A Basic Judgment over the Current Economic Situati

ABasicJudgmentovertheCurrentEconomicSituation <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Sincethebeginningofthisyear,thenationaleconomyhasmaintainedamomentumofsteadygrowth.Somepositivechangeshaveoccurredtotheeconomicoperation,layingafoundationforthegrowthofthewholeyear.Atpresent,thenationaleconomyhastheabilitytokeepasustainedandsteadygrowth.

1.Theresidents’expectationstendtobestableandtheconsumerdemandisgrowingsteadily.Inthemiddleandlatterpartofthe1990s,thestatetookmeasurestopertlaid-offworkersinthestate-ownedenterprises,reformthegovernmentinstitutions,pushforwardthehousingcommercializationandreformmedicalcare,pensionandeducationsystems.Necessaryastheyare,thesereformshavehadnegativeimpactontheresidents’expectationsandshort-termconsumerdemand.Afteractiveadjustmentinrecentyears,thecomprehensiveeffectofreformhasgraduallybecomeobvious–residents’expectationshavegraduallybecomestabilizedandconsumerdemandhasgrownfairlyhigh.FromJanuarytoMay,thetotalvolumeofretailsalessawayear-on-yearincreaseof10.1%.Duringthe“goldenweek”inMay,thenumberoftouristssurpassed70millionperson/times.Therelatedindustriesalsowitnessedafairlyfastgrowth.

2.Thepricesgrowslightly,andthepressureofmarketsurplushasbeenalleviated.Thetotalresidents’consumptionlevelisupby1.7%comparedwiththatofMaylastyear.FromJanuarytoMay,itisupby1.1%.Althoughmostoftheproductsareinoversupply,andtheslightgrowthofpricesiscausedbythepriceriseineducation,housing,publicservices,petroleum,petrochemicalsandsteel,themainpriceindexiskeptpositive.Thisindicatesthatdeflationisbeingeasedandsurpluspressurealleviated.

3.Fixedassetinvestmentincreasesfairlyfast,andhousing,carandotherpillarindustrieskeepastronggrowthmomentumininvestmentandsales.FromJanuarytoMay,totalfixedassetinvestmentincreasedby17.6%withaneight-percentage-pointhigheroverthesameperiodoflastyear.Theinvestmentinhousingrenovationandrealestategrewby26.7%and26.5%respectively.Thegrowthscopeofinvestmentandmarketinginthehousing,carandotherpillarindustriesreachedaratherhighlevel.Inthefirstquarter,theinvestmentinhousingcompletiongrewby28.6%,accountingfor68.1%oftherealestateinvestmentandrepresentingaone-percentage-pointhigheroverthelastyear.Thecommodityhousingspacesoldandsalesrespectivelygrewby3.14%and48.9%,ofwhich,thesalesfrominpidualpurchasesincreasedby56.9%,accountingfor83.2%.InApril,carproductiongrewby18.2%andsalesby38.3%.Inlargecities,suchasBeijing,inpidualsboughtmorethan80%ofthecarssales.

4.Thequalityandresultofeconomicoperationhavebeenraised.FromJanuarytoMay,aggregativeindexofeconomicreturnsofindustrialenterprisesis116.5,eightpercentagepointshigherthanthatofthesameperiodoflastyearand2.3pointshigherthanthatinthefirstfourmonths.Theamountoflossofenterprisesinreddeclinedby10.4%againstthesameperiodlastyear.Inthefirstfourmonths,thestate-ownedandstate-controlledenterprisesrealizedanincreaseof39.1%inprofitafterthedeficitwasdeducted.The12,700state-ownedandstate-controlledlargeandmedium-sizedenterprisesearned66.09billionyuan.Suchenterprisesin31provinces,autonomousregionsandmunicipalitieshavegenerallyreportedprofit.

Asthepositivechangesoccurtotheeconomicoperation,theeconomywillfacequiteafewdifficultiesinthelatterhalfoftheyearduetothechangeofinternationaleconomicenvironmentandthenegativeimpactofsomein-depthconflictsinthedomesticeconomiclife.Theeconomywillseeafastergrowthintheearlymonths,andaslow-downinthelatterhalfoftheyear.

Firstly,China’sexportwillbeverymuchaffectedbyaslow-downinworldeconomicgrowth.
AccordingtotheforecastoftheWorldEconomicProspectReport(Spring)issuedbytheInternationalMonetaryFundinlateApril,theworldeconomicgrowthwilldropfrom4.8%in2000to3.2%thisyear.Theworldtradegrowthratewilldropfrom12.4%oflastyearto6.7%.Generallyspeaking,theglobaleconomyiscontinuingtoslowdown.Therecoveryofelectronicproductsisnotactive.Thepriceofpetroleumisstillabovethelong-termprice.Mostofthecompaniesreportadeclininginprofit.Tradeprotectionismhasgainedsomeground,andthetradeenvironmentisgettingworsethanlastyear.Takeacountry-by-countrylook,wecanseethatthereexistmanydisputesontheforecastofAmericaneconomy,butthemainpergenceliesinthejudgementoverthelengthoftherecessionperiodandbasicsituationofeconomy.ItisbasicallyagreedthattheUSeconomicgrowthwillfallbyhalfandevenmorethanpreviousyear.Japaneseeconomyhaslongsufferedrecession,andcannotgobacktothetrackofnormalgrowthinthenearfuture.TheexportsituationinEuropeisfurtherdeteriorating.AsaresultofpoliticalturmoilinIndonesia,theeconomyintheASEANcountriesrepresentsvariablefactors,whosenegativeimpactoverChina’sexportsandeconomicgrowthcannotbeunderestimated.InJanuary-May,foreigntradegrowthwasdeclining,ofwhich,itgrewby3.5%inMay.Intermsoftheordersgainedbytheexportenterprises,theleadingindicatorsofprocessingtradeexportandthesituationinkeyexportareas,thegrowthofexportsinthelatterhalfoftheyearmayfurtherdrop.

Therelativeappreciationofrenminbiexchangeratehasalsoyieldednegativeimpactonexports.Chinahaskeptasustainedfavorablebalanceofcurrentaccounts,andtheinflowofcapitalkeepsatacertainscale.Sorenminbiisnotunderthepressureofdepreciation.Atthesametime,importsgrowfasterthanexports.Thetrendofadecliningfavorablebalanceshowsthatrenminbiisnotpoisedforappreciation.ButasaresultoftheappreciationofUSdollarsagainsteuroandJapaneseyen,theUSdollar-linkedexchangemechanismofrenminbileadstoitsrelativeappreciationagainstotherforeigncurrencies.Thiswill,toacertainextent,weakentheinternationalcompetitivenessofChineseproducts,lowerthepricesofimportedproducts,decreasethenetexportsandincreasepressureonthedomesticmarket.

Ifalltheabove-mentionedfactsareconsidered,wecanseethatiftheannualexportsonlyincreaseby5%andimportsincreaseby15%,thenetdemandfromoverseaswilldecreaseby150billionyuanoverthepreviousyear.ThatmaylowerGDPgrowthby1.7percentagepoints.IfthestructuralcharacteristicsofChina’simportandexportproductsareconsidered,thepressurecausedbythedecreaseofnetexportswillbeveryprominent.SoChinashouldtrytoavoidthissituation.

Itisahardtasktostabilizethegrowthofexports.Thefirstcountermeasureistoreformtheexporttaxrebatesystem.Taxrebateaccordingtoplanshouldbereplacedbyrebateaccordingtheactualexportwhiletherebateprocessshouldbehastened.Accordingtostatistics,nearly100billionyuanoftaxrebatehavenotbeengranted.Iftaxrebateisnotdonetimely,thecostsofexportenterpriseswillberaised,andtheircapitalturnoverwillbedifficult.Thiswillweakenandevenoffsettheeffectofotherpoliciestopromoteexportgrowth.Whiletheexporttaxrebatefraudisseverelycrackeddownupon,thetaxrebateshouldbepaidinfullsumandontime.The“taxexemption,offsettingandrebate”policypracticedbythestateonforeign-investedenterprisescouldbeadoptedforthedomesticexport-orientedmanufacturingenterprises.Thismeasurewillrequirethecooperationandsupportoflocalgovernmentsastheyneedtoshareone-fourthofthetaxrebates.Second,whilegettingpreparedtocopewithmoreharshsituation,weshouldsolvetheproblemsandsteadilydeveloptherelationshipwiththemaintradepartnersastheUnitedStates,EuropeandJapanaresteppingupanti-dumpingeffortsagainstChineseproducts.Atthesametime,Chinashouldactivelyexplorenewmarkets,furtherimplementtradepersificationstrategyandgraduallyreducethedependenceonthemaintradepartnersinordertoreducerisks.Third,weshouldkeepacloseeyeonthechangeofUSdollar’sexchangerateagainstothermajorcurrencies.Anexchangerateadjustmentmechanismshouldbesetuptodealwiththechangesofcurrentaccountsandcapitalaccounts.Fourth,Chinashouldfurtherreducethelimitationovertheforeignfirms’accesstothemonopolizedindustriesandcontinuetoencourageforeigndirectinvestmentinthealreadyopenedbasicindustries,high-techindustriesandpartoftheprocessingindustriesaswellasthecentralandwesternregions.

Secondly,thesituationofmedium-andlow-incomegrouphasnotobviouslychanged.
Thefarmers’incomehasnotseensubstantialincrease,andnotenougheffectivemeasureshavebeentakentoreducetheirburden.Thelow-incomegroupincitiesandtownshipshasbeenenlarged.Theresidents’incomeintheunderdevelopedregionshasincreasedslowly.Thesituationofmedium-andlow-incomegrouphasnotobviouslychanged.Thishasaffectedsocialstabilityandeconomicdevelopment.Theproblemcouldbeseenfromthefollowingaspects:

Itismoredifficultforfarmerstoincreaseincomeandreduceburdens,andtheruralmarketisdevelopingslowly.Inadditiontoaslowdevelopmentofruralenterprises,mostofthefarmproductsareinoversupply,andtheirpricesareclosetoorhigherthanthoseattheinternationalmarket,noeffectivewayshavebeenfoundtoincreasefarmers’incomeinmanyareas.Somemeasurestoincreasefarmers’incomehavehardlygainedobviousresults.Thecorrectpoliciesandmeasurestoreducefarmers’burdenhavebeenconstrainedbyinadequatelocalfinanceandtheexpenditureonruralbasiceducation.Therefore,theresultsarenotobvious.Inthefirstquarteroftheyear,theruralandurbanconsumerproductretailsalesgrewrespectivelyby8.3%and11.5%.Thegapofgrowthiswidenedfrom1.3percentagepointsto3.2percentagepointsthisyear.Thereductionofsummergrainthisyearwillalsoaffectthedevelopmentofruralmarketinthelatterhalfoftheyear.

Thelow-incomegroupincitiesandtownshipshasbeenenlarged.Partofthestate-ownedlargeandmedium-sizedenterprisescontinuetolayoffsurplusworkers.Asthemediumandsmallenterprisesareundergoingstructuralreform,andfiercemarketcompetitionhasledsomeenterprisesintoamoredifficultsituation,workersandstaffintheseenterpriseshaveearnedlessthanbefore.Bytheendofthefirstquarter,theemployeesincitiesandtownshipshavebeenreducedby4.8millioncomparedwiththesameperiodoflastyearandby1.63millionasagainsttheendoflastyear.Thelow-incomegroupincitiesandtownshipshasbeenenlarged.

Regionalgapiswidening,andsomeareasareinadifficultsituation.FromJanuarytoApril,thetotalindustrialoutputvalueintheeastern,centralandwesternregionsgrewrespectivelyby17.4%,16.6%and11.7%.Therewasagapof5.7percentagepointsbetweentheeasternandwesternregions.Duetoaslowadjustmentofownership,industrialandproductstructuresorthedrainageofresources,theunderdevelopedregionsareplungedintoaplight,astheirenterprisesbecomelesscompetitive.Manycountiesandtownshipsareinaverydifficultfinancialsituation.Bytheendoffirstquarter,1,001countiesdefaultmorethan20billionyuanofworkersandstaff’ssalariesofgovernmentinstitutions,abovethatattheendoflastyear.Accordingtostatistics,theaveragedebtbornebythetownshipsis6millionyuanandtheaveragedebtofthevillageis200,000yuan.Inadditiontoruralfinancialshrinking,townshipenterprisesandfarmerslackgoodfinancialsupport.Theeconomybelowcountylevelisgenerallylackinggrowthmomentum.Fromboththecurrentandlong-termpointofview,thisisnotconducivetothesteadygrowthofnationaleconomy.

Increasingfarmers’income,reducingtheirburden,raisingtheincomeoflow-incomegroupincitiesandtownshipsandboostingtheeconomyintheunderdevelopedregionsareofcrucialimportancetosocialstabilityandsustainedeconomicgrowth.Sothefinancialpolicyshouldplayamoreactiveroleinregulatingthedistributionofresidents’incomeandpromotingregionaleconomiccoordination.Since1997,thefinancialincomehaskeptahigh-speedgrowth.Inthefirstfivemonthsoftheyear,thefinancialrevenueincreasedby144.95billionyuan,representingariseof28.9%thanthesameperiodoflastyear.Theexpectedrevenuegrowthofthisyearhasbeenmet.Thishaslaidagoodbasisfortheadjustmentandeffectiveimplementationoffinancialpolicy.Wecouldincreasethefinancialsupporttoruralreformanddevelopment,forinstance,reducingandexemptingtheagriculturaltaxandspecialagriculturalproducttaxinthecurrentyearintheunderdevelopedcentralandwesternregions,offeringtemporarysubsidiestocoverthesalaryforthemiddleandprimaryschoolteachersintheseregions.Itwillhelpraisethepurchasingpowerofthefarmerswhoaccountforthemajorityofthepopulationandpromotethedevelopmentofruralmarket.Forthecentralandwesternregionswhereeconomicdevelopmentisslowandfinancialrevenuecannotcovertheexpenditure,wewillincreasefinancialinputtocreatenecessaryconditionsforeconomicdevelopment.Ontheotherhand,thegovernmentwillincreasetransferpaymenttoguaranteethebasicexpenditureoflocalgovernments.Inaddition,thereductionofstate-ownedshareswillalsobespedup.Medium-andlong-termtreasurybondscouldalsobeissuedtosupplementsocialsecurityfoundation.Thecoverageofsocialsecuritysystemshouldbeexpandedtofurtherraisetheincomeoflow-incomegroupincitiesandtownships.
Thirdly,industrialgrowthslowsdown,andinvestmentgrowthbynon-stateeconomicsectorsalsodecelerates.

Inthefirstfivemonths,Chinahasfulfilledanincreaseof11.1%ofindustrialaddedvalue,ofwhich,thegrowthwas10.2%inMay.Thegrowthinthe15regionssloweddowninthatmonth,especiallyinsomedevelopedregionssuchasGuangdong,Shanghai,JiangsuandShandong.Thesolelyforeign-ownedenterprises,thejointventureenterprisesandthecooperativeventuressawa2.3percentage-pointdeceleration.ThisindicatesthatthedecelerationofworldeconomyhasaffectedChina’seconomicgrowththroughthefallofexports,firstofall,intheeasterncoastalareasandthethreetypesofenterprisesmentionedabove.Intermsofinvestment,asthetotalfixedassetinvestmenthasbeenobviouslygrowingsincethebeginningofthisyear,theinvestmentbythenon-state-ownedenterpriseshasdecelerated.Inthefirstquarter,theinvestmentbycollectivesandinpidualsgrewby7.6%(ofwhich,investmentbyinpidualsgrewby3%),representingafallofmorethan1.6percentagepointsthanlastyear.

Thereasonsaremanifoldfortheslow-downofinvestmentbynon-stateeconomy.Thedevelopmentofnon-stateeconomystillsufferslackofsupportfromcreditfunds.Intermsoftotalcurrencysupply,wecanseeM1andM2increasedrespectivelyby14.9%and12.1%bytheendofMay,representingafairlylowgrowthinrecentyears.ThegrowthofM1fellby7.4percentagepointscomparedwiththehighestpointoflastyear.Theunfavorableimpactovertheeconomicoperationwillgraduallyappearinsometimelater.Intermsofcurrencysupplystructure,thegrowthofM2since1999hasbeenlowerthanM1.BytheendofMay,thedifferencebetweenthemwas2.8percentagepoints.Thisisattributedtothelowinterestrateandpersificationofresidents’financialassetsaftertaxoninterestislevied.Italsoshowsthatalargeamountofcreditfundshaveturnedtocurrentdepositsofenterprisesandinstitutionswhichremaininthevirtualeconomyandhavenotenteredthesphereofphysicaleconomy.Inthissphere,thenon-stateenterprises,mediumandsmallenterprisesandhigh-techenterprisesthatbadlyneedcreditsupportcannotreceivefinancialaid.Thefinancialinstitutionsarewillingtograntloanstolarge-sizedenterprisesorenterprisegroupsthatenjoygoodreputation.Buttheseenterprisesputthemoneyintostockmarketbecausetheycannotfindgoodinvestmentprojectsimmediately,andtheyfindtheinvestmentinproductionisriskyandyieldslowreturns.Ontheonehand,itleadstofalseprosperityofavirtualeconomyandincreasestheriskofthebubbleeconomy.Ontheotherhand,itcausestheinsufficientsupplyoffunds&amp, ;nbs