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Christine Chan

Mark O'Neill

Premier Zhu Rongji has flagged a continued pro-active spending policy to back economic growth with plans to next year issue 150 billion yuan (about HK$140.5 billion) worth of treasury bonds to match this year's level.

Mr Zhu also discounted any imminent merger of the country's A and B share markets.

After yesterday's closing session of the National People's Congress, Mr Zhu said the level of domestic debt was comfortable and manageable.

'We have the ability to make double the repayment (on state debt). I don't see any risk in pursuing the pro-active fiscal policy,' he said, adding that the policy has been proved to be correct and successful over the past three years.

'This year we will issue 150 billion yuan in bonds and next year we could issue the same amount to fund on-going projects and the development of the west.'

Domestic debt was 14 per cent of gross domestic product, comfortably below the internationally warning level of 20 per cent.

'We are in a sound financial position to service the debt. Bank savings have continued to go up despite the imposition of a tax on deposits. The public has confidence in the government,' he said.

The need to issue bonds may disappear by 2003 - 'with an increase in fiscal revenue and sound growth of state firms', he said.

Last year the government revenue was 1.39 trillion yuan, an increase of 196 billion yuan.

Mr Zhu's assurance on the economy came as there were concerns expressed that Beijing's budget deficit initiatives could generate a budget crisis. This year's deficit is forecast at 259.81 billion yuan, about the same as last year.

Spending has been Beijing's key driver to pump up the economy. Since the Asian financial crisis it has issued about 360 billion yuan worth of bonds to pour into infrastructure projects.

Beijing has said it hoped the economy would grow at relatively high levels - averaging 7 per cent a year over the coming five years.

While Mr Zhu saw no imminent plans for an A and B share merger, he stressed the need to strengthen controls over securities markets.

Mr Zhu said Beijing would strengthen its regulatory role for China's fledgling securities market, focusing this year on listed companies and investment funds.

'The China Security Regulatory Commission has not discussed a merger of the A and B share markets,' he said.

'I have not ruled out such a possibility. Let us wait and see.

'I think it will take a long time.'

Merger speculation intensified after Beijing opened the B-share market to mainland investors on February 28.

Mr Zhu said that move aimed to give a new channel for investment to mainland individuals who had an aggregate US$80 billion in foreign exchange deposits.

Morgan Stanley Dean Witter chief China economist Andy Xie Guoshong said the stock market was given high priority by Beijing due to its growing significance for the economy.

'Success to China's stock market reform holds the key to mainland economic growth in the coming years, as Beijing will no longer bank on its banking system to fund state enterprises.'

Beijing hopes a robust stock market will provide its state and private companies with cheap funding, make better use of huge domestic savings, and provide a better avenue for its pensions.

Underlining its reforming bid, Mr Zhu said Beijing would restructure sectors such as power, telecommunications, aviation, oil, banking, insurance and the railway to end monopolies.

Analysts say these sectors - long protected -  would face an uphill battle to compete with foreign companies in future.

Mr Xie said the break-up process had begun in the telecommunications sector, and would gradually shift to the other key sectors.



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