Meeting highlights 'fiscal prudence'
Yan XizaoChina Daily  Updated: 2004-12-06 09:12

The Central Committee of the Communist Party of China's annual Conference on Economic Work, that concluded yesterday, broadened the consensus reached at an earlier meeting of the Party's Political Bureau.

The two-and-a-half-day meeting set out solutions for a number of current and potential economic problems.

The to-do list it provided for next year reiterated many of the new leadership's recent priorities, including executing a brand-new "scientific perspective on development," refining macroeconomic control, boosting rural development and farmers' income, and deepening the reform of State Enterprises.

What distinguished this from previous sessions was the idea of adopting "prudent fiscal policies."

Amid fears of deflation in the aftermath of the Asian financial crisis in 1997, the country opted for "proactive fiscal policies" in 1998 to keep its fast-running economic locomotive from losing steam. From 1998 to 2004, the government issued a total of 910 billion yuan (US$110 billion) worth of State treasury bonds.

The results of this decision is illustrated by the nation's ever-expanding network of expressways and constantly changing urban landscape.

Aggressive government investment has indeed rid the national economy of the feared dangers of economic stagnation. But like many other policy initiatives, "proactive fiscal policies" have their own undesirable side-effects.

There has been a lot of talk at home and abroad about our economy's growing reliance on the expansion of fiscal expenditure. Over time, continuing government input has increased worries about overheating in some regions and industrial sectors, as well as potential financial risks.

Through the delicate dynamics of recent endeavours to rein in runaway investment in fixed assets, short supply of fuel, power, coal and transportation, together with hikes in prices of raw materials, our policy-makers have shown great finesse in the increasingly tricky situation.

As the government was about to step in and apply macro-control measures, pessimism abounded over its ability to manoeuvre the economy towards a "soft-landing."

The time is not yet ripe to declare "mission accomplished." But the process of landing is so far so good.

As the consumer price index stabilizes at slightly lower levels, fears of inflation are beginning to ease.

Investment in fixed assets, particularly in the iron and steel, cement, aluminium and real estate sectors, has started to drop.

The most inspiring message was from agriculture, the most fragile and underprivileged sector. While this year's bumper summer and autumn harvests put an end to the continuous dwindling of grain yield since 2000, farmers' per capita net income climbed 11.4 per cent.

The fact that the authorities finally had to resort again to macro-control measures testified to an imperative need to fine-tune the nation's economic roadmap.

The smooth progress of such a difficult mission, on the other hand, convinced us that such adjustments would not necessarily be at the price of speed.

The first three quarters of the year registered a combined gross domestic product of 9.3 trillion yuan (US$1.12 trillion), a 9.5 per cent increase year-on-year.

That was achieved amid extensive efforts to cool down over-investment.

While acknowledging that macro economic control is a difficult long-term task, the meeting found it essential for our economy's fast and steady progress.

The "prudent fiscal policies" the weekend meeting has agreed for 2005 and beyond reflect what had been proven to be correct in our own practice.

Judging from the current achievements of the new round of macro-control efforts, we believe our policy-makers have made a choice that will prove sensible and timely.

It forebodes a mild turn in our course of economic growth and indicates an inspiring advancement in China's understanding of the market economy.

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