Again, in a pattern that has become predictable, the economic
performance of China during 2002 exceeded expectations. Official
statistics show the economy growing by 8 percent, led by continued
strength in the industrial and services sector. Output rose at an
even faster rate of 9.9 percent in the first quarter of 2003,
although this is unlikely to last given the effects of the SARS
epidemic on some of China's regions and in neighboring countries.
During 2002, there was renewed vigor in investment, stimulated by
post-WTO private capital spending as well as public investment in
the government's stimulus program. Both imports and exports grew
sharply, and China emerged as the favorite destination for foreign
direct investment. Foreign exchange reserves rose, reaching almost
12 months of import cover, and the external surplus continues to
hold. Debt, though growing, is still low by international
standards.
Despite such robust economic performance, serious short- and
long-term challenges remain. These were brought into focus during
the stocktaking that occurred at the 16th Party Congress of the
Communist Party in October 2002 and discussions at the National
People's Congress (NPC) in March. Several of these were reiterated
in pronouncements by senior officials following the recent change
in administration that saw Hu Jintao appointed President, Wu
Bangguo as head of the NPC, and Wen Jiabao as Premier.
Among the major highlighted risks are those related to fiscal
sustainability, continued growth in inequality (in particular rural
distress), and an orderly transition to a market economy with an
expanded role for the private sector. The government has renewed
its commitment to tackling the toughest economic issues through
appropriate policies and a reorganization of government functions,
while recognizing the overall risk of attempting radical domestic
reforms in the context of an inhospitable international economic
environment. It has, therefore, projected a lower growth rate of 7
percent for 2003, and a growth rate of exports that is just
one-third of the 2002 outcome.
Recent Economic Developments
Output: The blistering pace of growth of the Chinese economy
during 2002 and in the first quarter of 2003 stems from three
sources (Table 1). First, as revealed by the 17.3 percent real
growth (y-y) of fixed investment in 2002 (and an even higher 25.7
percent in the first quarter of 2003), the economy is receiving a
boost from the macroeconomic stimulus program, which is now in its
sixth year. The fiscal deficit was 3 percent of GDP, slightly lower
than the 3.3 percent deficit of 2001, and was combined with easier
monetary and financial policies.
Second, the post-WTO accession effect has played out in increased
foreign investment in China, as well as in energizing urban
consumer demand for services and some categories of products (such
as cars and upscale real estate). Third, the continuing evolution
of global cost and demand patterns coupled with the greater access
to foreign markets provided by joint venture enterprises re-ignited
China's exports, which rose a solid 22.3 percent during 2002.
During the first quarter of 2003, they rose by 32.5 percent
(y-y).
Sectoral Pattern: The sectoral pattern of this growth is
relatively unchanged (Figure 1). However, it should be noted that
the performance of the primary sector, mainly agriculture,
continues to improve. This is significant inasmuch as 2002 was
characterized by poor rainfall, drought, and the first year of
liberalized agricultural imports after China joined the WTO. It
reflects in part the ability of some farm households to diversify
production away from grain to higher value added activities.
Table 1: Basic Economic Statistics
a/
Nominal values b/ World Bank estimate based on Atlas
methodology
Source: World Bank and IMF staff estimates and official data
Value-added in industry recorded its highest increase since the
Asian financial crisis, led by foreign-funded enterprises feeding
the domestic boom in demand for industrial products as well as
consolidating production in China for expanded sales in other
markets. This strong performance has continued into 2003, with
industrial growth during the first quarter of 17.2 percent (y-y).
The problem with under-valuation of China's services sector output
still exists. While the sector grew by 7.3 percent in 2002,
compared to 7.4 percent the previous year, it is believed that some
services growth is recorded in the manufacturing statistics,
reflecting the high degree of vertical integration of economic
activities that exists within Chinese firms, especially the
state-owned enterprises (SOE).1
The shape of industrial production changed noticeably during
2001-2002. On the energy front, two developments are worth noting.
First, the rapid growth of industrial production is pressuring
conventional energy supplies, despite improved pricing, continuing
efficiency in production and distribution of power, and
diversification to alternative sources. For the first time since
1997, the electricity supply-demand balance has become worrisome,
with 18 provinces facing shortages during 2002. Together with
water, the availability of adequate supplies of energy is an
important determinant of the long-term growth prospects of China.
Recent increases in the domestic prices of diesel and gas, in line
with the new formulae that track international price developments
closely, suggest that alternatives to make up for electricity
supply disruptions may become progressively more expensive for
retail consumers. Energy dependence on foreign sources is rising,
with 2002 imports of crude oil increasing by 15.2 percent to reach
69.4 million tons equivalent. Second, the closure of nearly 60,000
small coal-mining pits in the past few years is having a favorable
impact on productivity. The larger state-owned mines now account
for 73 percent of the market (compared to 57 percent five years
ago). It is expected that, as a result of the better management
that is expected, this will have a favorable effect on reversing
China's poor mine safety record and on the environment.
The role of automobile production-an increase of 55 percent during
2002-is receiving a lot of attention. Many analysts and some
officials identify this industry segment and its ancillary
industries as a potential leading sector in the future industrial
development of China. Unfortunately, imports are also rising
fast-82 percent in 2002. The population of China is large and
growing, and increasingly locating in urban areas. Current and
prospective purchase patterns among urban consumers suggest that
policies to promote the sector will have to be especially sensitive
to the costs of environmental pollution and congestion.
Figure 1: Sectoral Composition of Growth
Source: National Bureau of Statistics
Another focus of attention in the industrial sector is the growth
of China's exports of light manufactures and household goods in
2003, which the SARS epidemic centered on Guangdong and Hong Kong
is likely to affect. The Pearl River economy accounts for nearly
$90 billion of exports and 10 percent of the output of China.
Therefore, the recent drop in business travel and
purchaser-supplier activity, especially during the crucial
April-June period when most business transactions in the
contract-manufacturing regime are negotiated, is likely to have
adverse effects. This comes on top of the squeeze on profitability
in China's export-oriented industries that compete fiercely in a
relatively slowly growing global market, especially the textile
sector, which faces rising prices for cotton.
Demand: Except for the uncertainties associated with the
effect of SARS on the growth of domestic and external consumption,
general demand prospects are strong. Fixed investment rose by 17.3
percent in 2002, and a slightly higher rate during the first
quarter of 2003. The construction of capital projects, which rose
by 16.3 percent, contributed 60 percent of the increase. The effect
on investment of five years of macroeconomic stimulus spending is
evident in the massive new public construction that has taken place
in roads and subsidiary transport facilities, in the expansion of
utilities, water conservation, forestry, and other public services.
However, direct funding from the budget has supported just 14
percent of this increase in investment. Improved enterprise
profitability accounted for a large increase in internal financing,
but FDI, financial institution lending, and bonds grew rapidly. For
example, the corporate bond market provided much needed financing
for the railway and telecommunications sector, as well as for the
Three Gorges Project. Total issuance amounted to RMB37 billion from
13 issuers and 17 issues, up 106 percent (y-y). In 2003, 3
corporate bond issues have raised RMB6.5 billion from the market.
The newer modes of infrastructure finance that have developed in
China in recent years will play a critical role in supporting
demand as the government gradually reduces budgetary stimulus
measures but, more importantly, will help meet the country's huge
demand for development projects. Box 1 discusses some issues
associated with infrastructure finance.
The efficiency of domestic investment needs to be raised. China's
incremental capital-output ratio (ICOR) of 5, although a crude
measure, reflects the dominance of long-gestation infrastructure
investments in resource use and the reported lower efficiency of
investments made (and largely financed) at sub-national levels. It
is likely that over the long term China will be able to generate
the same level of growth and possibly higher employment from a
lower level of investment. An immediate concern related to demand
in the economy is the increase in the domestic savings rate. As
shown in Table 1, consumption continues to rise at a slower rate
than total income (however measured), despite the macroeconomic
stimulus program. Over the past five years, it has averaged an
increase of 6.7 percent per year, compared to an income growth rate
of 7.6 percent. However, during this period, and especially in
2002, the composition of public spending in the stimulus package
progressively has targeted areas that would raise consumption
directly. Higher transfers for civil service salaries and other
government operating costs, pensions, and rural and low-income
programs have been successful in propping up consumption as well as
investment. Recent official pronouncements suggest that this shift
in composition will continue to occur, with emphasis given to
allocations that have a quicker and more powerful impact on demand.
The use of public funds and policies to resolve rural distress and
public sector payments arrears, and for the creation of a better
social security program, should have a favorable effect on domestic
demand.
During 2002, on average real urban disposable incomes rose by 13.4
percent, and urban consumption rose by 4.8 percent. By contrast,
real rural net incomes rose by 4.8 percent (up from 4.2 percent in
2001), while rural consumption rose by 4.4 percent (up from 3.5
percent the previous year). As shown in Table 2, the trend in
urban-rural standards of living continues to be disturbing.
Widening urban-rural inequality and its potential to undermine
growth and social cohesion suggests that better targeting of
government stimulus spending toward lower income groups will have a
dual payoff-more powerful short term stimulus and long term
growth.
Box 1: Infrastructure Finance
A
re-examination of infrastructure finance is underway in China. This
stems from several factors-large development needs, highlighted by
the Western Region Development program; budgetary pressures,
including the need for curbing reliance on extra-budgetary
resources for infrastructure construction at local levels;
recognition of the complex financial needs of capital projects that
cannot always be met by conventional loans, true especially of
cases involving private-public or foreign participation; and the
promotion of urbanization that, at least in its initial stages,
tilts the balance towards infrastructure and away from corporate
finance.
There are no precise estimates of the likely demand for
infrastructure finance, but some conservative estimates place the
total at US$1 trillion equivalent for this decade. In the
near-term, bank lending for infrastructure will continue to be
dominated by China Development Bank (CDB), which extended US$24
billion to state projects in 2002. During 1998-2002, in the context
of the stimulus program, CDB lending represented over 40 percent of
total infrastructure loans. The four state-owned commercial banks
are also significant lenders. In total, therefore, at end-2002
infrastructure loans accounted for 37 percent of total local
currency loans.
However, new forms of infrastructure finance have emerged. In 2002,
some institutions (for example, Shenzhen Development Bank, Minsheng
Bank) debuted "public entrusted loan schemes" by intermediating
funds between, on the one hand, retail investors (minimum
participation of RMB10,000) and enterprises (RMB500,000) and, on
the other, final borrowers for projects such as water sewage
processing and industrial parks. By end-2002, such private and
public forms of entrusted loans amounted to only RMB240 billion
(compared to bank lending of RMB13,980 billion). However, they are
attractive vehicles for investors (average return of 3 percent,
compared to 1.98 percent in bank deposits), who look to the
commercial banks, official project promoters, and other
enhancements as risk mitigation mechanisms that permit them to
participate in otherwise complex and non-transparent financial
packages for infrastructure investment. This instrument is likely
to grow, especially if the roles of commercial banks and project
sponsors are clarified and disclosure strengthened.
At
the same time, controversy surrounds similar "capital trust
schemes" offered by the trust and investment companies, the first
of which highlighted in its offering document an estimated 5
percent annual return. Individual schemes are restricted to 200
settler and minimum participation of RMB50,000 per settler. Lax
disclosure has marked the offerings of such funds, inadequate due
diligence, and unclear guidelines for trust administration. This
prompted the central bank to issue a warning in October 2002 about
the excessive growth of such instruments and inherent product
risks.
Clearly, high demand for infrastructure finance and liberalization
of the financial sector will stimulate innovation in this market
segment. However, the involvement of less sophisticated investors
in public or quasi-public financial products warrants closer market
supervision and a robust legal framework. Project finance and risk
management skills at financial institutions need to be raised. The
rates at which CDB and the state commercial banks are accelerating
infrastructure lending will heighten their project finance related
risks and exposure to public projects. This exposure is higher than
suggested by their loan portfolios; commercial banks hold large
volumes of government and CDB bonds that were also raised to
support infrastructure investment. Eventually, local governments
should be able to borrow directly to meet their infrastructure
finance needs, conditioned on strengthening the current system of
intergovernmental finance. Private investors can also be tapped,
but first require a stronger enabling environment for participating
in infrastructure investment.
Table 2: Average Urban and Rural Income and Spending (RMB/year per
person) a/
a/
Disposable income of urban residents, net income of rural
residents. b/ Estimated
Source: National Bureau of Statistics and World Bank staff
estimates.
External demand continues to play an important role in promoting
growth and employment. Since the third quarter of 2001 the net
effect on demand of foreign purchases of China's exports and
Chinese residents' purchases of imported goods has been positive,
reversing the trend during 7 of the 10 previous quarters. During
2002, exports rose by 22.3 percent, assisted by a 7.4 percent real
effective depreciation of the Renminbi, while imports grew by 21.2
percent. However, imports into the processing trade grew
significantly faster than exports, 30.1 percent and 22 percent,
respectively. The more rapid increase in imports is no longer
restricted to the processing regime-the overall import content of
Chinese economic activity has risen in the first year after WTO
accession. During the first quarter of 2003 imports rose by 52.4
percent (y-y), compared to an export growth rate of 33.5 percent,
partly reflecting accelerated purchases ahead of the anticipated
conflict in Iraq. Notwithstanding the momentum on trade, several
factors-SARS, dampened global trade-suggest that exports will grow
slowly over the next few quarters, moderating China's overall
economic growth rate. It is difficult to provide reasonable
estimates of China's near-term growth prospects given the high
level of uncertainty regarding international trade and incomplete
information about the economic policy intentions of the new
administration in China. Based on first quarter developments, our
projections suggest that GDP growth is likely to slow to the 7-7.2
percent range during 2003.
Macroeconomic Policy
Fiscal-Monetary Policy: The coordination of fiscal and
monetary policy, but also the pace of economic reform and creation
of a better investment climate, will play a key part in determining
short and medium term prospects. Fiscal policy has been an
important pillar supporting economic activity in China since 1998.
High revenue buoyancy-reflecting reforms in taxation and improved
collection efforts-facilitated an expansionary budgetary stance.
During 2002, total revenues rose by 15.4 percent and the revenue to
GDP ratio rose to 18.6 percent (compared to 11.6 percent in 1997).
Despite higher government expenditure, the size of the budget
deficit has fallen relative to total output in the economy, from a
peak 4 percent of GDP in 1999 to last year's 3 percent. Slower
revenue growth is projected for 2003, so the budget deficit is
expected to rise as a share of total output to 3.4 percent.
Four issues have resurfaced about the size of the fiscal deficit
and continuation of the policy of macroeconomic stimulus. First,
the rapid increase in public debt, from 11.4 percent of GDP in 1997
to 25.3 percent in 2002, has kept the question of fiscal
sustainability on the front burner. The burden of servicing
government debt limits the availability of resources for
development spending, especially in the social sectors. However,
most analysts agree that the prospects for revenue increases in the
future make it highly likely that the current level of budget
deficits is sustainable.
Second, despite this, the existence of additional liabilities
(contingent, implicit, or hidden, for example, banking losses,
pension payments, or local government debt) increases pressures for
fiscal consolidation. Obviously, the problem will need to be
addressed on several fronts-for example, policies to cut costs and
improve operations at banks and to implement social security
reforms and a better functioning intergovernmental fiscal system;
asset sales to improve the financial position of banks and the
social security fund. In addition, the rapid growth of the Chinese
economy will create favorable conditions for reducing the size of
such liabilities. However, it is equally clear that there will be
need for fiscal intervention, albeit phased-in over time to match
the resources available in the government budget. For example,
under most reasonable scenarios the four state-owned commercial
banks would find it difficult to simply "grow" out of their current
portfolio problems. The size and nature of a fiscal intervention
package to support their own efforts to trim costs and improve
lending practices to reduce losses is yet to be determined.
The third issue is concerned with the potential for government
borrowing and the need for reform in the government bond market.
Total borrowings to cover the budget deficit in 2002 reached RMB593
billion (US$72 billion), of which RMB258 billion was for debt
servicing, and RMB25 billion for on lending to local
government.2 The 2002 borrowing was effected through
RMB446 billion of marketable debt and RMB147 billion of
non-marketable savings certificates. Despite commendable market
building initiatives (for example, appointment of market-makers,
desegregation of markets, extension of maturities, fixed rate
issues, greater transparency of offerings), under-subscription
problems arose for three issues, and government securities turnover
stayed at low levels. The essential ingredients for an efficient
government securities market are being developed. These include the
legal framework, improved sales techniques (market-based pricing
through auctions, revised distribution mechanisms, standardization
of debt instruments), development of market intermediaries and
institutional investors, better clearance and settlement, and
effective regulatory and prudential supervision.
Finally, the need for closer fiscal-monetary-foreign exchange
policy coordination has been highlighted. Many analysts have argued
for an "exit strategy" from expansionary fiscal policy-the need for
fiscal consolidation. More active use of monetary policy has been
proposed since last year, when the growth of money supply (M2) was
raised to 16.8 percent while foreign exchange reserves rose 34.9
percent. There is increasing recognition that the existence of
deflationary pressure in the economy makes a further increase in
money growth feasible, as it is unlikely to kindle inflation. The
CPI shows that prices fell 0.8 percent during 2002, the third year
of declining prices since the beginning of the macroeconomic
stimulus program in 1998. There has been a small up-tick in prices
in the first quarter of 2003 (0.5 percent, y-y). However, it is not
clear if this represents anything other than strong demand
associated with the Spring Festival holidays and the recent
pass-through of international oil price increases to consumers in
China. The longer-term decline in prices seems to be broad-based,
seen in retail and ex-factory prices as well and, with the
exception of fuels and associated products, it has affected the
purchasing price index of raw materials. Nevertheless, it is still
unclear that the monetary policy transmission mechanism is
effective; in fact, there is concern that an easy money policy will
further weaken bank portfolios, given the way in which many
bank-lending decisions are made.
The one exception to the price developments mentioned above is the
trend in real estate prices, which, although subject to substantial
local price variations, is strongly upwards. Land prices rose
rapidly during 2002, in some areas as much as 25 percent followed
by the sales price of houses. There is concern about a real estate
bubble developing in the major urban markets. Public entrusted loan
schemes and capital trust funds provide niche financing for real
estate development, but commercial banks are also important lenders
to this sector. An official source stated that as of November 2002,
total commercial bank real estate lending and lending against
employee housing funds amounted to RMB734 billion (US$89 billion)
and RMB113 billion (US$14 billion), respectively. This contrasted
sharply with the total of RMB19 billion in 1998. Banks are known to
be lax in implementing prudential debt service ceilings on
borrowers, which could have severe effects on bank portfolios in
the event of an increase in interest rates. Although the risks are
less apparent now, given the historically low interest rates in the
economy, they will multiply fast during a period of general
recovery. In December 2002, the central bank cautioned domestic
banks to control their real estate lending in order to control
systemic risks in the banking system. A task force has been
established to examine post-June 2001 commercial bank lending for
real estate development.
External Payments: A strong trade performance is only one of
several factors that accounted for China's robust external payments
position in 2002. Still, it is worth noting some characteristics of
trade last year. First, although global trade volumes rose by an
anemic 2.7 percent last year, compared to 12.9 percent in 2000 and
0.6 percent in 2001, China's exports rose strongly, recording
double digit increases to all regions, and especially strong in
light engineering and durable consumer goods. Consequently, China's
share of world markets rose to 5.1 percent. Second, there was a
massive increase in imports from neighboring countries, putting to
rest for the time being at least the idea of an emerging "China
threat". China's imports from ASEAN rose by 34.4 percent and those
from Japan and Korea rose, respectively, by 25 percent and 22.2
percent. Third, the rise of component imports was associated mainly
with the actions of multinational enterprises, many of which have
either expanded or relocated their finished goods production
facilities to China. The composition of such trade during 2002
indicates the emergence of the type of production networks likely
to develop in the post-WTO accession period.
The last of these elements is linked closely to the actions of
foreign investors in China. During 2002, China emerged as the
leading destination for FDI, absorbing US$52.7 billion in inflows,
a 12.5 percent increase over the previous year. They combined with
the strong trade performance to raise foreign exchange reserves
from US$212.2 billion in 2001 to US$286.4 billion in 2002, which
provides nearly 12 months of import coverage. External sector
vulnerability is low, with short term debt (remaining maturity
basis) estimated at 25 percent of the total. Total external debt
reached US$191 billion at end-December, and external debt servicing
is at 6% of exports. The nominal exchange rate has been stable
although, as mentioned earlier, the real effective exchange rate
depreciated by 7.4 percent during the year.
Structural Agenda
Several significant political events have occurred in China since
our economic update of September 2002. A new administration took
office in March 2003, followed by a smooth, even routine,
transition of personnel from lower to higher offices at central and
provincial levels. Earlier, in October 2002, the 16th Party
Congress of the CPC effectively transferred political power from
the so-called "Third Generation" of leaders to the "Fourth
Generation".
As
expected, such momentous changes offered several opportunities for
stocktaking on the economy. While stressing the continuity of
general economic policies, the discussions identified new
challenges or approaches that will be taken up in the future. It is
still too early to comment on the direction that economic policies
are likely to take in the future, except to point to China's
excellent record of accomplishment in this respect. However, this
economic update highlights two elements of the policy agenda that
are worth monitoring carefully.
The first of these relates to the connection between better
management of state assets, ownership transformation, and private
sector development. At its base, the new strategic guidance
provided by the Party Congress in October and the March
reorganization of government departments' signals a supportive
stance towards the private sector. In ideological terms, the CPC
explicitly undertook to "protect all legal labor income and legal
non-labor income", and expressed its firm support to the
coexistence of public and private ownership.
At
the same time, specific decisions were made regarding the
institutional framework in which the government will exercise its
ownership rights in the 170,000 plus state owned enterprises (SOE)
that exist in China today. A State Assets Supervision and
Management Commission have been established under the State
Council. It will absorb the relevant functions of the erstwhile
State Economic and Trade Commission, the CPC Central Committee
Enterprise Working Committee, and the Ministry of Finance. It will
focus on the management of Central government SOE, excluding
financial institutions and other state assets such as public
services units, land, and natural resources.
Clearly, strengthening the performance of SOE, ownership
transformation, and development of the private sector form a policy
continuum. The government has periodically declared its intention
to withdraw from many commercial segments of the economy, including
the aborted program to sell shares in SOE through the securities
market. In 2002, the government enabled the sale of state ownership
stakes to foreign investors, domestic private investors, and to the
existing managers of SOE. The last of these has proved to be
contentious (including in discussions at the CPPCC and NPC), not
least because of the involvement of financial institutions under
less-than-transparent conditions. In general, though, streamlined
management of the SOEs should increase asset values, which will
yield economic benefits not only while such assets are under state
ownership, but also at the point of sale to effect ownership
transformation.
The second aspect of the strategic agenda that will be highlighted
in this update is related to the above, but should be seen in the
broader context of the current reappraisal of human development
policies in China. The concept of a xiaokang (comfortable, or
well-off) society that has been articulated as a proximate target
for China's economic thrust until 2020 includes a stronger sense of
economic and social equity than has ever been articulated since the
beginning of reforms in 1978. The new administration has signaled
its intention to pursue equity more vigorously, building on China's
successes, recognizing weaknesses in past policies, but also
addressing issues within a framework that is consistent with the
thrust towards resizing government and promoting private sector
participation. Thus, for example, the new Law on Promoting Private
Education (December 2002) recognizes the potential of the private
sector to satisfy the increasing demands for education,
commensurate with the rising premium on skills in the Chinese
economy.
Figure 2: Price Developments
Source: National Bureau of Statistics
The main purpose of the Law is to integrate the private sector into
the formal system by creating an environment that is supportive of
institutions and individuals interested in establishing private
educational institutions. In addition, a related pilot experiment
in Changxin county in Zhejiang province is experimenting with an
education voucher system to broaden the choice that students will
have in selecting private schools. Preliminary assessments of this
program show that equity in educational opportunities has
increased, even as enrolments have risen in the entire school
system within the county. A similar pilot has been in existence in
Ruian city in Henan province, again with favorable results.
This is not to suggest that China's public sector is turning its
back on human development. On the contrary, the strategic thrust is
toward broadening the range of instruments deployed to reach the
country's important goals in this area. This involves a fundamental
reassessment of many of the weaker public sector programs. A case
in point is the new policy for rural health, detailed in October
2002 by the CPC Central Committee and State Council in its
documents on Strengthening Rural Health Work.
Until the mid-1980s, the health care strategy of China focused on
prevention and public health, the use of minimally trained
personnel to provide basic health services and community financed
services. Progress in health indicators, including infant and
maternal mortality and life expectancy, was substantial. However,
despite overall economic growth and poverty reduction, the health
system in rural areas has deteriorated over the past two decades,
and health conditions have stagnated in rural areas. Medical
services and drugs are unaffordable to many segments of the rural
population.
The new policy is intended to address this problem, mainly by
improving the system of financing rural health care at different
levels of government, the introduction of a rural health insurance
scheme, and increased targeted transfers for health to the poor and
vulnerable groups. Some of the new initiatives have been piloted,
and it is likely that the model insurance schemes will require the
participation of non-government service providers. There are big
challenges ahead for rural health care. However, the government's
willingness to address them offers useful insights into the kinds
of policy initiatives that are under consideration today.
Notes:
1.
For over a decade, the contribution of the sector to total value
added has been frozen at about one-third. However, services have
absorbed about 7.9 million people per year in productive jobs that
have at least three times the average productivity of jobs in
agriculture (which is the main source of labor transfer to
services). There has been an explosion in consumer and producer
services over the past decade, which is visible, even to the casual
observer.
2.
Cumulative borrowings since the start of the macroeconomic stimulus
program in 1998 have reached RMB2.34 trillion (US$283 billion).
Borrowings so far in 2003 have amounted to RMB147 billion, out of a
planned level of about RMB600 billion for the whole year.
(China.org.cn April 25, 2003)