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China to Continue Active Fiscal Policy
China's economy performed well in the first half according to the economic indicators. According to the numbers, China's GDP grew 8.2%, retail sales grew 10.1%, fixed asset investments grew 12.1% and foreign trade exports grew 38.3%.
Economists point out that the turnaround in China's economy shows that China's active fiscal policy is working. The fiscal policy has undoubtedly expanded domestic demand.
China's fiscal expenditures continued to increase in the first half along with the growing economy. Fiscal earnings totaled 624 billion yuan, up 94.6 billion from the same period last year or 17.9%. Fiscal expenditures totaled 583.8 billion yuan, up 119 billion yuan from the same period last year or 25.6%.
China's active fiscal policy spurs economic growth by using greater fiscal spending. In recent years, faced with problems such as lagging domestic demand, increased unemployment, an irrational economic structure and a slow increase in farmers' income, the CCP and State Council decided to adopt this policy to spur investments and increase consumer spending and exports. In the second half of 1998, due to the Asian financial crisis and lack of domestic demand, the Chinese authorities issued 100 billion yuan worth of Treasury bonds to fund infrastructure construction. In addition to the 50 billion yuan in bonds set aside in the 1999 preliminary budget, another 60 billion yuan long-term debt was issued to increase investments. At the same time, the tax policy to increase investments and expand exports increased the income of the lower class urban residents. In the past two years, the state has used treasury bonds to increase infrastructure construction, support technological renovations in enterprises and spur economic growth.
According to the central party's economic conferences held towards the end of last year, China will continue implement its active fiscal policy. Early this year, 100 billion yuan in Treasury bonds was penciled into this year's budget. The state will continue last year's tax policy and income adjustment policy. Foreign firms investing in the central and western regions of China will enjoy a 15% cut in income tax. Foreign investors undergoing restructuring will not be allowed to receive tax drawbacks. And, 238 transportation and car "administration fees" imposed by local governments were eliminated.
Increasing investments in infrastructure not only caused the production and prices of resources such as concrete, steel, nonferrous metals, it has pushed up the prices of consumer industrial goods. The elimination of taxes on fixed asset investments, such as business tax on real estate, contract tax, value-added tax on land, has stimulated the growth of China's real estate industry. Many of the government's tax policy has tried to encourage the development of high tech startups. Billions of bonds were used to provide interest rate subsidies on loans so large- and mid-size enterprises could upgrade their technology. In addition, the government has invested large amounts of capital and passed favored treatment policies so the state owned enterprises can pull themselves out of the red. In the second half of last year, SOE profits rose 4.4-fold compared with the same period two years ago.
While government spending on major projects increased, its expenditures on social welfare rose 1.95-fold during the first half. Government expenditures on public security, technology, education and agricultural technology has also increased. These investments will undoubtedly create favorable conditions for SOE reforms, economic structure adjustments and improving the market system.
Minister of Finance Xiang Huai-cheng, recently said that China will continue down the path it set out on last year. It will maintain its active fiscal policy in the second half. It will follow the direction set by the State Council and issue Treasury bonds at the appropriate time to raise funds for construction projects. It will increase supervision and management over the use of funds raised from selling bonds.
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