July 01, 1999	atimes.com

China Strategies for dealing with China's downturn BEIJING - A downward trend prevailed in the Chinese economy in both March and April, but particularly in April, even though there was an overall turn for the better from the latter half of last year to the first two months of this year. Statistics from the State Statistical Bureau indicated that the industrial added value realized in the country in April was 170 billion yuan, falling by one percentage point as compared with the first quarter. The fixed assets investment by the public and other sectors of the economy was at 124.7 billion yuan, falling by 7.7 percentage points over the March figure. Retail sales were 235.7 billion yuan, about the same level as in March. The consumer price index dropped by 2.2 percent, and the retail price index dropped by 3.5 percent. Exports were valued at $14.8 billion, falling by 7.3 percent from the same month of last year. The bank savings by residents at the end of the month totaled 5836.9 billion yuan, rising by 19.2 percent, 0.4 percentage points higher than in March. All these indices show that investment demand and consumption demand all fell, indicating a downward slide in the general economic situation. Some experts attributed the downslide to the promotion of multiple policy objectives in the actual operation of the economy, which led to the mutual offsetting of the policy effect. Although the government is pursuing an active fiscal policy, the fiscal policy has not really persisted in the orientation of expansion. The state issued an additional 100 billion treasury bonds last year while at the same time it increased 100 billion yuan in tax collection. As a result, the effect of expansionist fiscal policies has been offset by tight tax policies. In the first four months of this year, when the economy was operating at a low level, the total tax revenue in the country reached 314.8 billion yuan, 20.8 percent more than in the same period last year. For the present, the state has put forward the objective of increasing the proportion of fiscal receipts in GDP to 20 percent in the next three to five years. This has come into conflict with expansionist fiscal objectives. The monetary policy effect has not been obvious in that the financial policy itself has dual objectives. The effect of the institutional contraction, including correction of the investment and trust industries, taking stock of funds of all descriptions, the standardization of interbank lending and borrowing market, the close down of local property right trading centers, the merge of city united banks and the centralization of power for approving loans have all overshadowed the effect of the series of technically relaxed policies issued since 1998. The institutional contraction policy is, from a long-term point of view, favorable for the healthy development of the financial industry. But from a short term point of view, the direct result is the contraction of credit sources for non-public sectors of the economy. These enterprises, however, are basically not covered by state-owned commercial banks and so the technical relaxation of monetary policy is not effective for them, thus leading to a big fall in the growth of the collective sector of the economy which is mainly dominated by medium-sized and small enterprises. In addition the consumption market grew 5.7 percent in April and bank savings by residents increased by 19.2 percent. The sharp contrast is mainly the result of the promotion of multiple policies objectives, which curtailed the growth of consumption by residents. While striving to ensure the growth speed of the economy, the government has carried out reforms in many areas, including housing, medical service, education, state-owned enterprises, social security and government organs. All these reform measures have reduced anticipated income and raised anticipated spending. To arrest this downward trend, it is necessary to review the multi-objective strategy. It would be no problem to make the review, but it would be very difficult to thoroughly correct it for a number of reasons. But the problem has to be solved. To that end, economic experts have offered up three counter-measures. One idea is the counter-measure proposed by a group represented by Liu Shucheng, president of the Economics Institute of the Chinese Academy of Social Sciences. He advocates raising residents' incomes to get the economy going. This means first raising the incomes of low-income groups, including laid-off workers, retired people and people below the poverty line, and then raising the wage levels of public servants and white-collar workers in the sectors of science, technology, education, culture and health. Finally, Liu suggests relaxing control over the wages of state-owned enterprises. Another counter-measure was proposed by the Macroeconomy Study Group of the Macroeconomy Academy of the State Development Planning Commission. This group advocates an additional issue of state treasury bonds, holding that the Maastricht Treaty provides that the proportion of financial deficit in the GDP is three percent for European economies and the parties to the European Monetary Union. Such a proportion in developed countries is usually one to three percent. But China's proportion of financial deficit in the GDP is only two percent. They calculated that given a GDP growth of seven percent and if the proportion is no bigger than three percent, the state may issue a maximum of 450 billion yuan of treasury bonds in 1999. If the proportion is kept at two percent, the maximum amount of treasury bonds to be issued is about 370 billion yuan. So far, the state has issued only 341.5 billion yuan of treasury bonds. So there is still room to issue more treasury bonds in 1999. The third counter-measure is proposed by the same Macroeconomy Study Group as well as many others. This measure suggests lowering interest rates on Renminbi lending to stimulate demand. The third proposal has been adopted. The People's Bank of China decided to cut interest rates effective starting from June 1. The rates for bank deposits have been cut by an average of one percentage point while the rates on loans have been cut by an average of 0.75 percentage points. This is the seventh cut in interests rates since 1996. The previous cuts, however, have not yielded satisfactory results, and the current one may be no exception. (Asia Pulse/XIC)

Front | China | Southeast Asia | Japan | Koreas | India/Pakistan | Central Asia/Russia | Oceania Business Briefs | Global Economy | Asian Crisis | Media/IT | Editorials | Letters | Search/Archive Cheap Holiday Packages to Bermuda

back to the top ©1999 Asia Times Online Co., Ltd.

China Chinese Sex News | Asian Sex Gazette