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People's Republic of China

Economic performance

Economic growth: The People’s Republic of China’s (PRC) GDP growth rate reached 8 percent in 2000, compared with 7.1 percent in 1999. Growth in 2000 was mainly driven by domestic consumption and investment. Industry sector growth rose by 9.6 percent in 2000, compared with 8.1 percent in 1999. The agriculture sector, on the other hand, suffered from a severe drought and a decline in retail food prices. Consequently, the agriculture sector growth declined from 2.8 percent in 1999 to 2.4 percent in 2000. Retail sales grew by 9.7 percent in 2000, compared with 6.8 percent in 1999. A combination of fiscal stimulus packages and recovery in nonstate investment led to strong growth in domestic fixed investment. Expansionary monetary policy and low interest rates also supported domestic demand and growth. The prime lending rate was 5.9 percent in 2000, compared with 11 percent in mid-1996. Since June 1999, the domestic bank lending rate has been lower than the comparable rate on dollar-denominated assets in the international capital market. The industry sector maintained robust growth. The profitability of both state-owned and private enterprises improved because of increased demand and a generally favorable economic environment.

Employment: The urban unemployment rate in 2000 was about the same as the official estimate of urban unemployment at the end of 1999: 3.1 percent of the urban labor force. However, this estimate does not cover workers who were laid off as part of state-owned enterprise reforms and have not found alternative employment.

Inflation: The deflationary trend of the past two years was arrested in 2000, with consumer price inflation increasing by about 0.4 percent. However, if the price of oil-related goods and price adjustments of some service products are excluded, the consumer price index would have declined by 1.5 percent in 2000.

Fiscal balance: The March 2000 budget continued an expansionary fiscal stance. For 2000, government expenditures increased by 20.4 percent, and revenues by 16.9 percent. The fiscal deficit was at 2.8 percent of GDP in 2000, compared with 2.1 percent of GDP in 1999.

External sector: Exports rose by about 28 percent to $249 billion and imports surged by about 37 percent to $217 billion in 2000. The growth of PRC’s exports to the Republic of Korea, Russia, and the countries of the Association of Southeast Asian Nations increased over 40 percent during the year, while its imports of primary products, such as crude oil, metal, wood and timber, and paper, increased by 82 percent.

The current account surplus in 2000 was about $14.0 billion, compared with $15.6 billion in 1999. Actual foreign direct investment (FDI) increased by 1.0 percent in 2000. FDI contracts in 2000 increased by 51.3 percent. Foreign exchange reserves of about $165.0 billion, an external debt of $151.0 billion, and a debt service ratio of 15.0 percent define the external payments position.

Domestic policies: Since 1998, fiscal and monetary policies have supported domestic demand and growth. Lowering interest rates and reserve requirements for banks has eased monetary policy. This overall policy stance continued in 2000. Broad money supply growth was 15.0 percent in 2000, similar to that in 1999. To prepare the economy for membership in the World Trade Organization (WTO), the People’s Bank of China considered introducing mechanisms to gradually allow a greater role for market forces in determining the exchange and interest rates. Expansionary fiscal policy was again adopted in 2000 to increase investment in infrastructure and stimulate growth. The fiscal deficit was reduced because of increased revenue collection. Tighter tax administration and stricter enforcement of antismuggling measures increased tax revenues. Improved profitability of industrial enterprises also helped revenue collection.

The Government addressed worsening urban unemployment by promoting the development of the private sector, especially the small and medium enterprises (SMEs), and initiating reforms of the social security system such as unemployment insurance and the minimum living standard support system for urban residents.

Building on a constitutional amendment giving greater constitutional status to the private sector, several economic laws were enacted to develop a better legal and regulatory framework for the market economy to function efficiently. The Government also sought to improve private firms’ access to credit by setting up credit guarantee schemes for SMEs in 70 cities.

The PRC’s accession to WTO and the commitments to cut tariffs, liberalize trade and investment, and open up domestic sectors for foreign participation will bring significant efficiency gains and wider consumer choices. In preparation, the Government has amended three major laws relating to foreign investment: foreign joint ventures law, foreign cooperatives law, and solely owned foreign-funded ventures law. The Government has also revised several laws, including a patent law, to make them more compatible with WTO rules. More than 1,000 laws and regulations will be reviewed to make them consistent with WTO rules.

In the past 20 years of reform, substantial disparities in regional living standards have developed. Per capita GDP in the western region of the country is about two thirds the national average and only one third that in the eastern coastal region. The March 2000 session of the National People’s Congress endorsed a proactive policy for promoting growth, developing infrastructure, and improving natural resource management in the country’s western region.

   

ADB operations

ADB will continue to assist the Government in deepening its macroeconomic structural reforms. Economic efficiency will be improved by adopting market-based approaches in all sectors in which ADB operates.

To promote economic growth and reduce poverty, traditional growth projects are being located in poor regions. ADB will also incorporate components in traditional economic growth projects that will have a broader impact on poverty reduction, such as including feeder and market roads in highway projects and rural electrification in power projects. While the share of ADB-supported projects in the inland provinces is increasing, support for key projects in the coastal provinces—especially those that improve the environment in urban areas, address social concerns, or support the private sector—will continue.

ADB targets six areas for environmental protection and natural resource management: (i) improving air and water quality in urban areas; (ii) increasing efficiency and greater diversification to cleaner sources in the energy sector; (iii) increasing energy conservation and using clean technology processes in the industry sector; (iv) promoting comprehensive basin planning and pollution cleanup in rivers and lakes; (v) protecting watersheds, conserving biodiversity, and preserving unique ecosystems; and (vi) strengthening institutional capacity in sectoral agencies.

Policy dialogue: Policy dialogue with the Government focused on protecting the environment, improving development management, and reducing poverty, including developing social safety nets.

At the International Poverty Reduction Conference in May 2000, which was cosponsored by ADB with World Bank, United Nations Development Programme, and PRC’s Leading Group on Poverty Alleviation and Development, participants agreed that the delivery of poverty reduction programs could be strengthened by developing mechanisms that target poor people living outside the poor rural areas. Recognizing that urban unemployment and poverty are likely to increase as market-oriented reform deepened, ADB actively engaged the Government in promoting social security reforms to offset the social costs of enterprise reform and address the threat of rising urban poverty.

Efforts to support sound development management, including discussions on ADB’s Anticorruption Policy, continued in 2000. ADB promoted transparent and competitive bidding procedures in the PRC in procurement. Through its Law and Policy Reform Program, ADB continued to assist the Government in developing a legal and regulatory framework consistent with the needs of a market economy. Advisory inputs from the ongoing technical assistance for the Development of Economic Laws are being used to either prepare or improve seven pieces of legislation pertaining to bankruptcy, company law, social security,administrative licensing, closure of financial institutions, commercial and economic entities law, and trust law. Through active interaction with other coinvestors, ADB is also helping advance corporate governance in private sector enterprises.

In 2000, an ADB-supported seminar discussed the global and domestic impact of the PRC's membership in the WTO. The policy issues and challenges facing the PRC as a WTO member were also highlighted in ADB’s 2000 country economic review of the PRC.

ADB continued to advance its environment improvement agenda in the PRC. An international conference in November 2000—sponsored by the PRC Council for International Cooperation on Environment and Development, of which ADB is a member—brought many recommendations on improving the environment to the attention of senior PRC leaders. As a result of the policy dialogue for the wind power project, a “green credit” system for wind energy projects will be developed, thus furthering the environment agenda. A major focus of ADB’s environment work in 2000 was transjurisdictional pollution issues for which a cluster technical assistance was approved.

Loans and technical assistance: In 2000, ADB approved six loans totaling $872.3 million. These included a railway project and two road projects, which are located in the inland provinces and will improve access to markets for poor communities in the provinces of Anhui, Guizhou, and Shaanxi, and Chongqing Municipality; an agriculture development project focusing on poverty reduction in West Henan; a wastewater treatment and water resources development in Tianjin; and a project to develop wind power in Xinjiang, Heilongjiang, and Liaoning provinces. The Wind Power Project involved $12 million Global Environment Facility (GEF) cofinancing—half as a grant and half as a zero interest loan—the first time ADB mobilized GEF cofinancing in the PRC.

ADB also approved 25 technical assistance grants totaling $16.7 million. Of these, 7 were to prepare new projects and 18 were to support policy-oriented studies and promote capacity building. One technical assistance project will assist the Government in preparing a strategic study for supporting the sustainable development of the western region, where most of the PRC’s absolute poor live. In addition, ADB approved an equity investment of up to $25 million in a fund designed to attract foreign investors to invest in private sector companies.

Project implementation: Since joining ADB in 1986, the PRC has received 85 loans, of which 48 were active at the end of 2000. Contract awards totaled $757.9 million, bringing the cumulative figure to $6.2 billion. The contract award ratio was 27.5 percent, higher than the ADB-wide average of 21 percent. Disbursements during the year totaled $847.5 million, bringing cumulative disbursements to $5.8 billion. The disbursement ratio was 22.8 percent, higher than the ADB-wide average of 20.5 percent.

The PRC has demonstrated a strong capability for project implementation. Overall, portfolio performance improved in 2000, compared with 1999 in terms of implementing loans and technical assistance projects and submitting audited financial statements.

Establishing the PRC Resident Mission (PRCM) was a significant event in ADB’s PRC operations in 2000. The PRCM will help ADB strengthen portfolio management, address project implementation issues, and provide training to executing agencies. The PRCM enabled ADB to strengthen its partnership with the Government, enhance its relationships with the local funding community, raise its profile in the domestic and international media, and reach out to nongovernment organizations.

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