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China targets seven percent growth in 2000

BEIJING: China's economy is expected to grow around seven percent this year, supported by a massive budget deficit to fund infrastructure projects, the country's top economic ministers told parliament on Monday.

State Development Planning Commission chief Zeng Peiyan told the 11-day annual session of the National People's Congress (NPC) that strong growth was needed to preserve social stability as economic reforms threw more people out of work.

"The primary target for this year's economic work is to maintain fairly rapid development of the national economy," he said.

"This is crucial to efforts to solve the outstanding problems in economic activities, maintain social stability and strengthen confidence both inside and outside China in our economic development."

China's gross domestic product rose 7.1 percent in 1999.

Deflation, measured by the retail price index, has gripped China for three years and Zeng said it would remain a problem with prices remaining much the same or rising only slightly as domestic demand remained "feeble".

"China is running a deficit for growth," said Mario Zhu, a senior analyst for ABN-AMRO Asia in Shanghai. "If they target growth at seven percent, I think they will achieve it."

Zeng said the government would try to keep the urban unemployment rate to 3.5 percent this year, compared with 3.1 percent at the end of 1999 figures analysts say vastly understate the problem.

The rising tide of joblessness comes as China prepares for entry to the World Trade Organisation (WTO) this year. Membership is expected to bring a wave of foreign competition in industries ranging from financial services to heavy industry.

"We must prepare well for China's entry into the WTO," Zeng said.

BUDGET DEFICIT TO RISE

Finance Minister Xiang Huaicheng presented a budget which projected a deficit of 229.9 billion yuan ($28 billion) and argued for strong stimulus measures.

"Although the deficit and debt have increased somewhat, implementation of this policy has helped ensure social stability, maintained sustained, rapid and sound development of the national economy and raised the people's standard of living," he said.

"This is a price the government has to pay for exercising macro-control of the economy, so it is worthwhile."

The 2000 deficit compares to a shortfall of 179.7 billion yuan last year. The increase results partly from the inclusion of 74.9 billion yuan in interest payments on government bonds in the expenditure category for the first time, Xiang said.

China would issue bonds worth 438 billion yuan this year to help service debt and cover the deficit, he said.

"I'm not that worried about the deficit because there is enough money in the banking system which the government can tap," said Chi Lo, chief Asia economist for HSBC in Hong Kong.

"What Beijing can do for the short term is to keep issuing bonds to the banking and household sector to rechannel those savings from the banking system to investment to keep the economy growing."

DEFENCE SPENDING GETS BOOST

Xiang set a 12.7 percent rise in defence spending to 120.5 billion yuan this year, with new funds going mainly to salaries and on stationing troops in Macao, which China recovered in 1999 after more than 450 years of Portuguese rule.

The boost in military spending follows China's threat last month to use force against Taiwan if the island dragged its heels indefinitely on talks for reunification.

Xiang said fixed asset investment would rise about 10 percent this year, nearly double the increase of 5.2 percent last year, official figures showed.

He put spending on infrastructure at 89.3 billion yuan this year and funding for technological upgrades of ailing state firms at 16.5 billion yuan.

Outlays for building a social security net would total 70.7 billion yuan, but around three-quarters would go to the benefits and wages of government workers, Xiang said.

China's poor western regions will receive special focus this year with a number of major infrastructure projects. The ministers did not put a price tag on developing the west, but said China would use "market forces" to help attract capital.

"Developing the western region is a long-term arduous task requiring the hard work of several generations," Zeng said.

CORRUPTION FUELS RESENTMENT

Both ministers were bitterly critical of corruption, saying lavish spending of public money had caused "great resentment" among the people.

"Some local governments even cannot guarantee funds for performing their normal functions, but such phenomena as ostentatious and extravagant behaviour and pleasure-seeking are still prevalent in some localities and departments," Xiang said.

Zeng called for an "all-out drive" against tax fraud and smuggling, which sometimes takes place with the collusion of local authorities.

China put the crackdown on corruption in the spotlight on the eve of the opening of the meeting by announcing NPC vice chairman Cheng Kejie was the subject of a bribery investigation.

In a nod towards rising public anger at corruption, Premier Zhu Rongji told the opening of parliament on Sunday that Beijing's anti-graft measures "fall far short" of expectations.-Reuters