Government to step back from investing
(China Daily)
Updated: 2004-07-24 10:50

The government will withdraw from many investment activities that make enormous profits and encourage a greater role for market forces in the economy.

The long-awaited withdrawal is part of a 20-page State Council document to deepen China's reforms of its investment system.

The document is expected to be made public Monday.

The reforms focus on breaking industrial monopolies, reducing administrative intervention and on overseeing government activities.

Premier Wen Jiabao said that the document will help government step back from investment activities and inject more energy into social management and public service.

Policy insiders and experts regard the reforms as another landmark step in China's arduous efforts toward building a market-oriented economy.

"Markets will have a decisive say in allocating resources and that is a major goal of the reforms," part of the document seen by China Daily said.

Without intervention from the government, banks and enterprises will be authorized to independently decide to lend or invest in most sectors, the document said. And investors can pour their money into any sectors, if they are not forbidden by laws.

The document also includes rules to govern investment actions by government.

Economists said that this "role change" is of vital importance in reaching the economic reform targets - to establish a mature market-oriented economy.

Wu Jinglian, a renowned think-tank economist on the State Council said that safeguarding good market order is one of the most important roles for government to play.

"But now the major role of governments is to spur economic investment and growth," said Wu. "Output is huge, but efficiency is at a very low level."

According to Wu, in developed countries, investors can gain US$1 of output from US$1 of investment, but in China, investors need up to US$7 in inputs to achieve the same level of output.

"Enterprises, instead of government, should play a major role in investing and economic activities," said Wu. "That is the basic rule of a market economy."

But since 1978 when China started reforms and its opening-up, government investment has become a major engine to keep gross domestic product growing at an average annual rate of 9 per cent for many years in a row.

People's livelihoods have notably improved over the years. The level of urbanization has also been extensively raised. The people's sense of democracy and awareness of laws have also been greatly enhanced.

This progress has accelerated in the past decade since the establishing of the framework for the socialist market economic system.

"Today, however, I would like to mainly concentrate on the challenges lying ahead for my country," said Lin Yueqin, a researcher with the Chinese Academy of Social Sciences.

Lin expected financial problems, mainly resulting from the government's investment drive, to be the cornerstone of China's ambitious economic reform efforts as the government makes fresh efforts to improve the market economy.

"Fortunately, now the State Council document has authorized that the banks, rather than government and officials, to have a decisive say indecision-making," said Lin.

He said whether the Chinese economy can achieve healthy, stable and sustainable growth will largely hinge on the performance of the financial sector.

Lingering problems that still trouble the financial sector in the country mainly include State monopolization; bad loans burdening the State-owned commercial banks as a result of government-mandated financing; rising financial fraud and scams; and the poor quality of stock market-listed firms.

"Unless these obstacles can be eliminated soon, the Chinese financial market will be left exposed to huge risks," said Lin. "The risks will not only threaten stability and development of the financial sector, but may also become the biggest hurdle to China's overall economic growth."

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