In 1999, China's economy maintained its growth momentum, registering an enhancement in quality as well as in benefits.

GROSS DOMESTIC PRODUCT (GDP)

China¡¯s GDP reached US$991.07 billion in 1999, up by 7.1 percent over the previous year¡¯s level. Agricultural production increased continuously on the whole, showing the progress made in the adjustment of the planting structure. The capacity to combat natural adversities was enhanced further. As a result, grain production rose to 500 million tons.

In 1999, industrial production increased steadily, with the value-added of the whole sector hitting US$427.05 billion, up by 8.5 percent over the 1998 level. All in all, the state-owned enterprises and state holding companies managed to reap profits amounting to US$11.68 billion, up by 77.7 percent, the highest level in the last five years.

The investment structure continued to improve, and so did the quality of projects. In 1999, investment in fixed assets hit US$360.85 billion, up by 5.2 percent over the year before. Investments by the state and other economic sectors reached US$9.71 billion in the primary industries (inclusive of the water conservancy industry), up by 22.6 percent over the 1998 level; US$86.56 billion in the secondary industries, down by 0.9 percent; and US$166.05 billion in the tertiary industries, up by 9.3 percent.

In 1999, as a result of the combined effects of a number of factors such as the increase by the government of the income of low- and middle-income residents, the rise in consumer credit, the abolition of policies intended to prohibit consumption, and the successive lowering of interest rates by banks, sales in the domestic market were stable on the whole and showed signs of revitalization. Total retail sales of consumer goods reached US$376.06 billion, up by 6.8 percent over the year before, or by 10.1 percent in real terms, given the falling prices. Of the total, US$230.60 billion represented retail sales of consumer goods in cities, up by 7.1 percent, and US$145.46 billion constituted retail sales at the economy¡¯s level and below, up by 6.3 percent over the previous year¡¯s level.

The livelihood of urban and rural residents continued to improve. Their income rose noticeably because the government adopted measures to provide basic living allowance to the laid-off workers of state-owned enterprises, insurance to the unemployed, and a minimum living allowance to urban and rural residents. Higher pensions were also offered to retired personnel of government departments, undertakings and enterprises. The per capita disposable income of urban and rural residents stood at US$707.06, up by 9.3 percent over the year before, given the falling prices. However, the growth of the income of peasants slowed down, with the per capita net income of rural residents reaching US$266.93, which was higher by 3.8 percent, because of the fall in prices, but lower by 0.5 percentage point in real terms, than the previous year¡¯s level. Tourism became fashionable, with the number of tourists reaching 719 million, up by 3.6 percent over the year before, and the per capita tourist expenses reaching US$27.42.

In 2000, China's economy has been steadily growing and its growth rate is expected to hit 7.5 percent, reversing the downward trend of the past several years. GDP grew 8.2 percent year-on-year to reach US$475.8 billion during the first six months of 2000. Rapid growth in the industrial and service sectors spurred the GDP surge. China reported US$257.4 billion in total industrial output for the first six months of the year, an increase of 9.7 percent over the same period in 1999. Total output of the service sector reached US$164.2 billion during the period, a year-on-year increase of 8.1 percent.

The economy's consumer goods market was quite active during the first six months. Retail sales of consumer goods reached US$195.8 billion during the period, an increase of 10.1 percent over the same period in 1999.

Due to the economy's active fiscal policy, fixed assets investment grew steadily by 11 percent year-on-year to reach US$122.6 billion. Of that total, the state-owned sector contributed US$90.8 billion, up 12.1 percent.

In the first half of 2000, exports increased 38.3 percent year-on-year to US$114.5 billion. Imports grew by 36.2 percent to reach US$102.1 billion, allowing China to enjoy a trade surplus of US$12.4 billion, which is US$4.4 billion higher than the surplus in the same period last year.

INFLATION

In 1999, the central government pursued a series of policies to enlarge demand, which resulted in prices falling more slowly. However, the pressure of deflation could still be felt, and for two consecutive years, negative growth of the inflation rate was registered as the general price level continued to come down. With prices of most commodities lower than the year before, the general levels of the residents' consumer price index (CPI) and retail prices dropped by 1.4 percent and 3 percent, respectively, from the 1998 levels.

In 2000, the CPI edged up by a tenth of a percent in the first half of the year, a sign of improvement following repeated falls in the past two years.

EMPLOYMENT

The government stepped up efforts to increase employment opportunities in 1999. At the year-end, the number of employed totaled 705.86 million, up by 6.29 million over the previous year¡¯s level. The number of employed in urban areas was 210.14 million, up by 3.36 million, and the number of personnel employed by private enterprises and individual proprietors was 39.4 million, up by 7.08 million.

The re-employment program made new headway. In 1999, an additional 5.64 million staff and workers were laid off in state-owned enterprises, but 4.92 million of them were re-employed through various channels. At the year-end, the laid-off staff and workers totaled 6.5 million, 400,000 more than at the end of the previous year. The registered rate of unemployment in urban areas stood at 3.1 percent, on a par with that of the previous year.

BALANCE OF PAYMENTS

China's imports and exports rose relatively rapidly, and the quality of foreign investment utilization continued to improve. In the second half of 1999, following the reversion of the falling trend, China's exports rose at an accelerated pace. Total imports and exports in 1999 hit US$353.2 billion, up by 11.3 percent over the 1998 level. Exports reached US$194.7 billion, up by 6.1 percent, while imports amounted to US$158.5 billion, up by 18.2 percent, resulting in a trade surplus of US$36.2 billion. The export structure improved with exports of electrical and mechanical equipment rising by 14.7 percent, registering a net growth of US$9.9 billion, and accounting for 88 percent of the net growth of exports.

The capital account surplus reached US$0.79 billion while the balance of payments surplus stood at US$16.45 billion.

The foreign investment actually utilized amounted to US$56.3 billion, down by 3.9 percent from the previous year. The contractual foreign investment amounted to US$45.4 billion, of which US$40.4 billion was foreign direct investment, down by 11.4 percent, but still taking the leading position among the developing economies. There was a remarkable increase in the number of capital and technology-intensive projects encouraged by the state; the scale of projects was larger; and there were more TNCs investing in China.

The number of international tourists increased, reaching a total of 72.80 million, up by 14.7 percent over the previous year.

In the first half of 2000, China's foreign trade kept an upbeat growth momentum with exports surging by 38.3 percent to US$114.5 billion. Imports for the January-June period stood at US$102.1 billion, up 36.2 percent year-on-year. Total trade surplus amounted to US$12.4 billion, US$4.4 billion more than the surplus in the same period of last year.

Foreign direct investment (FDI) in the first half of 2000 amounted to US$17.17 billion, lower by 7.5 percent than the FDI recorded in the same period in 1999. However, the decline in FDI was less than the decline in 1999.

EXCHANGE RATE

The renminbi remained stable against the US dollar, and the exchange reserves continued to rise, reaching US$154.7 billion at the year-end, US$9.7 billion more than at the end of the previous year. The year-end exchange rate was 8.2793 yuan to 1 US dollar, down by 4 basis points from the previous year-end.

FOREIGN DEBT

By the end of 1999, China's registered foreign debt balance was US$151.83 billion, up by US$5.79 billion over the 1998 foreign debt balance. Long- and medium-term debts amounted to US$136.65 billion, up by US$7.95 billion over the previous year¡¯s level while short-term debts amounted to US$15.18 billion, down by US$2.16 billion from the previous year¡¯s total. New foreign borrowings in 1999 totaled US$30.05 billion, while repayments of the principal and interest of foreign debts amounted to US$30.99 billion.

FINANCIAL POLICY

The government made a significant decision to more vigorously enforce an active financial policy by adopting one measure after another, such as issuing a greater amount of treasury bonds, increasing investment and adjusting policies for income distribution as well as foreign trade and domestic taxation. All these resulted in an effective expansion of social demand, and ensured economic growth and social stability.

Revenues and expenditures increased rapidly. Revenues (excluding loan revenue) increased by 15.2 percent to reach US$137.42 billion, while expenditures (excluding loan expenditure) reached US$158.66 billion, up by 21.7 percent. Expenditures exceeded revenues by US$21.25 billion, with a central financial deficit amounting to US$21.70 billion, and a local surplus of US$0.50 billion. In 1999, the treasury bonds issued by the central government amounted to US$48.49 billion, of which US$12.20 billion was used for investment. Of the amount used for investment, 60 percent was poured into the economy's middle and western regions.

MONETARY POLICY

Efforts were made to bring the financial policy into play. While the interest rate and the required deposit reserves rate were lowered, consumer credit and the central bank's loans to small- and medium-sized financial institutions were increased. Money supply was also appropriately increased. All these measures promoted domestic demand and economic growth.

At the end of 1999, M2, M1 and M0 rose by 14.7 percent, 17.7 percent and 20.1 percent, respectively. The year-end deposit balance of all financial institutions stood at US$1,135.36 billion, an increase of US$130.45 billion in the same year.

Strategies, Policies and Measures Adopted To Step Up Market Development, Take Precautions Against a Financial Crisis and Promote Sustainable Economic Growth

1. To execute the strategy to regenerate the economy through science and technology: The building up of the technology innovation system and the implementation of projects for knowledge innovation will be stepped up. The state will give support to the setting up of technological development centers at large state-owned enterprises, and encourage the development of the various forms of non-governmental technological enterprises as well as technology-oriented medium-sized and small businesses. The construction of state engineering research centers and bases for the commercialization of the fruits of scientific research is to be expedited, and important projects for high-tech industrialization are to be well organized. The state will concentrate its energy on projects to promote the development of new industries such as digital high-definition TV, wide-band and high-speed information networks, automation of industrial processes, aircraft for civil use, and satellites for civil use. It will also vigorously promote the use of information technology in the national economy, and accelerate the development of the information industry.
   
   
2. To expedite the reform and development of education: It is necessary to carry forward quality education in a holistic manner, to make the nine-year compulsory education universal, and to eliminate illiteracy among young and middle-aged people. In 2000, 120,000 postgraduate and 1.8 million undergraduate students are to be enrolled. Non-government organizations and individuals will be encouraged to run schools in various forms.
   
   
3. To enforce the "Go-West" strategy and promote coordinated regional economic developments.
   
   
4. To continue to pursue the active financial policy and to issue US$12.08 billion worth of long-term treasury bonds to increase investment.
   
   
5. To make use of various monetary policies to give vigorous financial support to economic development: It is necessary to put more basic currency into circulation to increase money supply appropriately in the light of the needs of economic development. In 2000, M2 is projected to rise by 14 to 15 percent and M1 by 17 percent.
   
   
6. To suspend the levying of fixed assets investment orientation regulatory tax while enforcing the adjusted taxation policy to increase investment demand.
   
   
7. To further reform the pricing system:In 2000, the prices of public transportation as well as water supplied from water conservancy projects and to the cities will be raised appropriately. The electricity price structure will be adjusted by lowering the price of electricity used in rural areas; postage fees will be adjusted and telephone fees in the rural areas reduced; tuition fees will be reasonably adjusted; prices of pharmaceuticals and medical fees will be revised; and the rent for public housing and environmental protection fees will be raised. All these changes are aimed at promoting the development of basic industries and public utilities as well as increasing consumption by urban and rural residents.
   
   
8. To reduce the burden on enterprises by straightening out import and export taxes and lowering appropriately those charges which are on the high side; to adjust charges for housing construction to lighten the burden on housing purchasers.
   
   
9. To adopt measures to promote consumption demand such as extending consumption credit to individuals, lengthening the legal holidays and improving the consumption environment.
   
   
10. To pay close attention to the work of converting debts into equity in some of the large and medium-sized state-owned enterprises:The work must be geared to the transformation of the operating mechanism, adjustment of the structure and the improvement of management. To prevent creditor-dodging and debt-abrogation in disguised form and the loss of state-owned assets, it is necessary to adhere strictly to the requirements and to standardize the work procedure.
    
    
11. To strengthen financial legislation and supervision: In the light of the guiding principle of managing state and financial matters by law, financial legislation is to be expedited. In 1999, over 60 sets of rules and regulations were dealt with, such as the revision of the "Accounting Law" and the formulation of the "Provisional Rules for Punishing Those Who Violate the Law or Regulations in Executing the Central Budget".
    
    
12. To actively promote the development of medium-sized and small enterprises as well as non-state-owned sectors, and to create new job opportunities.

MEDIUM-TERM OUTLOOK

The year 2000 is the turn of the century as well as the final year of the ninth five-year plan.

In this year, China will continue to execute a series of policies to push forward economic reform and development, focusing on the reform of state-owned enterprises, economic restructuring, technological advance and enlarging domestic demand. Efforts will be made to ensure that agriculture plays the role of the foundation of the economy, to restructure agriculture and rural areas, and to increase the income of peasants. With the reform of the state-owned enterprises as the key link, work will be done to turn losses into profits, and to introduce a modern corporate system. The active financial policy will be continued and monetary policy will be given full play. Through a combined use of macro regulatory measures such as tax and price, infrastructure construction, technical transformation and technological innovation are to be stepped up and consumption increased. China will open up further, increase its imports and exports, and raise the level of foreign investment utilization. Also, China will improve its social security system, step up the work to aid the poor and enhance people's livelihood. To ensure a rapid and healthy development of the national economy and an all-round progress of society, efforts to handle the relationships of reform, development and stability correctly will be continued.

The expected targets for 2000 are as follows:

Economic growth rate: 7.0 percent (approximately)
Increase in fixed assets investment: 10 percent (approximately)
CPI: moderately higher than 1999
Increase in total imports and exports: over 10 percent
Central budgetary deficit: US$27.77 billion
Money supply: US$18.12 billion (approximately)
Registered unemployment rate in urban areas: 3.5 percent (approximately)
Natural growth rate of population: 0.92 percent

CHINA: OVERALL ECONOMIC PERFORMANCE