Economists: Zhu Rongji's pro-active policy once more
(AFP)
Updated: 2005-08-29 07:04

Peking University's Justin Lin Yifu argued mounting evidence of a slowdown at the margins was set to build and would impact key indicators such as the consumer price index before the end of this year.

Consumer price inflation grew at 1.8 percent in July, up slightly from the two previous months.

While industrial output grew at 16.1 percent in July, up from 15.5 percent during the same month last year, the earnings season has painted a darker picture of falling margins and profitability.

Anhui Conch Cement, China's largest cement producer, reported a near-90 percent slump in profit in the first half.

Although Conch's experience hasn't been repeated across the whole industrial sector, overall profit growth effectively halved to just over 20 percent in the first seven months of 2005, year-on-year.

"The government should take advantage of (current) moderate inflation to launch a proactive fiscal policy," said Lin, one of Beijing's most senior economic advisers.

Lin and He propose the government breathe new life into the large scale spending program launched at the end of the 1990s. But instead of targeting the type of infrastructure projects which characterized fiscal policies under Zhu, they say attention should be focused on underfinanced parts of the economy.

"There's a lot that needs to be done with pollution, the disparity between rural and urban areas, education, public health. Rather than injecting money to build airports, you can spend it on environmental protection, public health, transport, things like that," said He.

"The problem isn't that we have too much investment. The problem is that we have inefficient investment."

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