A Few Points of Cognition of Current Economic Situation and Macro-Control

Following are excerpts of this article written by Zong He. In order to better uphold and perfect a series of policies and measures proved to be effective in recent years, and to maintain the sustained, rapid and sound development of the national economy, it is highly necessary to correctly analyze and understand the current economic operation and macro-control.

After China's economy successfully achieved a "soft landing" in 1996, there was marked change in the internal and international economic environment. In the face of the impact of the Asian financial crisis and change in the domestic supply-demand relationship, the Party Central Committee and the State Council, judging the hour and sizing up the situation, determinedly adopted major policies, such as expanding domestic demands and implementing an active fiscal policy. As a result, a good momentum has been maintained for the rapid development of the national economy. In the year 2000 at the turn of the century, China's economic development enjoys many favorable conditions and opportunities and faces quite a few difficulties and problems, the tasks remain very arduous. The article focuses on the following three points:

The Irrationality of the Economic Structure Is the Important Reason for the Current Inadequate Effective Demand and the Deflationary Trend

At present, China's national economy, as a whole, maintains a good development trend, but some contradictions and problems different from the previous ones have also emerged in the economic operation, as manifested clearly in the inadequate effective demand and a clear deflationary trend.. In the past two years, there has been a marked decline in the growth rate of social demand compared to the previous years. By December 1999, the general level of consumer price and retail price of commodities had witnessed a continued decline for 19 months and 27 months respectively, the price of capital goods dropped at a still greater rate and for a longer time. The long-time and wide-range price fall had increased the difficulties of producers and operators and adversely affected the confidence of investors, restrained increase in the income of residents, particularly that of farmers, producing adverse effect on the cycles of the national economy.

There are many reasons for the current inadequacy of effective demand and the trend of deflation. It does not tally with facts to impute all these problems to the over-length of time and the excessive intensity of retrenchment in the process of strengthening and improving macro-control conducted since 1993. In 1993, the phenomenon of an overheating economy emerged in China during its advance with big strides, the rapid expansion in investment and consumption demands exceeded the capacity of social supply, there were over-issuing of currency, the continued rise of price, chaotic economic and financial order and the rapid rise in financial risk. To cope with this situation, the central government determinedly made major decisions to strengthen and improve macro-control, it began with improving the financial and economic order to suit the new situation featuring the establishment of a socialist market economic structure and the requirements of reform and opening up, it mainly used economic and legal means, supplemented by necessary administrative measures. It adopted the "soft landing" method and tackled the overheated economy and inflation.

After the "soft landing" was basically realized in the second half of 1996, to cope with the new situation emerged in economic operation, the government promptly readjusted the macro-economic policy. In order to expand the scale of bank loans, it successively adopted measures to reduce the interest rates on saving deposits and loans five times, abolish the quota limit of bank loans and lower the rate of deposit reserves to promote economic growth. In order to cope with the impact of the Asian financial crisis, the government has, since 1998, shifted macro-control to expanding domestic needs, implemented .an active financial policy, striving to give play to the role of the monetary policy, made comprehensive use of financial, banking, taxation, pricing, income distribution and other economic levers to promote investment, consumption and export demands and boost economic growth.

The above-mentioned actual situation indicates that the force of control applied in the macro-control since 1993 was appropriate and minor adjustment was timely made in the process of implementation. While eliminating the overheating of economy and striving to improve the situation of aggregate balance and control inflation, active efforts were made to promote economic restructuring and structural readjustment, emphasis was laid on solving the problem concerning system and mechanism and consolidating achievements in macro-control.

A deeper analysis shows that the inadequacy of effective demand and the emergence of the deflationary trend are the result of the inter-weaving and interaction of the various kinds of deep-seated contradictions accumulated over a long period of time in China's economic life.

Therefore, only by understanding the problem of the current inadequacy of effective demand and the deflationary trend from the deep-rooted and structural contradictions, is it possible to purposefully adopt measures to fundamentally solve the problem concerning the insufficiency of effective demand and check the deflationary trend.

Notable Results Achieved in Expansion of Domestic Demand and Implementation of Active Fiscal Policy

In recent years, major changes have taken place in the supply-demand relationship in the domestic market, the pattern of a buyer's market has initially taken shape, demand has put increasingly intensified restraint on economic growth, these, plus the serious influence brought by the Asian financial crisis on China's export and the utilization of foreign capital, have further laid bare the contradiction featuring the inadequacy of effective demand. In an effort to avoid possible economic glide and maintain the sustained, rapid and sound development of the national economy, the central government had determinedly made major decisions to expand domestic demands and implement an active fiscal policy. In 1998, the government issued an additional long-term State construction bonds worth 100 billion yuan was issued, increased fixed assets input and accelerated infrastructure construction. In 1999 in light of the new situation emerged in economic operations, the government continued to implement the active financial policy and issued another amount of additional State bonds worth 60 billion yuan on the basis of the originally set scale of 50 billion yuan worth of long-term national bonds. While further quickening infrastructure construction, efforts were made to step up enterprise technological renovation, in the meantime, a policy of adjusting income distribution was put into force.

Introduction of an active financial policy and the issuance of additional national bonds have played a key role in achieving the anticipated goal of economic growth and avoiding major fluctuation in economic operation. Due to the fact that the orientation for the funds of national bonds was rationally fixed and consideration was given to stimulate the current domestic demand and long-range social effect, this has not only forcefully boosted the current economic growth and avoided duplicate construction, but also has helped concentrate forces to accomplish major things which were wanted to be done but failed, and which affected the whole situation of economic development, and boosted economic restructuring, laying a foundation for future development. In the meanwhile, the government took advantage of the favorable opportunity offered by the funds, and the relatively cheap production factors, such as land and main raw and semi-finished materials to accelerate infrastructure construction through issuing additional national bonds, this also conforms with the general law governing economic development with infrastructure as the vanguard.

Implementation of an active financial policy and direct increase in State investment have also created conditions for giving play to the role of the monetary policy, converting residents' savings deposits into construction funds and making better use of existing surplus materials and production capacity.

Under the impetus of the policy on expanding domestic demands, collective and individual investments have also reversed the trend of decline in growth rates in recent years.

As a result of readjusting the policy of income distribution and raising the earnings of urban low-income residents, residents' psychological anticipation has been improved and consumer demand has picked up steadily. In 1999, the actual increase rate of the total value of retail sales of social consumer goods reached 10 percent after deducting price rises. .Due to measures adopted to encourage export plus improvement in the international economic environment, exports began to pick up in the second half of last year, the total value of export in the year rose 6.1 percent, a marked rise over the growth rate of the previous year.

Practice over the past two years proves that implementation of an active fiscal policy to expand domestic needs under the condition of inadequacy of effective demand is the most direct and most effective means for boosting economic growth and an important measure for curbing the trend of deflation.

Continued Expansion of Domestic Needs and Implementation of an Active Fiscal Policy Is the Necessary Requirement for Boosting Economic Growth and Accelerating Structural Readjustment.

The current sharp contradiction featuring inadequacy in China's effective demand has seriously restrained economic growth. At the same time, enterprises face difficulties in funds, the investment capability is not strong, there is a lack of projects with the ability to repay bank loans, under this circumstance, it is necessary to maintain the continuity of policy, continue to implement an active fiscal policy, issue a definite amount of long-term national construction bonds, increase the scale of investment, expand domestic demand, so as to boost the steady growth of the national economy.

It is necessary and fully possible to continue to implement an active fiscal policy and issue an additional portion of long-term national bonds.

In implementing an active fiscal policy, in addition to issuing bonds to be used in increasing investment in fixed assets, it is necessary to actively readjust the financial expenditure structure to ensure that the income distribution policy is readjusted and funds for social security and other major expenditures are in place. Expanding domestic needs and implementing an active fiscal policy should be better integrated with the accelerated structural readjustment. We should base ourselves on the need to solve the present problem of inadequacy of effective demand and to stress long-range development, there should be both progress and retrogress, and some things done while others are left undone, so as to promote the strategic readjustment of the national economic structure.

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