The central government is planning to issue treasury bonds (T-bond) worth 110 billion yuan (US$13.3 billion) next year, 30 billion less than the amount in 2003.

The T-bond plan, which will be voted on at the annual session of the National People's Congress this coming spring, will help shift the focus of government investment to economic restructuring as well as promoting balanced social development, said National Development and Reform Commission Minister Ma Kai on Monday.

Ma was addressing a two-day conference on national development and reform work which concluded Tuesday.

Ma said that while the Chinese Government would maintain a certain scale of public borrowing next year, the main purpose would no longer be stopping a downward slide in the economy and stimulating growth.

Ma said the current economic situation was turning for the better, with corporate profits growing and non-government investment on the rise. Therefore, he said the size of T-bond issuance should be scaled down.

Ma said the T-bond money for the next year would be used mainly on improving living and working conditions in rural areas and building facilities for public health, basic education, grass roots administration and law enforcement authorities.

The money will also be used on supporting development of western parts of the country and rejuvenation of the old industrial zones in Northeast China, accelerating technical renovation and upgrading of traditional industries and renovating coal mines.

Ma said environmental protection, water conservation and key construction projects will also receive funding from T-bond issuance.

China has used a proactive fiscal policy as its main tool in macroeconomics management since 1998, to avoid possible negative impacts such as those associated with the 1997 Asian financial crisis.

Long-term T-bonds valued at a total of 800 billion yuan (US$96.3 billion) were issued from 1998 through 2003.

The sale of T-bonds has encouraged local authorities, government departments and enterprises to increase support funds. Bank loans and investment from other areas of society have also been forthcoming.

T-bond investment has boosted more than 10,000 projects that were critical to economic restructuring and stimulating domestic demand.

A total of 3.2 trillion yuan (US$385.5 billion) was earmarked from local governments, the private sector and foreign investors to this end.

But researchers insist that the T-bond policy has also had negative repercussions for China's economy.

"Now China's economic growth relies on the government too much, and we must design measures to change the trend," said Gao Peiyong, a senior researcher with the Chinese Academy of Social Sciences.

Meanwhile, government borrowing has climbed to 2 trillion yuan (US$240 billion) and fiscal risks still remain, Gao warned.

"That's why I'm urging to phase out the proactive fiscal policy," Gao said.

But the ongoing construction of T-bond-funded projects still require some 1 trillion yuan (US$120 billion) worth of investment. In addition, as the country invests heavily in the development of an emergency public health network and nine-year compulsory education for all children in western areas, a certain amount of government spending is needed.

"So I suggest scaling down but focusing T-bonds on those projects essential to balanced development," said Gao.

(China Daily  December 3, 2003)