Zhu path remains spend, spend, spend
China's top economic officials are congregating in Beijing today to discuss and plot the economic growth path for next year, according to mainland sources and economists.
The annual economic conference is expected to focus on the country's accession to the World Trade Organisation, further government spending, and another sharp increase in salaries for millions of civil servants and other state employees.
Premier Zhu Rongji, who is presiding over the conference, is likely to announce that the central government will continue to increase government spending to boost the economy.
Economists said Beijing planned an issue of about 160 billion yuan (about HK$149.92 billion) in special treasury bonds for the next year to boost investment in infrastructure-related projects and help finance the mainland's 'go-west' campaign to develop its western provinces.
Over the past few years, the government has issued 260 billion yuan in special treasury bonds to boost the economy.
Last weekend in Singapore, Mr Zhu said the government would set a growth target of 7 per cent for next year but growth could reach 8 per cent.
He said the lower target was aimed at avoiding an overheated economy.
'The government wants the economy to grow at 8 per cent but can only set a 7 per cent growth target,' Liao Qun, a senior economist at the Standard Chartered Bank said. Otherwise, the economy ran the risk of overheating.
After more than three years of deflation, the mainland's economy has shown signs of a rebound, helped by the unprecedented government spending, strong export growth, and brisk consumer demand.
Many government officials have started to talk about the economy embarking on a strong growth track, starting from this year.
But independent economists have warned that the economic recovery remains fragile.
With the world economy set to slow down next year, demand for Chinese exports, one of the growth engines, is expected to be sharply lower than this year.
Exports are expected to rise by about 30 per cent this year but are estimated to increase between 10 and 15 per cent next year.
Mr Liao said the government could not sustain economic growth through issues of treasury bonds for very long.
He said it should find other ways to encourage private investment and consumer spending.
That explains why Mr Zhu is keen to raise salaries for civil servants and employees at state-owned firms as well as increasing benefits for unemployed workers and pensioners.
Economists said the officials at the conference were expected to decide on a salary increase of between 30 and 50 per cent for next year.
Last year, the government spent 54 billion yuan to raise salaries of civil servants by an average of 30 per cent. However economists said those measures could bring only short-term effects.
Xu Xiaonian, executive director of China International Capital Corp, said Beijing should accelerate efforts to push ahead with structural reforms as the country would soon join the WTO, which would bring stronger competition from foreign investors.
However, Mr Xu said structural reforms of the state sector had made little progress last year and in the first half this year.
'At the present stage of economic development, economic reforms seem to be more important,' he said.
'On this front, unfortunately, China has advanced noticeably slower than its GDP [gross domestic product] numbers.'
