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Developing
National Economy Requires Sound Financial System
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China must further its financial reform by establishing a stable,
standardized, efficient and healthy financial system and operation
mechanism to ensure the lasting, rapid and sound development
of the national economy, said an article in the Outlook Weekly.
During the next decade, China will face severe financial problems
and challenges, the article said.
Currently, the central government is adopting a proactive budgetary
policy, issuing State treasury bonds and expanding public expenditures
to stimulate domestic demand, and hopefully, to invigorate the
entire national economy.
However, the central government's financial income still accounts
for a decreasing percentage of national revenue, although the
proportion of the State revenue in the gross domestic product
(GDP) has increased.
As a result, the budgetary deficit has abruptly risen.
We should not be so nervous when talking about deficits. Under
the market economic system, the State plays an important role
in adjusting the primary distribution of social wealth. Therefore,
financial deficit and government debt are common phenomena in
the economic life.
According to statistics, China's central budgetary deficit in
1999 accounts for around 2.2 per cent of the GDP. There is still
a manoeuvre space of 0.8 percent to the internationally recognized
safety line of 3 percent.
The government should, according to the economic situation,
adjust the scale of budgetary deficits and government debts
rather than eliminate them.
Another concern is that, at present, the proportion of the State
revenue in the GDP, which is 12.4 percent in 1998, is still
quite low.
Yet, it is estimated that, to maintain the proper operation
of the government, the government expenditure has already accounted
for approximately 25 percent of the GDP, primarily depending
on the government's non-budgetary income.
Therefore, the economy is already heavily burdened, leaving
limited space to increase capital that can be appropriated by
the central government.
It is predicted that during China's 10th Five-Year Plan period
(2001-2005), the increase in the State's financial income will
primarily be achieved through taxation augmentation accompanying
the economic growth.
However, a coordinating mechanism between tax revenue increase
and economic growth has not been established.
Moreover, since the mid-1990s, China's economy has entered a
stage of structural readjustment. The economic growth has slowed
down, and enterprises' profits are also sliding. This has considerably
bottlenecked the State revenue.
The vulnerable financial situation is being further aggravated
by local governments' potential deficits and State banks' bad
loans.
In addition to the mounting social welfare expenditures on laid-off
workers, China will face severe financial pressure during the
next decade.
In the coming years, financial regulation will continue to play
a significant role in China's economic development.
To what extent China needs to continue the current expanding
monetary policy depends on the next few years' economic situation,
which is influenced by both the international environment and
the result of the current stimulative measures on the domestic
demand.
Given the current economic situation, the expanding monetary
policy will continue for some time to maintain an acceptable
GDP growth rate.
During the 10th Five-Year Plan period, according to some calculation,
China is expected to issue 410 billion yuan (US$49.4 billion),
380 billion yuan (US$45.8 billion), 380 billion yuan, 350 billion
yuan and 350 billion yuan (US$42.2 billion) in State treasury
bonds respectively, to satisfy the capital needs of the expanded
government expenditures.
This index is still with the international recognized safety
line. China still has the capacity to regulate the economy through
issuing treasury bonds.
However, this is no reason for relief.
To prevent more bad loans, China must attach importance to the
utilization of capital, strengthening its supervision and enhancing
its efficiency. The financial pressure China now faces compels
the acceleration of the financial reform.
To cope with the financial pressures during the next decade,
China should consider the following when enacting its financial
policies:
The financial policy should target the current sluggish demand,
making anti-cyclical depression efforts together with the functioning
of currency policies.
The expanding public expenditures should focus on agricultural
infrastructure facilities, environmental protection and pollution
treatment, building civil households and rural and urban infrastructure
construction.
With the change of the governmental functions, public expenditures
should be pulled from those production and construction industries
and instead focus on public projects and services which can
satisfy the demand of the people.
The financial management should be improved to meet international
standards.
China must adopt an appropriate tight monetary policy, putting
the scale of budgetary deficit and State debt under strict control.
The invigoration of social consumption, instead of simply the
government investment, should become the propelling force behind
the economic growth, the article said.
To achieve this, more work should be done including providing
consumption loans, supporting high-risk enterprises and giving
preferential policies to certain industries to achieve more
stimulative results with a smaller amount of capital.
(China Daily 02/29/2000)
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