Maintaining the continuity and stability of the fiscal policy is crucial for China's economic development, said Zhang Liqun, a senior research fellow at the Development Research Center under the State Council.

Late last month, Finance Minister Xiang Huaicheng said in 2003 China will continue to use a pro-active fiscal policy.

"Expanding domestic demand is a long-term and basic foothold for China's economic development, while the implementation of pro-active fiscal policy is an important measure to expand domestic demand," Xiang said.

The pro-active policy, characterized by increasing government expenditure to spur domestic consumption demand, was introduced in 1998 as a major effort to offset the negative impact of the Asian financial crisis.

The central government has so far issued a total of 660 billion yuan (US$79.5 billion) worth of long-term treasury bonds and plans to issue another 140 billion yuan (US$16.9 billion) in bonds this year.

Some economists have called for an end to the policy because they believe the continuous issuing of long-term treasury bonds will greatly increase the country's debt risks.

But Zhang said the debt risks will not be that large as economists expect.

"No one can underestimate the country's solid development foundation formed by the reform and opening-up, the comprehensive effects of the country's efforts to expand domestic demand and the central government's ability to control the overall economy," he said.

Meanwhile, the Chinese economy has been enjoying an excellent growth rate. It grew 7.3 percent in 2001 and is expected to have grown by 8 percent in 2002.

Jia Kang, director of the Fiscal Science Institute at the Ministry of Finance, agreed with Zhang, saying a continuation of the pro-active fiscal policy will not pose major risks to China.

Presently, the government deficit accounts for 2.7 percent of gross domestic product (GDP), well below the internationally recognized alarm level of 3 percent.

The outstanding national debt is a far smaller concern, which accounts for 18 percent of GDP, as compared to the 60 percent alarm level.

Both Jia and Zhang agree the contents of the pro-active policy should be adjusted.

For a period in the future, the policy should play the important role of preventing polarization in different areas and among different people, Zhang said.

The policy should also play the role of maintaining social stability.

In this sense, a reduction of issuing long-term treasury bonds for 2003, at 140 billion yuan (US$16.9 billion), had symbolic significance, said Zhang Xueying, a senior economist with the State Information Center.

"It suggests that the government has begun to shift its focus from funding fixed-assets investment to increase direct consumption demand," he said.

After about two years of investment in expressways and other infrastructure projects, the government found there were not enough good projects for investment, Zhang said.

Minister Xiang said the part of the fund raised from the long-term treasury bonds in 2003 will be used to fund the construction of key projects which are still under construction and major State projects.

But emphasis would be given to fund the country's western regions and vast rural areas.

"Agriculture is the base of China's economic development," Xiang said. The government will expand the "fees-for-tax" reforms in the rural areas to increase rural people's income and increase input to improve the work and living conditions in those areas.

The government will also increase input for social security, raise employees' salaries and increase income for low-income groups, he said.

The central government's decision was wise, Zhang Xueying said.

"If a country's economy developed rapidly and a majority of the country's people did not enjoy the benefits, the economic development will be badly affected," he said.

Zhang sang high praise for some local governments' efforts to buy jobs through financial expenditure for laid-off workers.

In the coming two or three years, the new government will have to give key emphasis on solving the problem of laid-off workers, rural issues, pensions and unequal income distribution, he said.

The fiscal policy should be beneficial for reform, development and social stability, he said.

However, almost all economists and government officials including Xiang believe the country could not implement the policy for a long period of time.

Extra heavy government debts, that could possibly be brought about by the pro-active fiscal policy, will cast a shadow over the country's future economic development, they believe.

A heavy debt burden is expected to bring a great deal of pressure to bear on the devaluation of currency and deflation, which in turn may trigger imbalance and instability in the country's long-term economic growth, they say.

(China Daily January 6, 2003)