Research Group of the Development & Research Center of the State Council

I. Basic Analysis of the Current Economic Condition

The national economy stopped decreasing and began to rise this year. Economic growth speeded up. Growth at various degrees has been seen in export, investment and consumption demand. Price of means of production and consumption price index changed from negative to positive. The structure of supply and demand has been somehow improved. Stability in economic development was strengthened. Non-state enterprises speeded up their development. State-owned enterprises have made significant achievements in their efforts of striking out of difficulties. The quality and result of economic operation have improved obviously. It is predicted that the economic growth of this year will reach 8% or so, about 1% higher than that of last year. The major reasons for the above positive development, in terms of economic condition and elements supporting economic growth, are as follows:

1. Readjustment of macro-economic policies has laid sound foundation for the expansion of domestic demand.

Since the second half of last year, proactive financial policies and stable currency policies have been implemented with more stress given to channel and stimulate investment as well as to boost the growth of consumption demand. Loans with discounted interest for technical innovation projects in key state-owned enterprises have promoted their investment in technical innovations. Housing reform policies have demonstrated their influence, with both investment and sales in real estate flourishing. Improved services on loans for small and medium-sized enterprises and the establishment of loan guarantee funds have, to certain extent, solved the problem of fund raising encountered by these enterprises. Growth in private investment has speeded up to some extent. Interest tax on bank deposit was levied. People are now required to open bank accounts in their own names. Income for middle and low-paid strata increased. All these policies have driven up effective demand. With longer public holidays, booming holiday economy and holiday consumption have thrived consumption.

2. Improved external environment and the policy on tax refund of export enabled foreign trade to maintain strong momentum.

Since the beginning of this year, the recovery of economies in East Asia including Japan, the continued economic expansion of the US and the stable economic growth in Europe have created a good external environment for the growth of China’s export. The proactive policy on export tax refund has resulted in faster export growth in general foreign trade than processing trade. Although the growth of import was higher than export in the first three quarters and the favorable balance of foreign trade was lower than that of the same period of last year, the increase in international demand has played an obvious role in promoting the growth of Chinese industries with comparative advantages (which are mainly labor-intensive industries). On the other hand, fast growth in the import of raw materials and electromechanical equipments has played an important role in making up for shortage in domestic supply. The mechanism of resources transformation provided by the international market is also of great significance to the economic growth in China.

3. The structure of demand and supply improved, and the co-ordination and stability in economic growth strengthened.

High-tech and new-tech industries and basic industries have grown faster since the beginning of this year, which increased supply effectively and met the demand for more investment and consumption. For the first three quarters of the year, fast growth in electronics industry and telecommunication equipment production has stimulated industrial growth by 2.2%. The comparatively slow development in basic industries such as power and railway transportation in the past few years is speeding up. Electric power production increased by 10.1% from January to September and electronic elasticity index reached 1.23, which is the highest during the period of the Eighth and the Ninth "Five-year Plan".

4. Rapid development of non-state-owned enterprises has given new vitality to economic growth.

A series of local policies encouraging the development of private and individual businesses have been formulated in various localities in recent years in implementing the policy of the 15th Central Committee of the Party on simultaneous development of economies of various ownerships. These local policies include those such as improving credit service for small and medium-sized enterprises, relaxing restrictions on the approval of export trading, eliminating regulatory tax on investment. As a result, development of non-state-owned enterprises has stepped up remarkably. Their ability in investment expansion has gradually increased. In Zhejiang, Guangdong and Jiangsu provinces, where private enterprises are relatively concentrated, the local economy is invigorated to grow ever faster.

5. State-owned enterprises have make great achievement in their efforts of striking out of difficulties with their performance and efficiency improved.

The development of state-owned enterprises (SOEs) accelerated this year with much better economic performance. During the first three quarters, the rate of sold products was 98.2% for state-owned enterprises and state holding enterprises, 1% higher than last year. Inventory decreased by 0.2%. The total profit after balance was 160.9 billion yuan, 1.7% higher than same period last year. Motivated by the state-owned enterprises, the quality and efficiency of economic operation have improved. The comprehensive index of economic performance for industrial enterprises was 113.7 from January to September, 17.1% higher than same period last year. The total profit after balance for this period was 284.1 billion yuan, which doubled that of the same period of last year.

The above analysis demonstrates that macro economic policies and the improvement of external environment are the major reasons for faster growth in investment, consumption and export. They also create fundamental demand on which the current economy grows. On the other hand, improvement in the supply structure, faster growth of non-state enterprises and the progress made by state-owned enterprises in resolving difficulties are the major reasons for stronger economy and better quality of economic performance. They constitute the fundamental supply on which the economy revives.

II. Prospect for Economic Development in 2001

The year 2001 is the first year of the new century as well as the first year of the "Tenth Five-year Plan" period. It is a year of key importance to implementing the strategic economic restructuring decided at the Fifth Plenary Session of the 15th Central Committee of the Party. Therefore it is very important to maintain stable development of the national economy.

With the current situation and development trend, the advantages of economic development in 2001 are as follows. Firstly, experience in expanding demand and fighting against deflation has been accumulated and enriched in the past years of useful experiment. Finance and currency policies are implemented with more flexibility. More measures are adopted. The ability of bringing macro economy under control has been enhanced. In the meantime, it was decided at the Fifth Plenary Session of the 15th Central Committee of the Party that the structural readjustment is the main theme, which means the annual economic policy and the medium and long-term policies will be well dovetailed with a clear direction. Secondly, expectation of enterprises and residents has gradually stabilized. A virtuous circle of self-expansion of domestic demand is being formed. Negative elements influencing the expectation of enterprises and residents in their investment and consumption are turning to be positive. With the gradually improved social securities system, rise in economic growth and stability of price after shrinkage for a considerable period of time, enterprises are more willing to make investment and so are residents to spend their pocket money. More areas for investment and wider channels for financing mean better conditions for investment, production and development of the private economic sector. Thirdly, the three-year target for state-owned enterprises to overcome difficulties has been attained, which means better conditions for strategic readjustment of state economic distribution and further reform and development of state-owned enterprises. Fourthly, construction and completion of some infrastructure projects supported by the state treasury in recent years have consolidated the foundation for national economic development.

Disadvantages of economic development in 2001 are seen mainly in the weak foundation for continued expansion of domestic demand and the uncertainty of world economic development. Concerning the domestic environment, with the decrease of the output of summer grains, prices of major agricultural products keep going down. The growth rate of farmers’ income has slowed down. The rural market is sluggish. In cities, despite the rise of the income for middle and low-paid people in the first half of the year, it is increasingly difficult to further raise their income. Holiday economy is cooling down. Policies on interest tax on bank deposit and real-name bank account have almost displayed all their effect. Market restriction on real estate has become conspicuous since the second half of the year and growth rate of investment has slowed down. The potential for issuing treasury bonds has decreased gradually. It has become ever more difficult for the government to increase direct investment. All the above factors have hindered domestic demand from growing sustainedly.

...

If you need the full context, please leave a message on the website.