Party of China (CPC) has made in the ideological field.

The editorial hails the scientific concept of development as an important sublimation of the CPC in its understanding of the law of economic and social development, as well as a leap forward for the Party's concept of ruling. It is of great realistic importance and far-reaching historic significance, it says.

The new concept has a rich content, and touches the fields of economic, political, cultural and social development, the editorial says.

The new concept calls for people-centered development, which is comprehensive, coordinated and sustainable. It also stresses coordinated development between urban and rural areas, among different regions, between economic and social development, between the development of man and nature, and between domestic development and opening to the outside world.

By People's Daily Online

http://english.peopledaily.com.cn/200402/22/eng20040222_135467.shtml

Restriction on Chinese export no solution for US employment problem

Last updated at: (Beijing Time) Monday, February 16, 2004

It would do no good to solve the US employment problem by trying to impose a ban on Chinese export to the US, said Alan Greenspan, chairman of the Federal Reserve Board of the United States, while giving testimony to the Committee on Financial Services of US House of Representatives.

The US is faced with serious employment problems, said Greenspan in his answer to the questions raised by some congressmen. Yet he would in no way try to recommend a policy aiming at restricting the Chinese export to the US.

Some Americans claimed that the floating RMB exchange rate would help protect employment opportunity in the United States. Greenspan pointed out that the assertion of these people was based on the assumption that other countries wouldn't replace China in exporting goods to the United States. The fact is should China stop exporting goods to the US other countries would step into its shoes. From this viewpoint it wasn't China's problem. It was a cardinal problem of international competition.

By People's Daily Online

http://english.peopledaily.com.cn/200402/16/eng20040216_134901.shtml

China's economy starting a new upward cycle: Analysis

Last updated at: (Beijing Time) Friday, February 13, 2004

During the implementation of anti-cyclical macro-economic control policies between 1998-2001, the growth of China's GDP remained stable at 7-8 percent, exceeding 8 percent in 2002. In the first quarter of 2003, the growth was as high as 9.6 percent. In spite of the impact of SARS, the GDP growth in the first three quarters still kept at 8.5 percent.

Since 2002, China's GDP growth has been stabilizing at over 8 percent and the economic operation is in a fresh upward cycle. Meanwhile, investment has been brisk, price has started going up, and the index showing entrepreneurs' confidence has also increased. From January to September 2003, society's total fixed asset investment was 3 trillion yuan (US$362.8 billion), an increase of 30.5 percent over the previous year. The balance of the supply of broad money (M2) rose by 20.7 percent. Banking institutions' RMB loans increased by 2.47 trillion yuan (US$298.3 billion) compared with the beginning of the year, a rise of 1.12 trillion yuan (US$135.26 billion). Enterprises' profit obviously went up. The consumer price indexes (CPI) grew for 10 straight months, and a new round of consumption sprees has appeared, with cars, housing, tourism and telecommunication tools becoming hot consumption spots.

The far-reaching significance is that investment that relies on state treasury was reduced, and the amount raised by enterprises through foreign capital and domestic loans increased faster than budgeted funds. The growth shows that China has received tangible results from its six straight years of anti-cyclical operations, demonstrating that the government investment has propelled non-government investment, thus bringing China's entire economy into an independent developing channel. Therefore, we can say that China's macro-economic operation has passed through a low valley to a peak.

In addition, the rising domestic economy has been supported by the recovery of the world economy. A yellow book issued by the US Federal Reserve Board in late November last year says that the US economy has come out of its two-year long recession and is entering a prolonged and widespread recovering period. Japan and euro-zone countries have also got rid of their economic stagnation. The International Monetary Fund (IMF), Morgan Stanley and other world-known organs all gave an optimistic prediction for the world's economic situation in 2004.

Such a strong development situation does not come easily. It is the result of China's efforts to overcome difficulties brought about by years of relatively low economic growth and deflation and to carry out a series of economic control policies.

These major changes in the economic situation were followed by heated discussions on macro-economic issues in various circles. There are also suggestions on guarding against a new round of overheating since there is rapid increase in money supply and loans, repeated investment in real estate and other industries, and a fast growth in energy and grain prices. The consumer price index, however, is still negative. This indicates that overheated investment growth might lack corresponding consumer desire.

Such thinking is normal. Logically, when an economic cycle hits a peak, attention should be paid to preventing and controlling economic overheating. In such fields as steel and real estate, overheated investment does exist. But we cannot conclude from this that the national economy is overheated and that measures should be taken to deal with inflation. This is because we cannot judge China's national economy as "cold" or "hot" simply by data, or by comparison with other countries. We must take into account both China's economic features and current prominent contradictions and problems while making policy decisions for the next step. As the process of commercialization, industrialization and urbanization is being accelerated, and reform in various fields is deepened, various complicated problems have emerged and become interweaved. Some problems, such as those related to agriculture, rural areas and farmers, unemployment, stagnant consumption, social security, eco-environment, technological progress and industrial upgrading, can be solved only through development.

To improve and perfect macro-economic control policies, we should fully consider the following:

1. It takes a period of time for the national economy to reach its peak after passing a turning point, and during this time there is much development potential at stake. Countermeasures should be taken to deal with overheating and repeated construction prompted by government investment in some industries.

2. Development is an essential principle. In order to realize the modernization strategy, we must turn the potential for growth into real growth during the course of transforming the economic pattern from a planned to a market-oriented one and change the mode of growth from an extensive to an intensive one.

3. Priority should be given to the unemployment problem and social security, followed by alleviating inflation.

4. The process of market competition is one involving "repeated construction" and is one in which the fittest survives.

At present, repeated construction mainly involves private enterprises, which, in a sense, is dominated by the market economy. Emphasis should be placed on opposing repeated construction under government operations. Furthermore, China's current investment mainly goes to the heavy chemical industry and, as it needs huge amounts of capital and a long period between input and output, we cannot expect an immediate consumer price index response.

The current favorable economic situation provides conditions for relatively rapid development in the year 2004. So, we must continuously implement sound fiscal policy under the principle of expanding domestic demand and prudent monetary policy, so as to accelerate economic development.

Attention must also be paid to taking preventive measures against the next round of inflation pressure, intensifying economic analysis and forecasting, and coping with overheating issues and outstanding structural problems. Readjustment and improvement should be made in following policies:

--Rationally adjusting the strength and emphasis of proactive fiscal policies, with emphasis laid on appropriately reducing long-term treasury bonds, mainly using government loans in extended projects and in final-phase projects, increasing input in agricultural and public health infrastructure facilities, as well as in public projects relating to ecological protection, and supporting key projects for western development and the transformation of old industrial bases. Meanwhile, effective measures must be taken to optimize project decision-making, to strengthen supervision and management, and efficiently utilize funds raised from issuing treasury bonds.

--Improving the coordination of fiscal and monetary policies, and enhancing control over all financial matters.

--Bringing the role of the policy-oriented banking system into full play, straightening the relationship between policy banks and credit insurance organs on the one hand and financial departments and commercial banking systems on the other, bringing the regulatory role of discount, low-interest loans and credit guarantee into full play, and actively exploring and propelling BOT (build, operate and transfer) and other new ways to guide and use non-governmental capital in public investment fields.

--Promoting a new round of taxation reform merging the income tax of domestic and foreign-funded enterprises in due course, realizing changes in VAT and putting into practice structural tax reduction measures and other policy measures.

--Further expanding domestic demand through efforts to improve consumption stimulating policies, public services, administrative efficiency and the investment environment.

--Deepening reform, advancing system innovation and developing the fundamental role of market mechanisms, so as to form a solid system base for long-term economic growth.

Source: Beijing Review Feb. 11, 2004

http://english.peopledaily.com.cn/200402/13/eng20040213_134800.shtml

9.1% surge epitomizes sound growth of economy

www.chinaview.cn 2004-01-20 21:42:09

BEIJING, January 20 (Xinhuanet) -- China's economic growth reached a seven-year high at 9.1 percent in 2003, a rate the top Chinese top statistician referred to as a milestone since the growth rate, he noted, is much higher than estimated by many international analysts at the end of last year.

Li Deshui, head of the Chinese National Bureau of Statistics (NBS), said here Tuesday that China had overcome the impact of the Asian financial crisis thanks to the substantial measures it had taken to fight both inflation and deflation over the past decade.

In fact, the surge of industrial output turned out to be the major driving force behind the rapid economic growth. NBS figures showed the value turned out by the industrial sector last year accounted for 71.6 percent of the gross domestic product (GDP), contributing 6.5 percentage points to the 9.1-percent overall economic growth.

NBS spokesman Yao Jingyuan acknowledged that heavy industry hadtaken the lead in industrial growth, signifying the start of a comprehensive upgrading of the economy. This meant the Chinese economy was on a new stage of development.

On the demand side, a 26.7-percent surge in capital investment constituted one of the main factors for the record economic growth.As retail demand remained stable and export growth reached a new high of 37 percent, the economy registered a strong performance last year.

Li said the economy had entered a new era of growth as the per capita GDP topped 1,090 US dollars in 2003. The rise of consumer demand would greatly spur the expansion of such industries as high-tech manufacturing and electronics, automobiles, housing and services.

Official statistics show China's car output amounted to over 2.07 million cars last year, up 80.7 percent over the previous year.A total of 112 million people subscribed to new telephone lines, equal to the populations of Britain and France combined. China had532 million telephone subscribers by the end of 2003, more than the population in any other country worldwide except India.

The government had done well in 2003, in terms of the international recognized policy goals, namely economic growth, inflation, employment and external balance.

China's consumer price index was 1.2 percent for the year. Newly created jobs in urban areas totaled 8.5 million, exceeding the envisioned annual target of 8 million. Meanwhile, the country managed to retain a slight trade surplus and increased its foreignexchange reserves to 403.3 billion US dollars.

However, Li noted, the economy had seen overheating in some sectors and areas of the country, a problem which should merit attention.

Yao said structural problems were still around in the economy as service industry accounted merely for 32 percent of GDP. There were repetitive construction in industrial sectors such as steel, automobiles, cement and electrolytic aluminum. The steel sector needed restructuring, and China, one of the world's top steel manufacturers, had to import about 30 million tons of steel yearlydue to lack of production capacity of upper-end products.

Yao further noted that the gap in income growth between urbanites and rural residents widened last year. The disposable per-capita income of urban residents grew 9.3 percent in 2003, five percentage points faster than that of rural residents.

The vigor of small and medium-sized enterprises (SMEs) was yet to develop, he said. Official figures showed the output of large enterprises rose by 17 percent last year, higher than that of SMEs.

To tackle these problems, the government had decided to invest more in developing infrastructure in rural areas and raising the incomes of farmers. Official sources said some industrial sectors had developed plans to curb blind investment in repetitive capacity.

China would pursue inclusive, balanced and sustainable development, instead of seeking growth at any cost, Li said, predicting its economic growth rate this year would be lower than in 2003. However, he voiced his confidence that the economy would possibly grow more than seven percent. Enditem

http://news.xinhuanet.com/english/2004-01/20/content_1285767.htm

China doubters could be wrong: Expert

Last updated at: (Beijing Time) Wednesday, December 31, 2003

Editor's Note: After 20 years of rapid growth, China's economy remains one of the most vigorous and robust economies in the world. The strong rise has not only benefited China by transforming the country from a poor country into a regional power; but has also brought dynamic economic development to the region as a whole by turning China into one of the most attractive destinations for exports produced by neighbouring economies. On a different tack than other analysts, with their cool and cautious projections for the world's economy in 2004, Stephen Roach, chief economist with Morgan Stanley, believes that China will continue to see robust development in the coming new year. Follow the details of his argument below.

The world has discovered China. And with good reason: I continue to believe that China is the greatest economic development story of the 21st century.

But no economy is perfect. There are often bumps on the road to prosperity - some minor and some serious - that pose important challenges to any growth strategy. China is no exception, and in fact is facing just such a challenge today.

The Chinese authorities are in the process of tempering some of the economy's recent excesses. This suggests that the next China growth surprise is likely to be on the downside, a development that could have important implications for the global economy and world financial markets.

There are two ingredients to the China slowdown story: a credit bubble and inflation. Beginning in late 2002, Chinese bank lending accelerated dramatically; in the 12 months ending November 2003, the outstanding volume of total loans was up 21.4 per cent - nearly double the average gains of 11.9 per cent over the period from 1997 to 2002.

It quickly became evident that the acceleration was concentrated in the four State banks, whose primary focus is to provide funding for China's vast network of State-owned enterprises (SOEs).

Unfortunately, this segment of the Chinese economy is still the shakiest. With excess lending flowing into SOEs, there was a growing risk of a new wave of non-performing bank loans, very much at odds with the basic thrust of Chinese financial-sector reforms. At the same time, there was mounting evidence of a real estate bubble, especially in the Shanghai area, but also in other pockets of the relatively wealthy coastal region.

This, too, appears to have been largely a by-product of excessive bank lending that was funding increasingly speculative property development projects.

There have also been indications of excess spending on infrastructure.

Meanwhile, there has been an important shift in the Chinese inflation dynamic: After 15 months of deflation, China moved back into positive inflation territory at the start of 2003.

And slowly but surely, the rate of inflation has begun to accelerate.

The just-released inflation report for November 2003 is worrisome - a 3.0 per cent year-on-year increase, which represents the sharpest rise in nearly seven years.

The mix of Chinese inflation is important, but not for the reasons we stress in the industrial world.

The recent surge is concentrated in food prices, where annualized inflation is now running at an 8.1 per cent rate.

Weather-related or not, this is a big deal in a nation where about two-thirds of the population still lives in poverty. Unlike the West, where we strip out food in an effort to come up with "core" inflation, the Chinese have no such luxury. At the same time, there are indications of price acceleration elsewhere in the Chinese economy - especially for consumer essentials such as utilities (4.6 per cent), medical care (8.1 per cent), and education (3.9 per cent).

The same can be said of the property sector, where inflation in housing rents hit 3.7 per cent in November; this fits all too well with sharply rising prices in many construction materials such as steel and cement - a development that has caught the attention of China's central bank.

Has the Chinese economy overheated? The answer is no - at least, not at the present moment.

But it certainly could if the authorities stood by and did nothing. Precisely for that reason, China's central bank has taken preemptive action to stem the excesses of this credit-induced inflation. As announced in late August and implemented in late September, the People's Bank of China raised reserve requirements on bank deposits from 6 per cent to 7 per cent.

This action has since been followed by an early December reduction in interest rates paid on excess reserves - more of a technical regulatory adjustment than a reversal of the earlier tightening. Notwithstanding these policy moves, it should be stressed that China does not yet have a robust instrument-based monetary transmission mechanism as we know it in the West. In this still centrally controlled economy, banks - especially the four dominant State-owned institutions - take their cue more from the rhetoric of policy pronouncements. Largely for that reason, the medicine appears to be working. Bank loan growth averaged just 80 billion yuan (US$9.66 billion) in October and November, down sharply from average monthly gains of 275 billion yuan (US$33.13 billion) in the first three quarters of this year.

This turn in the Chinese credit cycle could have important global implications. The rest of Asia is especially vulnerable to a China slowdown. That's because Chinese imports have become an important source of external demand elsewhere in the region.

In the first nine months of 2003, China accounted for 66 per cent of Japan's total export growth; for South Korea the figure was 40 per cent and for China's Taiwan, an astonishing 97 per cent.

For the smaller and more diversified ASEAN (Association of Southeast Asian Nations) economies, China's share of this year's export growth is in the 20-30 per cent range.

Nor is Asia alone in drawing sustenance from Chinese demand.

China accounted for fully 56 per cent of Germany's total export growth in the first eight months of 2003 and 21 per cent of that in the United States. Should China's economy now slow down, as we suspect, the rest of Asia, along with Europe and the United States, will suffer collateral damage.

Interestingly enough, early warning signs of a slowing in Chinese import demand are now evident: The November trade statistics revealed a sharp deceleration of import growth to 28.4 per cent year-on-year - still vigorous, to be sure, but well below the 40 per cent pace over the first 10 months of the year.

This could be the first hard indication of the coming slowdown in Chinese domestic demand. With China now qualifying as an important engine of growth in a still-sluggish world, a slowdown in the Chinese economy underscores the risk of a global growth disappointment in the first half of 2004.

As is all too often the case with respect to China, the West just doesn't get it.

Missing from the world's assessment of China, in my view, is the perspective from the inside - the overarching imperative for China to stay the course of reforms without disturbing social stability. Reforms in China are proceeding at a pace that is almost impossible to fathom from outside.

Critical to this process is the unrelenting restructuring of China's vast network of SOEs, resulting in the annual elimination of 7 to 9 million State-funded jobs.

China's reforms are all about creating a market-based alternative to its antiquated SOE sector, and are sustaining a vigorous growth climate that is capable of absorbing the concomitant increase in displaced workers.

Given this, China cannot afford a "growth accident" that might destabilize this process. The bigger the Chinese economy gets and the further it goes down the road to reform, the more severe the consequences of any growth accident, or upset. To the extent that recent developments on the credit and inflation fronts raise the risks of a hard landing, there is great incentive for Chinese authorities to take preemptive action to engineer a soft landing. And that's exactly what they have done.

True to form, the Western consensus is likely to go from one extreme to another in assessing the prospects for the Chinese economy, with euphoria over the boom quickly giving way to fears of the coming bust.

None other than US Fed Chairman Alan Greenspan recently warned of the latter possibility in voicing concerns over China's currency peg - stressing the risk of recession that stems from defending a currency regime through excessive domestic liquidity creation. Greenspan's view only adds to the growing chorus in the West calling on China to revalue the renminbi currency. The arguments in most cases are thinly veiled efforts to get China to temper pressures that are building elsewhere in the world. Japan and Europe want China to share the burden of the dollar's inevitable adjustment, a stance that I would argue is steeped in hypocrisy: Two of the wealthiest regions of the world that remain reluctant to reform are demanding assistance from a poor nation that has been aggressive in embracing reforms.

And, of course, there's the political angle, increasingly shaped by a bipartisan coalition of protectionist US politicians who are eager to see China cave on the currency issue.

A soft landing is likely. In the perception of the West, a hard landing in China is always the risk. Yet time and again, China has proved the doubters wrong. That was the case during the 1997 Asian financial crisis, when worries about a Chinese currency devaluation were rampant.

China was also feared to be at great risk in the recession of 2001.

And similar concerns are being voiced today. Yet China is dealing with its growth excesses on its own terms - not on terms that would be politically expedient for the West. A currency-driven solution works best in a market-based economy.

For a command economy like China's, credit allocation is far more effective in helping set the stage for a soft landing.

While this juncture could prove to be an important test for China's new leadership, it is a test that I believe will be managed successfully.

I wish I could say the same for the rest of the world. (China Business Weekly)

http://english.peopledaily.com.cn/200312/31/eng20031231_131636.shtml

?/font> GDP no longer sole index of China's growth

Experts believe that China will focus on the quality rather than the speed of the economic development next year, in a move to balance the country's economic growth and social progress. GDP (gross domestic product) will no longer be the major index to decide local officials' career and promotion prospects. Instead, the employment and social welfare services will also be taken into consideration in judging officials' achievements, said Gao Huiqing, division chief of the department of strategy & development with the State Information Centre. Gao told China Business Weekly last week that the country's social development lags far behind economic growth, which is reflected in the increasing unemployment. This year the unemployment rate is 4.2 per cent, and the percentage is expected to grow to 4.7 per cent next year, according to the National Bureau of Statistics (NBS). Some experts believe the real situation is even worse, especially in the vast rural areas. China still has more than 100 million surplus workers, although 100 million rural people have been flowing into cities to work since the 1980s. Lu Xueyi, chairman of the Chinese Sociological Association, said the economic structure has been upgraded by the high-speed economic boom, but that the social structure has not followed suit. In 2001, about 15.5 per cent of China's GDP came from agriculture, another 51.1 per cent was turned out by industry and construction, and 33.7 per cent was produced by the service sector. The GDP distribution indicates China has entered the middle stage of industrialization, in which industry produces the major part of the GDP, according to Lu. By contrast, the employment structure, one of the indices of social progress, lags far behind. In the same year, 50 per cent of the labour force was in agriculture, 22.3 per cent was in industry and construction, and 27.7 per cent in services. To have half of the labour force engaged in agriculture is typical employment structure for the initial stage of industrialization, Lu said. Township enterprises, which came into being in 1985, have helped to offer many job opportunities to rural people. However, the development of such businesses slowed down after the country started offering more preferential policies to encourage the development of cities, Gao said. Rural towns The central government should not neglect the development of rural towns while they are boosting the development of cities, he said. "Great efforts need to be taken to shift the surplus rural labour forces to secondary and tertiary industries," Gao suggested. The problem of the increasingly large income gap also needs to be solved if the economy is to grow in a healthy way. The income gap among Chinese urbanites continued to widen in this year's first nine months. The Gini coefficient - an international measurement of income disparity - hit 0.4, almost reaching the danger level. The NBS indicates the ratio between salaries of high-income and low-income groups rose to 5.4:1 at the end of September from 5.2:1 last year. In some poverty-stricken areas, the rate may hit 8:1, said Zhao Renwei, director of the economic research institute with the Chinese Academy of Social Sciences. The rate is usually under 2:1 in many developed and even developing countries, Zhao said. "The pressure of fees and taxes is still too heavy on rural people, although the country has already taken measures to reduce rural tax burdens." Zhao said as long as the income of rural residents is not enough to support their purchasing power, domestic demand cannot be stimulated, hence the sluggish growth in industry and services. Government departments are still overstaffed in many counties and towns. Peasants have to support not only local officials, but also all kinds of public facilities, including educational institutions, according to Zhao. He pointed out the central government has to deliver more funds to rural areas. "The redistribution is essential to balance the development of the economy and society," said Zhao. To narrow the income gap between cities and towns, Zhao suggested reinforcing the existing progressive taxation, in which the government sets a base income level, and the tax rate for income exceeding that level increases according to the amount. It can also be applied to tax on bank deposits, as the deposits of high income groups were 51 times more than those of low income groups last year. "If rural people were counted in, the disparity would be even greater," said Zhao. He also pointed out that social welfare services, such as healthcare and education, need to be completed to guarantee the basic living standard of low-income people. (Business Weekly)

http://english.peopledaily.com.cn/200312/20/eng20031220_130853.shtml

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China's national economy continued to grow rapidly in 2001. Preliminary estimates show that the gross domestic product (GDP) of the year was 9,593.3 billion yuan, up 7.3 percent over the previous year in comparable prices. Of this, the added value of the primary industry was 1,461 billion yuan, up 2.8 percent; that of the secondary industry 4,906.9 billion yuan, up 8.7 percent; and the tertiary industry 3,225.4 billion yuan, up 7.4 percent.

Market prices remained stable. The general level of consumer prices was up 0.7 percent over the previous year. Of this, the price level in urban areas rose 0.7 percent and that in rural areas 0.8 percent. The level of food prices equaled that of the previous year, of which grain prices were down 0.7 percent, and the prices of meat, poultry and products were up 1.6 percent, vegetables up 1.4 percent, and eggs up 6 percent. Of other prices, cigarettes and alcoholic drinks were down 0.3 percent, clothing fell 1.9 percent, household appliances declined 2.3 percent, and transport and communications services decreased 1 percent. The prices of entertainment service, education and cultural items rose 6.6 percent while housing costs went up 1.2 percent. Producer prices of manufactured goods were down 1.3 percent, and purchasing prices of raw materials, energy and power down 0.2 percent. The costs of investment in fixed assets increased 0.4 percent.

The scale of employment expanded continuously. At the end of 2001, the number of employed people in China totaled 730.25 million, 9.4 million more than at the end of 2000. Of this total, 239.4 million were employed in urban areas, an increase of 7.89 million. Laid-off workers of State-owned enterprises numbered 5.15 million, a decrease of 1.42 million compared with that at the end of the previous year. A total of 2.27 million laid-off workers found new jobs through various channels. The year-end urban registered unemployment rate was 3.6 percent.

China's balance of payments was favorable. The favorable balance of trade in 2001 stood at US$22.5 billion, a decrease of US$1.6 billion from 2000. Foreign direct investment actually used in the year was US$46.8 billion, up 14.9 percent over 2000. Foreign exchange reserves reached US$212.2 billion at the end of 2001, an increase of US$46.6 billion over at the end of the previous year. The RMB exchange rate remained stable, with the year-end exchange rate standing at US$1=RMB8.2766, an appreciation of 15 basic points.

New progress was made in adjustment of economic structure, with the overall quality and efficiency of economic performance improving constantly. Geared toward the market demand, the agricultural sector vigorously accelerated optimization of variety, quality and distribution of agricultural products. Main crops tended to be concentrated in superior production areas. High-tech industries maintained rapid growth and traditional industries accelerated technical upgrading. Some sectors made new headway in eliminating outdated and cutting down excessive production capacities. Investment in the western region increased to some extent. In 2001, the overall economic efficiency index for all State-owned industrial enterprises and non-State-owned industrial enterprises with an annual sales revenue of over 5 million yuan was 122.1 percent, up 3.4 percentage points over 2000, and profits yielded reached 465.7 billion yuan, up 8.1 percent.

Major problems that remained in national economic and social development are as follows: Contradictions resulting from the irrational economic structure and deep-seated problems with the economic system are still prominent. Pressure on employment has increased, the income of farmers increased slowly, and there are difficulties in the living conditions of some people. Enterprises are still weak in technological innovation and adaptability to market, and some suffer great difficulties in production and management. The problems, such as frequent occurrence of serious accidents and segmented domestic market resulting from local protectionism, are yet to be solved fundamentally. And market economic order needs further improvement.

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