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Countries and Regions Country Assistance Plans Document
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Country Assistance Plans - People's Republic of China : I. Country Performance Assessment
B. Policy and Development Issues10. Over the medium-term, effective implementation of the recently initiated reforms in the areas of financial and State enterprise sectors, development of the legal and regulatory framework required for a market economy, and promotion of private sector will continue to be challenging tasks. In addition, tThe Government will also have to address two other more development challenges: (i) the managing ement of the post-WTO reform program, and (ii) reducing tion of interregional socioeconomic disparities within the country. 1. Post-WTO Reform Program11. PRC is likely to become a member of WTO by the end of 2000. Over the long term, PRC’s accession to WTO and the commitments to cut tariffs, liberalize trade and investment, and open up domestic sectors for foreign participation should lead to significant efficiency gains and wider consumer choices. Several studies estimate that the long-term gain from WTO membership to PRC will be equivalent to 1 to 2 percent of GDP. However, some of these benefits will take time to materialize. During the initial years, PRC’s membership to WTO will pose several challenges., especially in sectors such as agriculture, banking, insurance, and telecommunications. 12. Cutting import tariffs and liberalizing agricultural imports as part of WTO commitments may result in a replacement of domestic production by imports at the margin and thereby hurt the incomes of farmers. While farmers in the coastal areas may be able to switch to less resource-intensive and higher value-added products (e.g. fruit, vegetables, animal products and aquatic products) farmers in inland provinces may not be able to do so because of the lack of access to technology, and adequate infrastructure. Farm incomes are, therefore, likely to fall more in the poorer inland provinces. The key challenge for the Government is to enable the farmers to shift from resource-intensive subsectors over time by disseminating advanced agro-technology and providing better infrastructure, and other support facilities, including finance, to farmers. The participation of the private sectors in the areas of distribution, marketing and grading should be encouraged to improve the comparative advantage of domestic producers. 13. The financial position of the banking system needs to be strengthened. Although the Government is making progress in addressing the problem of nonperforming loans through the establishment of AMCs and recapitalizing the banks through bond issues, it will take time to achieve significant results in this area. Subjecting the banks to foreign competition will put pressure on them. Like the banking sector, the insurance sector and pension fund management are not well developed. Most life insurance companies have pay-out obligations that are significantly greater than their current return on investments. Shortages of actuaries and professional management staff have contributed to poor business practices by insurance companies and pension fund management. In terms of quality of service and business skills, the insurance and pension fund management sectors lag behind international best practice. All institutions in the financial sector will have to make serious efforts at adopting best international business and prudential practices so that they can adjust to the international competition that will follow PRC’s entry into the WTO. 14. WTO obligations will require PRC to further reform its laws and regulations to (i) honor immediate obligations of being a WTO member, (ii) meet the obligations promised in the bilateral WTO entry agreements which by virtue of the most favored nation clause will become obligations towards all WTO members, (iii) accord equal treatment to the domestic and foreign enterprises as required by the national treatment clause, and (iv) improve the legal framework and supervisory and regulatory system to cope with a more competitive environment. 2. Reducing Inter-regional Disparities15. Within PRC, not all regions have benefited equally from the exceptionally rapid economic growth during the last two decades. The coastal region grew faster than the rest of the country. As a result, There are growing disparities in regional living standards. Per capita GDP in western PRC is about two-thirds of the national average and only one-third of that in the coastal region. The regional disparities are also reflected in other socio-economic indicators, such as the incidence of poverty, the primary school enrollment rate, health care facilities, the development of physical infrastructure, and ecological problems. 16. In the new millennium, PRC must make a concerted effort to accelerate growth in the poor central and western regions. The Government is aware of the need to promote development in the poorer interior provinces. Since more than half of the absolute poor live in the western region, a growth strategy geared toward developing the western parts of PRC will be a pro-poor growth strategy. The March 2000 session of the National People’s Congress endorsed the “go west” policy, a pro-active strategy to promote growth and development in the western region. The formulation of The formulation of the Tenth Five-Year Plan (TFYP) is an opportune time is an opportune time to develop develop an integrated strategy to develop the central and western regions and and address the high incidence of poverty incidence in these regions. 17. Developing infrastructure, both physical and social, should constitute the core of any strategy to promote socioeconomic development in the central and western regions. Good physical infrastructure creates conditions necessary to attract private investment and facilitate economic growth. The development of physical infrastructure must be complemented by investments in social infrastructure, particularly health and education. Typically, the burden of providing health and education falls most heavily on the local governments. In poor areas, the fiscal base of local governments is weak. The fiscal system needs to be strengthened to supplement local fiscal resources to ensure that basic national standards for health and education are met in western PRC. Also, major ecological and natural resource issues must be addressed in the central and western provinces.
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