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China to Continue Implementing a Proactive Fiscal Policy

       During a recent press conference, leaders of relevant departments under the State Council answered questions posed by Chinese and foreign reporters on China's fiscal policy and the effort made by the country to narrow urban-rural and east-west gaps.
       Question:The proactive fiscal policy is a special measure adopted by China in a special economic environment. China plans to issue 140 billion yuan of treasury bonds this year. Does this suggest that the proactive fiscal policy is fading out?
       Answer:The proactive fiscal policy, in essence, is an expansive fiscal policy, which aims to stimulate investment and consumption demand through the means of increasing financial expenditure. A total of 660 billion yuan of long-term treasury bonds have been issued over the past five years. These funds, pooled into construction, have driven up both investment and consumption demand. While playing a key role in maintaining the steady and fast development of the national economy, the practice also has widened the gap between financial revenue and expenditures.
       At present, the problem of inadequate domestic demand still exists. Given this, the continuous implementation of the proactive fiscal policy and the prudent monetary policy will help enlarge domestic demand. Last year, 150 billion yuan of treasury bonds were issued, of which 10 billion yuan was transferred to this year's account. Hence, the amount issued this year roughly equals that of last year. The reduced amount for this year does not suggest that the proactive fiscal policy is fading out.
       Q:Chiha~has implemented the proactive fiscal policy for five years, and last year its investment in fixed assets rose by 16.1 percent on the previous year. Why is the country still haunted by the problem of inadequate demand?
       A:Last year, the growth of fixed asset investment was fairly high when compared with that in previous years, hitting 16.1 percent. However, we need to study many problems related to investment demand, such as the main body of investment, which is important. Enterprises should become main investors. Although the investment capacity of state-owned enterprises has been on the rise, the mechanism for the continuous growth of investment still remains incomplete. Furthermore, the potential of private and individual investment should be tapped. Hence, a process will be involved to complete the mechanism for the continuous growth of investment.
       At present, the problem of inadequate consumption demand is glaring. The difficulties in increasing the income of farmers, in particular, adversely affect the overall expansion of consumption demand.
       Q:Will all the treasury bonds issued or to be issued be used in state construction? Are there cases of using the treasury bonds for other purposes or corruption? Are there any supervision and control measures in this respect?

       A:The construction treasury bonds are crucial. Responsible departments under the State Council and various localities have all attached great importance to the proper use of the fund. While carefully designing and managing the treasury bond-funded projects, various localities have established strict responsibility systems regarding the use of treasury bonds. Meanwhile, planning, financial, supervision and auditing departments have intensified supervision, examination and auditing of treasury bond-funded projects. In general, treasury bonds are properly used in construction. However, cases of diverting construction treasury bonds to other purposes did have occurred in some localities. Though small in number, they were seriously dealt with as soon as they were discovered.

       Q:What effort has China made to narrow the gap between urban and rural areas and between eastern and western regions?
       A:Narrowing the gap between urban and rural areas is an arduous task, as well as a key point, in the effort to build an all-round well-off society in China.
       Last year, the per-capita real income of China's urban residents rose by 13.4 percent, while that of rural residents grew by only 4.8 percent. The big gap roused great concern among both the Chinese and foreign media. Agriculture and the rural economy, particularly the issue of increasing farmers' incomes, are focal points among the top priorities in China's socioeconomic development. As the gap between China's urban and rural areas has been growing over a long period, to narrow the gap will involve a fairly long process.
       This year, efforts will be made in the following four aspects:
       --Expediting the strategic restructuring of the rural economy and the readjusment of the mix of farm produce. This aims to produce quality products needed by the market.
       --Speeding up rural reform, particularly the tax-to-fee reform. The reform was launched in 20 provinces, municipalities and autonomous regions last year, and the experiment will extend to all parts of the country this year. This is the main method to reduce the burden of farmers. Simultaneously, the reform of grain and cotton distribution systems will be carded out in depth.
       --Strengthening rural infrastructure construction. This aims to improve the production and living conditions of farmers.
       --Continuing to advance the urbanization process. This aims to create conditions for the rational flow of surplus rural laborers to cities and towns.
       In addition, intensified efforts will be pooled to solve the problem of feeding and clothing poor farmers through development-oriented poverty relief and work-relief programs.
       Since the introduction of the west development strategy, the gap between economic growth of China's eastern and western regions has been narrowed, from 1.5 percentage points in 1999 to 0.6 percentage, point in 2002.
       Over the past three years, China has increased investment in the western region's infrastructure construction and ecological and environmental conservation, which has expedited the economic development in the western region. Fixed asset investment in the region has also been quickened. Between 2000-2002, the western region's GDP rose by 9 percent annually, a rise of 1.8 percentage points on 1999. Fixed asset investment increased by 18.8 percent annually during this period, up 6 percentage points on the national average. Owing to historical and social reasons, as well as to its natural conditions and geographical location, the western region falls fairly far behind the eastern area in terms of economic development, with its per-capita GDP equaling only 40 percent of the latter's. The implementation of the west development strategy aims to narrow regional gaps and achieve the coordinated development of various regions.
       To narrow the economic gap between eastern and western regions calls for long-term efforts. Over the past three years, economic development in the western region has been speeded up gradually, chiefly relying on the Central Government's capital input. The region's capacity for self-development is still weak. Along with the optimization of its investment environment and the influx of domestic and overseas capital, the western region will further speed up its development, which will help narrow the gap between eastern and western regions step by step.

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