Economist Calls for Lifting Rein on Non-State Sectors and Tapping Rural Market

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Last updated at: (Beijing Time) Monday, July 22, 2002

Economist Calls for Lifting Rein on Non-State Sectors and Tapping Rural Market

Chinese central government must find ways to set off non-governmental investment and cheer up farmers' buying sentiment to counteract the looming deflation, said Lin Yifu, a famous Chinese economist.

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Chinese central government must find ways to set off non-governmental investment and cheer up farmers' buying sentiment to counteract the looming deflation, said Lin Yifu, a famous Chinese economist, in the Beijing-based Economic Daily.

Despite a brilliant 7.8 percent growth of the gross domestic product during the first half-year, China still has not successfully shaken off the annoying bite of a deflation beginning since late 1997.

Characterized by a pervasive glut in the market, the deflation seems to be gripping harder as prices keep inching down in nearly eight months in a row, driving away the thin air of euphoria among economists about the seemingly rosy-up Chinese economy in 2001.

The consumer prices index in June dropped 0.8 percent on average across China, compared with the same period last year, according to the National Statistics Bureau (NSB).

But an expansionary monetary policy will not lighten too much the symptom of an oversupply, which appears to have infected nearly all economic sectors, said Lin, director of the Chinese Center for Economic Research (CCER) of Beijing University.

Facing a highly-piled stock, enterprises are reluctant to borrow money for more investment, however low the interest rate might be, he said.

Under the mounting unemployment pressure, consumers would rather save more regardless of the lowered interest rate.

Relatively, a proactive fiscal policy might work better, Lin said.

As a matter of fact, the 510 billion yuan (US$61.67 billion) long-term T-bonds issued by the central government during 1998~2001 has played an important role in sustaining China's 7~8 percent GDP growth during that period.

But no economy can maintain a sustainable growth simply relying on big sums of government spending, said Lin, who, together with the other 11 economists, last month was invited by Chinese Premier Zhu Rongji to diagnosing China's economy, but their exact advices unknown yet.

Lin suggests lifting the unnecessary rein on non-State economic sectors, especially private businesses, and improving the rural infrastructure to facilitate farmers' consumption.

Lin hopes the government could readjust the market-entry policies to non-State businesses.

"Except businesses related to the national security, the government should allow in non-State businesses, develop medium- and small-sized banks to satisfy their specific financial needs," Lin said.

With the institutional restraints off, "these non-State sectors will surely let off a considerable investment energy," he said.

As for consumption, there is, Lin thinks, a great potential in countryside, which has been largely left untapped due to the bad infrastructure there, for example, unsteady and expensive electricity supply, sub-standard running water network, and bumpy and primitive roads.

By 2001, the number of color TVs, refrigerators and washing machines for one hundred farmer households stands respectively at 54.4,13.6 and 29.9, which is correspondingly 45.1, 16.6 and 32.4 percent of the number for every one hundred urban families, Lin said.

But in 2001, farmers' per capita income has hit 2,366 yuan (US$286), 16.8 percent higher than the figure for urbanites in 1991.

It is in 1991 that urbanites began a hot wave of shopping spree to refurbish their home with color TVs, refrigerators and washing machines.

Lin believes that the similar thing will also happen in today's countryside if only the basic conditions for farmers' consumption could be bettered.

Quoting a joint research by the CCER and NSB, Lin said that if the electricity price can be reduced by 0.10 yuan (or 1.2 US cents), it would increase a farmer household's buying power for color TV, refrigerator and washing machine by respectively 370, 667 and 909 yuan (or US$44.74, 80.65 and 109.92).

With the improved infrastructure, farmers will launch their "kitchen and bathroom revolutions", which will trigger a chain reaction of bettering their living condition, and in return decrease, by a great margin, the glut in the manufacturing sector.

In Lin's vision, there actually comes a virtuous cycle: Farmers' buying sentiment starts local labor-intensive businesses, which will increase farmers' income.

With more money in their pockets, farmers tend to buy more, then the deflation in the whole economy will be barred at a distance if not completely driven away.

By PD Online staff Forest Lee

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