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Macroeconomic policies to the rescue

Asia Times, 15 January 1999

BEIJING - China will actively adopt macroeconomic control policies this year to promote economic growth and overcome the negative impact of the worsening foreign trade situation and sluggish consumer demand.

The central government will introduce financial and monetary policies to sustain rapid economic development at a time when the country's exports face dim prospects for growth during 1999 and efforts to remove systematic obstacles confronting the consumer structure are unlikely to reach desired levels, according to analysts with the Macroeconomic Research Institute under the State Development Planning Commission.

The analysts said that fiscal measures offered the best choice, since the government had tried almost every possible banking mechanism a market-oriented country could possibly use for macroeconomic control.

Pro-active financial policies which China adopted in 1998, including the 100 billion yuan in special bonds issued to commercial banks to improve infrastructure construction, are yielding positive results. However, the major contribution of the bond issue to gross domestic product will surface this year, according to experts.

Finance Minister Xiang Huaicheng said recently that China would continue the pro-active fiscal policy and planned to issue treasury bonds worth 316.5 billion yuan during 1999. He added that the National People's Congress might adjust the budget during the implementation process.

Additional treasury bond issues should be incorporated into overall national plans to promote central finances. Efforts should also focus on optimizing the term and structure of bonds in order to tap the potential to bear additional deficits, according to experts.

China's deficit is expected to hit 105.3 billion yuan in 1999, compared to 96 billion yuan in 1998. The increase would mainly go to water conservation and infrastructure projects, according to Xiang.

Economists responded positively to increased financial expenditure but at the same time suggested that the government should avoid competitive sectors and instead invest heavily in the military and space industries, since technology developed by the two sectors was crucial for upgrading traditional civilian techniques.

Macroeconomic control should center on creating and maintaining a standardized macroeconomic environment, especially at a time of slowing economic development. Related efforts should bolster and reinforce the expectations and confidence of investors.

Fiscal policies should also be used to support bank loans for small-to medium-sized enterprises. Experts warned that China's sustained, rapid and stable economic growth in the long-term would rely on further reforms and opening wider to the outside world, as well as the fulfillment of basic consumer demand. (Asia Pulse/XIC)