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 | Wednesday, May 03, 2000, updated at 12:21(GMT+8) | ||||||||||||
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Healthy Growth, Unresolved ProblemsEncouraging signs that the national economy resumed stable growth in the first quarter of this year have been widely observed, but some fundamental problems remain unsolved, said Zhang Shuguang, a senior researcher with the Beijing Unirule Economic Institute."Attaching equal or even more importance to institutional reform than short-term economic policies is crucial to the success of the country's effort to boost domestic demand," Zhang noted. A recent report by the Economic Institute under the Chinese Academy of Social Sciences and the Unirule institute shows that China's economic growth hit 8.1 per cent during the three months to March. Good news came from the consumer market, trade sector and the stock market. Retail sales were up by 10.4 per cent and exports soared by 39 per cent over the same period of last year. And the bullish performance of the stock market was also conducive to the recovery. Particularly, in February, the consumer price index took a favourable turn for the first time after 22 successive months of decline, which indicated lessening deflationary pressure, according to the report. Since the second half of last year, the State has offered a large sum of fiscal funds, as much as 54 billion yuan (US$6.51 billion), to raise the incomes and pensions of 84 million public servants, laid-offs and retirees by 30 per cent and planned to double public servants' wages within three years. These measures have effectively improved residents' income and consumption expectations. "However, we should also take notice that many prices of service products are still monopolized by the government," noted Zhang. In sectors such as telecommunications and civil aviation, authorities have been trying to maintain high prices in spite of consumer complaints. "Therefore, it is too early to conclude that deflation is over just because the consumer price index has stopped falling. Concerned departments should pay more attention to the flotation of the retail price index and the capital goods price index which is more sensitive to market movement," Zhang urged. The report attributed the robust jump of exports primarily to the rapid growth of the world economy and the fact that the country's supportive export policies have taken effect. But in contrast with the growth of export and consumption was a decrease in the growth rate of fixed asset investment by 14.2 percentage over the same period last year as fiscal investment failed to stimulate non-government investment, the report said. The current tax system still taxes investment as heavily as it did in the early 1990s when inflation ran rampant in China. "Such a practice will only cut down enterprises' profit margin and lower their enthusiasm to invest, so tax reduction is essential to boosting investment," Zhang stressed . As China's entry into the World Trade Organization nears, how to enhance domestic enterprises' competitiveness has become an urgent problem. The State should treat domestic investors and foreign investors equally so that the former can enjoy the same preferential policies and accession to sectors such as the financial sector as the latter does, Zhang said. However, competition among domestic companies should be encouraged to break monopolies in the home markets and sharpen their competitive edges in the international market, Zhang added. The State has initiated a mass campaign to revive the western regions this year, a campaign critical to the country's future development. Drawing lessons from previous efforts to develop the vast western regions, the government should not struggle alone but instead work with enterprises to accomplish this great goal, Zhang said. Nevertheless, it seems that due attention has not been paid to this problem. For instance, the State has planned to build 20 feeder airports in the western regions. Allured by financial aids the central government has promised, local governments have thus vied with each other for more projects. Even in developed eastern areas, such airports have suffered serious losses due to low passenger rates. Instead of doing so, the State should devote more efforts to institutional reform to help domestic enterprises go west, said Zhang. This year's bullish stock market, to a large extent, was a result of the State's institutional adjustment. Meanwhile, the reform of the banking system lagged behind. The growth rate of individual savings has dropped from 18.5 per cent last June to 8.1 per cent in March. "Though, as a whole, the current division of savings will not cause liquidity problems to the banks, but it is harmful to the stability of the country's economic growth," Zhang warned. To address this problem, non-State financial institutions should be allowed to play a bigger role and interest rates allowed to float according to market demand, Zhang said. That prices and interest rates, presently low, provide a good chance to reform the interest rate system. It is not necessary to react vehemently, no matter whether the market drives the rate up or down, because that is merely normal market readjustment.
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