20000127

China says fiscal stimulus still needed

BEIJING: Chinese Finance Minister Xiang Huaicheng said on Wednesday the government will continue its massive fiscal stimulus programme until the economy can grow without state help.

"We will continue to implement a pro-active fiscal policy this year despite the economic trend improving," Xiang said.

He told reporters China would be watching the economy's vital signs when deciding whether to turn off state spigots.

"When we will suspend the policy will hinge on whether our country's investment, consumption and net exports recover to a certain level and do not need such a pro-active policy," he said.

But as the multi-billion dollar programme of government borrowing and state-directed bank lending entered its third year-raising some red flags about rising state debt-Xiang denied the government would keep primimg the pumps indefinitely.

"I don't think a pro-active policy will be a medium-or long-term policy," he told a news conference.

"Everything will depend on the actual situation."

Xiang said China could afford the policy because its deficit and state borrowing were at relatively safe levels.

"I do not see any danger in continuing the pro-active fiscal policy," he said.

CONCERNS ABOUT FUTURE LIABILITIES

Analysts warn that although China's outstanding state debt of 800 billion yuan ($96.64 billion) was not alarming by world standards, repairing the social welfare network and cleaning up the banking sector could cost the government trillions of yuan.

Xiang was quoted by state media last month as saying Beijing wanted to issue more long-term special bonds in 2000, though it required approval of parliament, which meets in March.

He gave no indication of the size of the bond issue, but one senior government economist put it at 100 billion yuan.

Any new debt issues would follow a 100-billion-yuan infrastructure bond issue to state banks in 1998 and a 60-billion-yuan issue in 1999-both to fund infrastructure.

Without that spending, which was matched by at least equal amounts of state bank lending, China's economy would not have weathered the Asian crisis and domestic downturn, Xiang said.

Growth of 7.1 percent last year and 7.8 percent in 1998 "would not have been possible without fiscal stimulus", he said.

In addition to stimulative spending on infrastructure such as railways and roads, rural electrification and water conservation, state spending facilitated economic reforms by boosting welfare payments to the unemployed, Xiang said.

Outlays on social security for laid-off state workers and for pensions shot up 170 percent last year over 1998, Xiang said.

The 54 billion yuan spent boosting salaries for government employees and living allowances for low income groups, paying pension arrears and raising payments to jobless state workers by 30 percent "gave a strong boost to domestic demand", he said.

KEEPING DEFICIT UNDER CONTROL

The minister said state spending also would be needed this year to fund industrial restructuring and pay for Beijing's plan to develop China's poor hinterland provinces to close a politically sensitive economic gap with wealthy coastal areas.

Despite the pricey plan, Xiang said he expected the government budget deficit this year to be smaller than last year's record of 180.3 billion yuan ($21.8 billion).

"We will do everything possible to keep it lower than last year," he said without giving further details.

As a sign of improving fiscal health, he pointed to the 1999 fiscal revenue, which rose 15 percent year-on-year to hit a record one trillion yuan ($120 billion).

He said last year's revenue take, boosted by success against smuggling and by better profits at state firms, would push he ratio of fiscal revenue to gross domestic product (GDP) above 13 percent from 12.4 percent in 1998.-Reuters