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19.5b Yuan T-Bonds Stimulate 240b Yuan of Investment in Technological Upgrading
Just one year and a half passed, technological renovations launched on T-bond interest discounts as one of the three master-strokes to extricate China's SOEs from difficulties along with various measures effecting SOEs reform, has shown their full might in stimulating an investment growth in technological reform by Chinese enterprises. Sources close to China State Economic and Trade Commission say that by the end of 2000 China had made 19.5b yuan worth of interest-discount T-bond investment in helping SOEs technological reform and this has accordingly stimulated 240b yuan of investment in technological updating. The leverage of T-bonds in place of interest discounts prizing investment growth in China is 1:12.
Gan Zhihe, director of the Investment and Planning Department of the State Economic and Trade Commission, introduced that in late 1999 the State Council decided to allocate an annual sum of 9 billion yuan from T-bonds in place of interest discounts for technological renovations and SOEs updating. By the end of last year, the State Economic and Trade Commission set on 880 technological renovation undertakings helped with interest-discount T-bonds to a sum of 240 billion yuan. Of the 240 billion yuan, 145.9 billion yuan were bank loans and 195 billion yuan government grants.
The magnifying effect of "1 yuan stimulating 12 yuan investment growth" did its fullest part in helping pull many enterprises out of the vicious circle described as "await the impasse of technological updating and doom from technological renovation". Last year, China succeeded in reversing right away the plummeting situation of investment in technological renovation since 1998 and reported a 13.2 percent investment growth, twice as much a sum as used for infrastructure construction during the same period.
Where did the money come from?
It is not the first time for central financial institutions in China to allocate interest-discount funds for technological renovation. However, a program ever launched on such a large scale is unprecedented. It is reported that the amount of interest-discount T-bonds is 10 times more over those of interest discounts centrally allocated every year in the past.
Following a change made from a planned economy to the market economy, every enterprise has survived as a competitor and investor in China and as major investors in Chinese markets they came to claim a 56 percent of investment in technological innovation in China by the end of 1999. Why the government poured such a huge sum of money when enterprises are becoming principal investors in China's technological renovation?
Gan Zhihe gave three reasons: first, the long-term structural contradiction in China's industry. In mid-1990's, structural overproduction took the place of a severe supply shortage in China's industrial market. Mass idle inferior productivity and shortage of sophisticated and high added-value products existed side by side. It is especially important to adjust and perfect the industrial structure when technological renovations are launched along with acute structural contradictions found.
Second: demand of SOEs to be relieved of difficulties. There are many factors to land China's SOEs in difficulties. One not to be denied is a lack of investment in technological renovation and updating to some extent stumble the pace of the country's enterprises. Promulgating favorable policies to support technological updating by the SOEs at a proper time will help them break away from the jam as soon as possible.
Third, downtrend of technological renovation development. A dark financial crisis sweeping across Asia also cast its shadows over China: since last 1998, investment in technological renovation reported a sharp decline in China. A negative growth even occurred in 1999. Significant measures must be adopted at the moment to stimulate domestic demand and curb the decline as well.
Considering the situation, in June 1999, the Central Government and the State Council decided to allocate 9 billion yuan from T-bonds issued every year as interest discounts in subsidizing technological renovation and industrial updating, nearly 10 times over allocations made every year in the past. Of T-bonds issued in 1999 and 2000, 19.5b yuan were used as interest discounts in support of SOEs technological renovation.
Where did the money go?
Focusing on quality, variety, benefits and exports and structural adjustment, industrial updating and building up the competitive edge of SOEs in China, the Chinese government set four key points in allocating interest-discount T-bonds as investment in technological renovations:
First, prioritize technological updating of enterprises and products in such major industrial sectors as metallurgical, petrochemical, nonferrous metal, machinery, textile and information and others involving papermaking, medicine, building material, chemistry. Northeast regions and old industrial bases, 520 enterprises and 120 groups listed outside plans are developed as pacemakers for technological updating.
Second, choose a number of projects contributing to structural adjustment to help improve the technological level of equipment, perfect the industrial structure and enhance the competitiveness of some key minority enterprises of strategic importance for the development of national economy and opening up the international market.
Third, adopt market-oriented policies and avoid redundant construction. Adjust the direction of investment according to analyses on domestic and foreign market by experts and enterprises; weed out obsolete production technologies and introduce independent credit approval by banks so as to prevent occurrences of backwardness during the process of renovation.
Fourth, aim to have a foothold on domestic market. Give priority to purchase homemade equipment for technological renovation so as to promote the development of China's equipment industry. Meanwhile, sustain qualified enterprises and industries to combine technological development with trading when foreign technologies and equipment not available in domestic market are imported.
What has been done?
Proceeding with key industries, enterprises and products, technological renovation projects helped with interest discounts, stress is laid on finding solutions to problems and a restructuring of metallurgy, petrochemistry, textile, machinery, automobile. A group of symbolic projects have been completed or are under construction.
In metallurgy, China has obsolete steel-making methods as open-hearth process. The supply of eight major steel products including steel board for car manufacture, stainless steel board and high-carbon wire rods can basically meet the demand of domestic market. The rate of non-stop casting was increased from 67.8 percent to over 80 percent.
Systematic renovation has been made in a group of state-owned textile enterprises. Chinese-made fabrics for clothing can replace 1.4 billion meters of imported cloth every year with over US$930 million of foreign currency saved. Fiber discrepancy per ton registered an increase of 4.8 percentage points.
After renovations undertaken in petrochemical industries, the output of 40 types of special resins including polyethylene, polypropylene, polyvinyl chloride (PVC) increased by 1.45 million tons, substituting imported products. China has become a producer of advanced resins such as those for cable materials, household appliances and high strength materials for pellicle which are badly needed in domestic market. Ethylene consumption in major enterprises such as Yanshan and Yangtze declined by a big margin; the rate of first-class diesel oil production was raised; the output of bitumen for high-grade highway pavement grew by 800,000 to 1,000,000 tons. All of these are produced by domestic technologies.
With regard to nonferrous metal production, pollution in major aluminum-making factories has been fundamentally put under control. Key copper-making enterprises have already had their exhaust at a level of environmental protection; pre-baking trough for electrolytic aluminum has been up to 45 percent from 30 percent; the functional rate of sulfur dioxide in lead-making factories has been raised to 92 percent.
Regarding mechanical industry, China has been able to develop 500,000 volts AC delivering and transforming facilities, supercritical thermal power machinery units beyond 600,000 kilowatts, large petrochemical units and steel rolling facilities independently. It has upgraded its numerical controlled machine tools and numerical controlling system, agricultural mechanism, measuring dials and other key hardware of machinery; it has been able to develop new facilities for engineering and environmental protection such as large concrete dashers and road graders basically depending on domestic technologies and techniques.
Electronic information industry reported remarkable achievements after technological renovation. Flake resistance, electric power and electronic parts of appliances, sophisticated parts of appliances, printed circuit board, special electronic facility, integrated circuit and mobile telecom products have with their quality and functions been at a level compared well to other similar products abroad. Some have been exported to many foreign countries and regions. Network products, digital broadcast launching machine and others have already been developed on a reasonable economic scale.
Chinese-made paper products have replaced 60 percent of imported paper products in two to three years. Both the quality and grades of the products take their places in the front ranks of the world. The structure of the materials for papermaking was accordingly adapted. Pollution has been treated with the liquid waste meeting the discharge standard. The homemade rate of papermaking machines has increased by 40 percent.
What are the functions?
Above all, investment by interest-discount T-bonds in technological renovation has enhanced the confidence and enlarged the credit lines of banks and the social funds in key technological renovation projects and reversed the downward trend of investment growth.
Secondly, T-bonds investment has contributed to a raise of technological levels of a group of SOEs in boosting a growth of the national economy, promoted the competitiveness of some key minority enterprises in international market, quickened the pace of readjustments of economic structure. Many ultra-large enterprises such as SINOPEC Group, CNPC, Baosteel Group Corp and Anshan Iron and Steel Group Corp are among those backed in the main by the state with T-bonds for technological updating. A number of projects, which are of great significance for the structural adjustment of groups, have been launched. Many old SOEs such as Anshan Iron and Steel Group Corp have boomed through the technological renovation; some excellent enterprises such as Baosteel Group Corp will establish domestic steel bases to promote the upgrading of related industries in the areas they belong to.
Thirdly, many new industrial undertakings long expected have been funded by T-bonds and developed. These include polyethylene production by Beijing Yanshan Petrochemical Group Corporation and the project to substitute imported special raw materials for polypropylene production for homemade materials. With these are also undertakings for production of semi-finished materials for cold and hot rolling steel board by Anshan Iron and Steel Group Corp, boards project for car manufacture of Baosteel Group Corp and the project to substitute imported stainless steel and steel petroleum pipeline for homemade products.
By PD Online staff member Du Minghua
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