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Posted on 10/05/2003 4:19:03 PM PDT by maui_hawaii
GUANGDONG'S lychee growers took a hit in the pocket - a hard one - because of the Sars outbreak earlier this year.
Exports to Japan, a big market for them, slumped because Japanese quarantine inspectors suspended visits to the province, a major lychee producer, where the Severe acute respiratory syndrome (Sars) virus is believed to have originated. The lychee growers were only a small part of the rural population affected by Sars.
Across the country, rural per capita income slipped by 35 yuan (S$7.30) between April and June this year at the peak of the Sars crisis.
The drop is significant given that the quarterly average income per person in the countryside was around 580 yuan in the first half of the year, according to data provided by the State Bureau of Statistics.
But rural folk are not the only ones in dire financial straits.
The central government too has found itself staring at a huge budget deficit this year, no thanks to Sars, natural disasters like floods and earthquakes and some hugely expensive projects.
The only way out is to borrow. However, as it sinks deeper into debt, it will face increasing pressure to review its present policy of pursuing economic growth and other national objectives at the expense of an ever widening deficit.
And with eventual full convertibility of the yuan, widely seen as inevitable because of the opening up of its financial sector under the terms of its World Trade Organisation membership, it will also have to exercise greater fiscal discipline.
The ballooning deficit is just one of China's many serious economic problems which outsiders mesmerised by all the talk about its being the 'factory of the world' tend to overlook.
But much as Beijing worries about the deficit, for now, it has, in some instances, no option but to spend.
For example, to prevent another Sars outbreak and curb other infectious diseases, it will have to raise 11 billion yuan this year and improve health care facilities in the countryside.
But the other side of the ledger does not look promising. Beijing is bracing for a drop in revenue, not least because of tax concessions granted to hotels, airlines and other businesses hit by the Sars outbreak.
This explains why even as early as May, Finance Minister Jin Renqing thought it prudent to warn that it would be more difficult for the central government to achieve the fiscal targets announced just two months before.
The projection in March was that the budget deficit this year would hit 319.8 billion yuan, itself already a record. Now, it is almost certain to be much more.
So concerned about the fiscal deficit is the Ministry of Finance that on Aug 3, it repeated Mr Jin's message that spending would rise in the second half of the year while revenue could slow down.
It said that apart from Sars, spending would rise because of prolonged drought and severe floods in several parts of the country.
According to the Civil Affairs Ministry, more than 90 million people, and 6.8 million head of livestock, were affected by the recent drought in 12 provinces in southern and eastern China, the worst experienced in 30 years.
Furthermore, the worst floods since 1991 inundated parts of Anhui, Jiangsu, Henan, Hubei, Shaanxi, Jiangxi, Guizhou, Sichuan, Guangxi, Zhejiang, Hunan and Chongqing.
In Shaanxi alone, more than half a million people were evacuated when the Weihe, the largest tributary of the Yellow River, overflowed in the past two months. All told, the floods there cost the province 6 billion yuan and affected 4.4 million people.
Even areas spared the floods were affected by inclement weather.
Around Wuwei city in Anhui province, the Li family planted cotton but heavy rain prevented the crop from maturing.
'They couldn't harvest because it wouldn't grow,' said Ms Qin Wenxia, a relative.
According to a Ministry of Civil Affairs estimate, this year's natural disasters inflicted total economic losses of 151 billion yuan. The ministry had to spend 2.7 billion yuan on rescue and relief.
On top of all these, there are also other demands on national coffers.
Among the big-ticket items are China's maiden manned space flight, the 2008 Olympics, a South-North water diversion project, a Beijing-Shanghai high-speed rail link, military modernisation, welfare for the growing hordes of the unemployed and recapitalisation of state-owned banks.
To fund these, the central government plans to sell a record 615.4 billion yuan in treasury bonds this year, 4 per cent more than last year's 592.9 billion yuan. This will also help to refinance 295.6 billion yuan of maturing debt.
Beijing cannot be sanguine about the rising deficit and debt. In 1996-97, China's fiscal deficit stood at 0.78 per cent of its Gross Domestic Product. It surged to 3 per cent last year.
Officials argue that the ratios of government debt to the GDP and the budget deficit to the GDP are still below internationally recognised danger levels.
However, if the non-performing loans of state-owned banks and social security liabilities are taken into account, the deficit could be over 70 per cent of GDP, past the 60 per cent level of most developed countries.
To be fair, the central government has taken steps to rein in the deficit although some of them are seen as inadequate.
Significantly, it decided to slow down defence spending, approving only a 9.6-per-cent rise this year, the lowest after 13 years of double-digit increases.
Local governments were also told to curb extravagance and to trim the number of overseas trips abroad, meetings and forums.
However, analysts such as Associate Professor Li Kui Wai of City University said Beijing was caught in a bind.
'The Chinese government cannot stop spending,' he said. 'The deficit is a result of expenditure demands like infrastructure, the space programme and social security.'
He said that tough political and economic decisions like scaling back spending on national projects had to be made by the top leadership if it really wanted to balance the budget.
He also said there would be more discipline once the yuan became convertible. 'At present, China's money supply is not linked to anything,' he said, adding that this in a way lulled Beijing into spending freely.
At present, between economic growth and a balanced budget, it would invariably choose the former as it has to create jobs for the growing army of the unemployed and ensure social stability.
But despite GDP growing at 7-8 per cent each year since 1998, this has not been sufficient to create enough jobs for those laid off and new job market entrants.
In the end, apart from more prudent spending, raising more revenue is the only other effective way to narrow the gap.
The central government has taken steps to ensure more efficient collection at all levels.
But as Dr Frank Song, director of Hong Kong University's Centre for China Financial Research and an adjunct professor at Beijing University's China Centre for Economic Research, put it, its best hope is that as the economy grows, increased revenue will cover the deficit.
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FreeRepublic , LLC PO BOX 9771 FRESNO, CA 93794
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No one wishes anyone to go hungry. Ever.
I think what is going to spur the change is when many realize that politics currently trumps all else.
I am of the firm belief that China can be (economically) reformed to grow from the inside out. Thats opposite of what is going on now.
It won't be easy and many of the sacred 'dishes' will have to be broken, but it can be done...for everyone's good.
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