China's fixed assets investment, spurred on by the State treasury bonds, will continue playing a major role in the country's economic development this year.

　　In light of needs and possibilities, the government planed to issue 150 billion yuan of long-term treasury bonds for construction in 2002, Premier Zhu Rongji said last month.

　　China took proactive fiscal policy as its main tool of macroeconomics management since 1998 to avoid possible negative impacts from 1997 Asian financial crisis. The government believed that treasury bonds should play an important role in promoting economic and social development. A total of 150 billion yuan (US billion) worth of long-term treasury bonds was issued in 2001, bringing the total bond issue from 1998 through 2001 to 510 billion yuan (US.4 billion).

　　"Maintaining the necessary level of investment from treasury bonds is helpful to stimulate a relatively rapid growth of fixed-asset investment," said Liao Xiaojun, assistant minister of financial ministry.

　　Funds to be raised will be used mainly for treasury bond- financed projects under construction, development projects in the western region, technological transformation of key enterprises, water diversion from the south to the north, water resource conservation in Beijing and Tianjin.

　　EXperts also echoed the authorities's decision.

　　"As one of the three major driving forces of economic development, China's fixed assets investment will play a decisive role in maintaining a higher economic growth in 2002," a senior economist with the State Information Centre, Hu Shaowei, said.

　　Experiences from developed countries suggest that if a country's fixed assets' investment grows at a higher rate, its gross domestic product (GDP) growth too would be higher, Hu said. "The high growth rate of fixed assets investment in China since the country initiated the reforms... in 1978 has long been a major driving force of the country's economic development," he said.

　　T-bonds achievements

　　The sale of these bonds effectively stimulated an increase in supporting funds from local authorities, government departments and enterprises as well as in bank loans and investment from other sectors of society. Total investment in projects financed through treasury bonds totaled approximately 3 trillion yuan (US billion), statistic from the State Councial indicated.

　　"This played a vital role in boosting economic growth, improving the economic structure, increasing employment, improving the people's living standards and enhancing the quality of bank assets," Permior Zhu Rongji said in his working speech at this year's confrence of National People's Congress.

　　In particular, this allowed the amassing of the resources necessary to accomplish many tasks important to overall and long-term economic and social development. These tasks mainly include the following: the reinforcement of 30,000 kilometers of banks and dikes on major rivers and lakes, the development of new towns for over 2 million people displaced from their homes along the banks of the Yangtze River and increasing flood diversion and detention area by about 3,000 square kilometers.

　　In addition, construction of five vertical and seven horizontal national trunk highways and eight other highways in the western region were accelerated. A total of 25,500 km of new highways were opened to traffic, including 8,000 km of expressways. This brings the total length of expressways in China to 19,000 km, making the country second in the world.

　　Construction of 4,000 km of new railway lines, 1,988 km of double-track lines and 1,063 km of electrified railway lines were completed. A total of 37 airports were either newly built or expanded. Construction was completed on state grain depots with a total capacity of over 35 billion kilograms. Rural power grids were extended or upgraded in 1,895 counties.

　　China launched nearly 2,000 projects to apply high-tech advances in production, manufacture key domestic equipment and upgrade technology in enterprises, as well as about 1,000 projects to build water supplies, roads and waste and sewage treatment facilities in urban areas and more than 9,300 projects to provide teaching, laboratory and student living facilities for schools.

　　Zeng Peiyan, minister of the State Development Planning Commssion, said all local authorities and government departments proved themselves highly responsible to the country and the people by strengthening the management of funds from the sale of treasury bonds and quality of construction projects.

　　"They correctly allocated the investment of these funds by carefully selecting construction projects, strictly following the procedures for capital construction, carrying out good preparatory work, tightening supervision of major projects and making good use of the role of public opinion," said Zeng.

　　This provided a strong guarantee of the proper use of funds from the sale of treasury bonds and the quality of construction projects, Zeng said.

　　Why continue?

　　China is facing a tough external environment, which is not expected to improve in the short term with the world economy locked in doldrums, a senior researcher with the Development Research Centre under the State Council, Ni Hongri, said.

　　The World Bank has revised its estimate of world economic growth from 3.8 per cent to 1.3 per cent for 2001, and the rate of world trade growth from 13.3 per cent to 1 per cent.

　　China's major trade partners, such as the United States, Japan and the European Union, have suffered from a slow growth, or even worse, recession.

　　"With such a gloomy global economic picture, it is hard to expand exports by a big margin," Ni said.

　　On the other hand, China's WTO membership will result in opening up of its domestic markets further which would lead to more imports.

　　The shrinking favorable balance of trade will inevitably weaken the role of exports in driving economic development, Ni said.

　　"Economic growth will thus rely more heavily on domestic demand," Ni said.

　　But consumption demand is expected to grow steadily this year, another senior economist with the State Information Centre, Niu Li, said. "The country's retail sales will rise by about 10 per cent in 2002."

　　Therefore, the country should focus on enlarging investment, Niu said.

　　In the past years, the State treasury bonds played an very important role in the growth of fixed asset investment was mainly backed by, Niu said. "The continuation of the policy is possible as well as necessary," he said.

　　Premier Zhu Rongji announced in March that China would issue 150 billion yuan (US billion) of treasury bonds for construction this year.

　　Zhu said there was still room for issuing more long-term treasury bonds for construction without incurring great risks because people's savings have increased considerably.

　　"Banks have sufficient funds, interest rates are low, market prices are stable, and the ratio of national debt to the GDP is still within safe limits," Zhu said.

　　Through issuing of treasury bonds, some deposits will be converted to construction funds, Niu said.

　　Private support

　　"While the government will continue to play a leading role in fixed assets investment this year, it will also try to stimulate investments from private companies," Niu said. But that would be a tough task.

　　A large amount of private capital lies idle and runssintosbarriers when it tries to enter sectors monopolized by the State. Private enterprises often find it difficult to secure funds for enlarging investment because the direct financing market is not mature yet.

　　Compared with those in developed countries, China's young securities market lags behind in its operational mechanism, supervision and legal construction, Niu said. For, the fund market has just been established, and the debt market's development is slow.

　　"When the function of the capital market is not fully realized, banks remain the chief channel for enterprises' funding," he said.

　　There are still a number of factors favourable for private investment, Hu Shaowei said.

　　"The policy environment will continue to improve and the system of investment and financing will be further upgraded," he said.

　　Private (domestic) companies are likely to be allowed to enter the areas open to foreign firms, he said. "Private companies have built themselves up during the past couple of decades."

　　"Private investment will do better in 2002, though it will not play a leading role and increase by a large margin," he said.

　　FDI an important role

　　On the other hand, foreign direct investment (FDI), which contributed greatly to China's fixed assets investment, will continue to play an important role in propelling the country's GDP growth in 2002.

　　After the September 11 terrorist attacks, international investors have become very careful about the investing in the United States and European countries.

　　Japan some Latin American and Southeast Asian countries have suffered economic slowdowns.

　　"So long as China manages to maintain political stability and map out economic stimulus, international capital will flowsintosChina," Hu said.

　　Furthermore, "the WTO accession will be a blessing for China's utilization of FDI, despite negative factors, including the end of favourable tax policies for foreign-funded companies," a senior research fellow with the Development Research Centre, Zhang Liqun, said.

　　China is now practising dual-track enterprise income tax policies for domestic and foreign-funded companies.

　　The virtual burden of income taxes for domestic enterprises stands at 22 per cent while that for foreign-funded firms was 12-15 per cent.

　　The country will adopt a unified tax system, now that it has become a WTO member, to enable domestic and foreign companies to compete on an equal footing, Zhang said.

　　"The WTO accession means more than the loss of favourable tax policies for foreign companies. They will have more access to the Chinese market," Zhang said.

　　China will gradually open up its service sector, including banking, insurance, telecommunications, trade and tourism, and explore new forms and channels to use foreign funds, he said.

　　The country will provide an improved market system in the post-WTO period. "This includes a more complete and transparent legal system, more open markets and more efficient administrative practices."

　　Statistics from the Ministry of Foreign Trade and Economic Co-operation indicate that China used US.6 billion of FDI in 2001, an increase of 14.9 per cent over the previous year.

　　Optimistic prospect

　　Considering all these factors, China's fixed assets investment will be stable this year and, it is expected to grow by 11 per cent, Hu Shaowei said.

　　He said China's economy is on a healthy development track with stable prices and abundant supply of agricultural and industrial consumption products and production materials. "There is no inflation pressure, and the country is enjoying political stability," he said. "Its development prospect is bright."

　　During the four consecutive years since 1998, 510 billion yuan (US.45 billion) of treasury bonds have been issued.

　　A proactive fiscal policy and the massive issue of treasury bonds proved to be the backbone that helped the country withstand the Asian financial turmoil and stand firmly against the world economic downturn, Ni Hongri said.

　　Finance Minister Xiang Huaicheng called on governments at all levels and relevant government departments to strengthen management and supervision of funds from treasury bonds and conscientiously choose feasible projects.

　　The public bidding system should be strictly implemented for projects financed by the treasury bonds.

　　More construction funds from treasury bonds would be brought under a system of centralized payments from the treasury to resolutely prevent ineffective investment, redundant construction and inappropriately high standard construction, to ensure that the funds are not retained, misappropriated, lost and wasted and to improve the performance of such funds, he said.

　　In addition, the government will integrate implementation of a proactive fiscal policy with efforts to readjust the economic structure, deepen economic restructuring, increase employment, improve people's living standards and maintain sustainable economic development.

　　The minister said the government would fully utilize the combined results of issuing additional treasury bonds, the tax policy, the policy on income distribution and the fiscal discount policy to boost and foster domestic demand through various channels.