Against the background of many western economies heading into recession and a rather gloomy outlook worldwide, China did remarkably well this year. After the initially planned growth figure of a mere six per cent was revised upward to ten per cent by the People's Congress in March this year, recent estimates put it in the 12 or 13 per cent range.
With the industrial output up by 20 per cent nationwide ? and considerablyhigher in Guangdong, Fujian and Shanghai? as well as an unprecedented rise of at least US$35bn over 1991 in foreign trade volume, indications are that the boom is going to hold well into 1992. A solid foreign debt management, the bustling building sector, rapidly rising living standards in the coastal areas and the tourism industry bouncing back to pre-1989 standards attest to the vitality of the new opening up and reform drive, kicked off by senior leader Deng Xiaoping a year ago.
After major western powers scrapped the post Tiananmen sanctions and turned back to business as usual, the run on the world's biggest market is on. A case in point is foreign investment. Although cheap land and labour advantage is eroding quickly, Mofert figures say that money is pouring in faster than ever. Beijing approved 27,000 foreign invested projects with a contractual value of US$30.6bn in the first nine months of this year, roughly 60 per cent of the total in the previous 13 years of reform. Still leading the investment boom is Hong Kong, followed by the US, Japan and Taiwan, the latter continuously relaxing restrictions on dealing with their brethren across the Strait.
A point for optimism voiced by economic emmissaries from the west and international financial institutions over the last months is not only the growth pattern and the party's blueprint for a "socialist market economy", but calculated efforts by the Chinese authorities to make their economy compatible with western standards. In the run-up to its re-entry to Gatt possibly early this year, and more immediately, to retain the unconditional MFN status opposed by a hostile Congress majority in Washington, China in recent weeks:
* announced that it will reduce tariff rates for over 3,000 import items, including oil, beginning on the last day of this year,
* announced that it will draft another set of policies for attracting what a Mofert official termed "huge amounts of investments", including the freedom of manufacture and market strategy. Also to come is the permission for privately owned enterprises to set up joint ventures,
* promised political reforms and possibly the adaptation of the ten year old constitution to market economy requirements,
* went ahead with the deregulation of commodity and food prices,
* let it be known that the opening up of its financial market to foreigners, including renminbi trading, might arrive in three years time,
* pledged far-reaching accounting reforms, designed to bring the system in line with global standards. For the first time, a company would not be rated by the size of its assets, but rather by its real returns,
* intensified lobbying for international participation in developing the tertiary sector of the economy. After the worst-ever disaster in Chinese aviation history last November, when all 141 passengers were killed near Guilin, China is eagerly looking for foreign partners running airports and updating obsolete flight control systems.
Despite these efforts and a market with high return potential, China remains a high-risk area, mainly for two reasons. Domestically, overheating with rising inflation, unemployment in the absence of a social security system as well as the large number of inefficiently run state enterprises could lead to instability. Also, there is still a large amount of state involvement in business affairs. And, for the time being, economic laws and regulations in many cases remain neither transparent nor comprehensive, when it comes, for example, to market access, taxes, tariffs, real estate dealing or the securities market.
Internationally, Beijing suspects western powers setting up a new anti-Chinese alliance and kowtowing to Taipei where in recent weeks high-level and quasi-official delegations from the US, France and Germany have visited. This and major weapons sales to Taiwan Beijing claims goes against the "one country, two systems" policy which already is in troubled waters in Hong Kong.
Notwithstanding the enormously successful development in the economic field, political disputes are potentially damaging. Beijing should be taken seriously when it claims that there will be no selling out of principles for any economic benefit.
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