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China eyes seven percent growth

BEIJING: China's economy is expected to grow around seven percent this year, fuelled by another big budget deficit to fund infrastructure projects, China's top economic ministers told parliament's annual session on Monday.

State Development Planning Commission chief Zeng Peiyan told the National People's Congress (NPC) the government would seek this year to "balance reform, development and stability to ensure sustained rapid and sound development of the national economy".

Price levels would remain the same as in 1999, when deflationary pressures eased but the main inflation indices were still negative, Zeng said in his annual report to the NPC.

In a separate speech on the second day of the NPC's 11-day session, Finance Minister Xiang Huaicheng presented a draft budget which projected a deficit of 229.9 billion yuan ($27.77 billion) and argued for strong stimulus measures.

"The objective economic reality compels us to intensify efforts to implement policy measures designed to promote economic development and continue to implement a pro-active fiscal policy," Xiang said.

China's GDP rose 7.1 percent in 1999, helped by massive spending on infrastructure.

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

Otherwise, without this year's interest payments of 74.9 billion yuan, the deficit would have fallen to 155 billion yuan, he said.

DEFENCE BUDGET HIKE

Defence spending in 2000 was set to rise 12.7 percent to 120.5 billion yuan, with new funds going mainly to salaries and subsidies and to station troops in Macao, which China recovered in 1999 after more than 450 years of Portuguese rule, he said.

The beefed up military spending follows Beijing's threat last month to use force against Taiwan if the island dragged its heels indefinitely on reunification talks.

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

Export tax rebates aimed at promoting overseas sales were expected to rise 27.8 percent to 80 billion yuan, he said.

Xiang put spending on infrastructure at 89.3 billion yuan, funding for technological upgrades at state-owned enterprises at 16.5 billion yuan and education outlays 29.7 percent higher year-on-year at 16.5 billion, Xiang said.

ANTI-CORRUPTION THEME

Xiang told the NPC, which wants greater powers to study the government's books to guard against waste and corruption, that a new compilation process was used this year to "prevent (funds) from being misappropriated or diverted to other purposes".

"We must resolutely expose and punish violators once they are discovered," he said, echoing the anti-corruption theme on which Premier Zhu Rongji opened parliament on Sunday.

Zhu, in a nod towards rising public anger at corruption, said government anti-graft measures "fall far short" of expectations.

"Budgetary funds are seriously lost and wasted," he said. "More and more luxury hotels, office buildings and auditoriums are being built and the trend is toward even greater opulence."

DEFLATIONARY TREND SEEN EASING

The government would spend 70.7 billion yuan on social welfare, including 3.7 billion yuan to guarantee the basic living needs of laid-off state workers, Xiang said.

Zeng said China would try to limit the urban unemployment rate to 3.5 percent this year, compared to 3.1 percent at the end of 1999 a figure analysts say vastly understates the problem.

China's broad consumer price index (CPI) and retail price index (RPI) would stay around the same levels or come in "slightly higher" in 2000 than in 1999, Zeng said.

The CPI, which includes services and is now used as the official benchmark price indicator, was down 1.4 percent year-on-year in 1999, according to the State Statistical Bureau.

The CPI has been in negative territory since April 1998, but officials say they expect it to turn positive sometime this year as consumer demand picks up. The RPI, negative since October 1997, was down three percent year-on-year in 1999.

Zeng said China's broad measure of money supply, M2, would rise 14-15 percent this year, against growth of 14.7 percent last year. Narrow money supply, M1, is forecast to rise 15-17 percent in 2000 against growth of 17.7 percent in 1999.

NEED FOR LENDING, SPENDING

Chinese banks and other financial institutions would increase their lending by one trillion yuan this year, Zeng said.

Premier Zhu said on Saturday the government would issue 100 billion yuan of long-term treasury bonds this year to continue infrastructure development used to underpin growth.

Zhu said state stimulus spending was "the most direct and effective means for expanding domestic demand at present".

Xiang said China would issue bonds this year worth 438 billion yuan to help service domestic and foreign debt, of which 388 billion yuan would count in the central budget, 16.5 billion more than in 1999.

It was not clear whether the 100 billion yuan in long-term bonds were included in Xiang's draft budget. In previous years, special bond issues were added to the budget deficit later.

Funds to service domestic and foreign debts in the central budget in 2000 amounted to 158.1 billion yuan, Xiang said.-Reuters