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Amy Chew

Elaine Chan

CHINA will continue its path of economic reform next year with officials predicting a 10 per cent growth in gross domestic product.

 Business leaders attending the Hong Kong Business Summit painted an upbeat mood for the mainland's economy.

 But they also warned that economic reforms must move in tandem with laws designed to strengthen investor confidence.

 Sun Hung Kai & Co chairman Tony Fung told the summit that China needed to establish sound legal codes in order to continue being attractive to foreign investors.

 'The fundamental foundation of an efficient capital market starts with a business legal system at par with international business standards,' he said.

 He said that there were still many areas of concern for investors in China.

  'One is there is yet to be any legal code, especially with regard to company law.

 'Two is the unsophisticated banking, taxation and accounting system which is taken for granted in the West.'    The other area of concern was the lack of transparency of public company performance.

  He said the long-term regular flow of funds into China would depend on the quality of the country's investment potential.

  'Before China matures, Hong Kong should be surrogate to China's capital market in the immediate and medium term,' he said.

   Inflation and reforms of the mainland's state-owned enterprises are expected to be the major issues next year.

  The Hong Kong General Chamber of Commerce forecast that the mainland's GDP was expected to grow about 10 per cent next year.

   It also identified a number of economic reforms that could be expected in the mainland in the coming year.

  Among them were the stock exchange, foreign exchange spot trading and interbank yuan money market.

 The chamber said the long delayed state-owned enterprise reform could also be expected next year which might subdue the growth of the state-owned sector in the short run.

 State-owned enterprise reform would imply improvements in production efficiency and ultimately a reduction in fiscal burdens.

 'But immediate effects to those non-profitable enterprises would either be bankruptcy or privatisation.

 'In fact, the government plans to privatise them or let this portion to go bankrupt in five to six years.'  This could lead to zero growth of industrial production by state-owned enterprises next year. But collective enterprises and foreign-funded enterprises would still play an important role.

    The chamber believed that state-owned production in strategic industries still needed to be supported by budgetary subsidies and low interest loans.

 Agricultural production was forecast to maintain a relatively low growth rate, due in part to extraordinary high yield of previous years and partly the trend in some areas of the continued shrinking of arable land available for cultivation.

 Total social consumption might grow slightly slower next year if domestic inflation remained at high level.



Beijing 'will prosper' from reforms