"If the pro-active fiscal policy is extinguished too early, then all our efforts might be wasted. This policy has effectively increased domestic demand and promoted continued rapid and healthy development of the economy," Mr. Xiang said.

China implemented an expansionary fiscal policy, backed by massive state spending, in 1998 after the start of the Asian economic crisis.

Beijing plans to issue 150 billion yuan (US$18.07 billion) worth of special bonds to fund state spending on infrastructure this year and has forecast a budget deficit of 259.81 billion yuan, which is less than 3 percent of gross domestic product.

Under the state's 2001-2005 development plan, China will keep the active fiscal policy for the next five years.

"This is not only necessary, but is also the correct decision," Mr. Xiang said.

The expansionary fiscal policy added 1.7 percentage points to economic growth last year, two percentage points in 1999 and 1.5 percentage points in 1998, Mr. Xiang said.

However the government must use funds raised from bond issues effectively since they represented the "blood and sweat" money of the common people, he said.

The minister's comments come as government officials’ debate how to achieve annual economic growth of 7 to 8 percent this year, against 8 percent last year, as export growth slows.

China's exports rose 6.6 percent in July, reversing a fall in June, but well off the pace of last year's blistering 27.8 percent surge.

Some government economists are lobbying for monetary policy - as opposed to fiscal policy - to play a greater role in the economy and are urging the central People's Bank of China to further loosen credit.

However, top Chinese leaders set the course for new policies to expand domestic demand in the remainder of this year to help offset slowing export growth.

(China Daily 08/22/2001)