China’s employment landscape looks sparse right now as many private enterprises that absorb much of the country’s workforce are succumbing to economic stagnation. While the Western world is caught in a tailspin, numerous private enterprises, and exporters in particular, have no place to hide. Their orders are declining to a trickle, and the supply chains of many also have broken down because of a lack of cash. In such a time of gloom, how can they weather the storm through innovation and industrial upgrading? Beijing Review reporter Hu Yue interviewed several economists and entrepreneurs about this issue at the 2008 Dialogue Between Chinese Private Enterprises and Global Fortune 500 held last December in Wenzhou, Zhejiang Province.
See what Wang Zhentao (President of Aokang Group Co. Ltd., a Wenzhou-based shoemaker)means when he says, "It’s time now for private enterprises to join forces in weathering the storm and draw some strength from self-restructuring and innovation."
Tuesday, January 13, 2009
Chinese Carmakers Steal the Limelight In Detroit
The global financial crisis has stolen much of the glitz and glamour associated with the North American International Auto Show in Detroit as global automakers are struggling to cut costs and stay afloat. However, it has also given Chinese vehicle manufacturers an opportunity to showcase their products and plans for the US market.
China Can Be First to Recover From Crisis
The country's economy has been losing steam over the past six months because the global economic downturn has dealt a blow to its exports sector. Exports dropped in November, the first time in seven years, and the industrial output growth fell to 5.4percent, the lowest in 10 months.
Click to see how, "China's measures have already taken effect."
Click to see how, "China's measures have already taken effect."
Tuesday, November 18, 2008
China's New Deal
November 13, 2008
By: Peter Navarro
Years from now, China's embrace of a massive fiscal stimulus, announced this week, will be seen as a far more important marker of the country's emergence as an economic superpower than even the successful hosting of the 2008 Summer Olympic Games.
This two-year, US$600 billion fiscal stimulus - equal to a stunning one-sixth of China's entire gross domestic product - focuses primarily on the construction of economically critical infrastructure, such as rail and energy networks and politically critical infrastructure, like low-income housing and healthcare. The historic importance of China's "New Deal" is evident in at least five factors.
First, China's swift action aptly illustrates how this putatively communist country can flexibly embrace the kind of mainstream Keynesian economics that has kept the capitalist world (mostly) in prosperity since the end of the Great Depression. It's pitch-perfect fiscal policy.
Second, in a supreme irony, China has acted far more quickly and decisively than the United States, with the students now teaching their former mentors. Indeed, Chinese officials, many of them schooled in US universities, seemed to have grasped far more quickly than US officials like Federal Reserve chairman Ben Bernanke the futility of relying solely on interest rate cuts for rapid recovery.
In particular, businesses won't invest, no matter how low interest rates go, if the recession remains. Nor will lower interest rates entice consumers to buy big-ticket items such as cars and houses if they are worried about their jobs and shrinking stock portfolios. Chinese officials have grasped this point, even as European officials have thus far rejected fiscal stimulus and US officials continue to quibble over the size and timing of any package.
Third, China's fiscal stimulus package puts a powerful exclamation point on the tightly woven interconnectedness of the world's major economies. While China continues to run large trade surpluses with the US and Europe, it is equally true that exports to China by American, European and even Asian countries constitute an ever-increasing component of economic growth.
In this global trade, countries like Germany, Japan and the US provide sophisticated capital equipment for China's "factory floor". As China expands its infrastructure, companies like Hitachi and Caterpillar likewise benefit from increased sales to China.
Fourth, the focus of China's fiscal stimulus particularly on infrastructure illustrates a sophisticated understanding - seemingly lacking in the United States - of what is necessary to build a strong economy. In its next stage of development, China's rail system must far better serve the inland areas of China where large pockets of rural poverty and high unemployment persist, despite three decades of robust growth. In fact, while the coastal areas from the Pearl River Delta up to Dalian have prospered, much of inland China remains impoverished. Swiftly developing better roads and rail and a more reliable and extensive electricity grid and water system is just what the country needs.
Fifth, China's New Deal will act as a powerful stimulus for domestic demand. Today, the Chinese economy is far too heavily dependent on export-driven growth. By stimulating domestic demand, China will not only better insulate itself from the vagaries of global trade. Rising domestic demand should also help reduce trade frictions that have arisen because of the large trade surpluses China runs with Europe and the US.
Finally, China's fiscal stimulus may also prove to be the beginning of the end of China's willingness to finance the budget and trade deficits of the United States.
For almost a decade, China has recycled many of the dollars it has earned through its export trade back into the US bond market. This has kept interest rates low in America and allowed the American consumer to spend far beyond his or her means.
Now, however, China is going to need its foreign reserves and export earnings for domestic purposes. That should certainly mean fewer dollars available for recycling back to the US. In this way, China's fiscal stimulus may act as a significant constraint on America's own ability to successfully implement its own fiscal stimulus - even as China uses Keynesian policies to eclipse the US as the world's reigning economic superpower.
Peter Navarro is a professor at The Paul Merage School of Business at the University of California-Irvine, a CNBC contributor and author of The Coming China Wars. www.peternavarro.com.
By: Peter Navarro
Years from now, China's embrace of a massive fiscal stimulus, announced this week, will be seen as a far more important marker of the country's emergence as an economic superpower than even the successful hosting of the 2008 Summer Olympic Games.
This two-year, US$600 billion fiscal stimulus - equal to a stunning one-sixth of China's entire gross domestic product - focuses primarily on the construction of economically critical infrastructure, such as rail and energy networks and politically critical infrastructure, like low-income housing and healthcare. The historic importance of China's "New Deal" is evident in at least five factors.
First, China's swift action aptly illustrates how this putatively communist country can flexibly embrace the kind of mainstream Keynesian economics that has kept the capitalist world (mostly) in prosperity since the end of the Great Depression. It's pitch-perfect fiscal policy.
Second, in a supreme irony, China has acted far more quickly and decisively than the United States, with the students now teaching their former mentors. Indeed, Chinese officials, many of them schooled in US universities, seemed to have grasped far more quickly than US officials like Federal Reserve chairman Ben Bernanke the futility of relying solely on interest rate cuts for rapid recovery.
In particular, businesses won't invest, no matter how low interest rates go, if the recession remains. Nor will lower interest rates entice consumers to buy big-ticket items such as cars and houses if they are worried about their jobs and shrinking stock portfolios. Chinese officials have grasped this point, even as European officials have thus far rejected fiscal stimulus and US officials continue to quibble over the size and timing of any package.
Third, China's fiscal stimulus package puts a powerful exclamation point on the tightly woven interconnectedness of the world's major economies. While China continues to run large trade surpluses with the US and Europe, it is equally true that exports to China by American, European and even Asian countries constitute an ever-increasing component of economic growth.
In this global trade, countries like Germany, Japan and the US provide sophisticated capital equipment for China's "factory floor". As China expands its infrastructure, companies like Hitachi and Caterpillar likewise benefit from increased sales to China.
Fourth, the focus of China's fiscal stimulus particularly on infrastructure illustrates a sophisticated understanding - seemingly lacking in the United States - of what is necessary to build a strong economy. In its next stage of development, China's rail system must far better serve the inland areas of China where large pockets of rural poverty and high unemployment persist, despite three decades of robust growth. In fact, while the coastal areas from the Pearl River Delta up to Dalian have prospered, much of inland China remains impoverished. Swiftly developing better roads and rail and a more reliable and extensive electricity grid and water system is just what the country needs.
Fifth, China's New Deal will act as a powerful stimulus for domestic demand. Today, the Chinese economy is far too heavily dependent on export-driven growth. By stimulating domestic demand, China will not only better insulate itself from the vagaries of global trade. Rising domestic demand should also help reduce trade frictions that have arisen because of the large trade surpluses China runs with Europe and the US.
Finally, China's fiscal stimulus may also prove to be the beginning of the end of China's willingness to finance the budget and trade deficits of the United States.
For almost a decade, China has recycled many of the dollars it has earned through its export trade back into the US bond market. This has kept interest rates low in America and allowed the American consumer to spend far beyond his or her means.
Now, however, China is going to need its foreign reserves and export earnings for domestic purposes. That should certainly mean fewer dollars available for recycling back to the US. In this way, China's fiscal stimulus may act as a significant constraint on America's own ability to successfully implement its own fiscal stimulus - even as China uses Keynesian policies to eclipse the US as the world's reigning economic superpower.
Peter Navarro is a professor at The Paul Merage School of Business at the University of California-Irvine, a CNBC contributor and author of The Coming China Wars. www.peternavarro.com.
Cashing in on China's Boom
November 20, 2008
By: Hu Yue
Foreign banks continue to fare well here on the back of the country's torrid economic growth
Sitting on piles of bad mortgages and unpaid credit-card debts and auto loans, several foreign banks have seen their profits plummet along with the broader economic downturn in the West. But the good news is that they still see China as a bright spot for expanding their business.
In the first three quarters this year, foreign banks in China earned 10.12 billion yuan ($1.48 billion) in profit, double the amount they made during the same period last year, said the China Banking Regulatory Commission in a statement on September 25.
The banking regulator said these institutions currently have an average ratio of non-performing loans of 0.52 percent of their total loans and that their capital-adequacy ratio averages 16.9 percent, underlining their healthy fundamentals, good asset quality, adequate capital provisions and sound liquidity.
Guo Tianyong, Director of the Research Center of the China Banking Industry under the Central University of Finance and Economics, told Beijing Review that foreign lenders have enjoyed buoyant business here largely because of China's economic boom in recent years and its strong domestic financial market, which has been growing exponentially.
Zhang Xi, a senior banking analyst at China Galaxy Securities Co. Ltd., agreed. She said a growing number of wealthy Chinese have ensured high returns for the foreign banks' wealth management and private banking services, which account for a big chunk of the banks' total revenues.
China's embrace of foreign lenders dates back to 1978 when the Japan Import and Export Bank was authorized to set up a representative office in Beijing. Ever since then, more and more foreign banks have penetrated China's market by extending their branch networks and product offerings and buying stakes in their Chinese counterparts, particularly after being offered broader access to lucrative retail renminbi services at the end of 2006.
A survey conducted by Pricewaterhouse-Coopers LLP (PWC) indicated that most foreign banks are expected to further tap into the world's fastest-growing major economy. In a poll of 42 foreign banks, the global consultancy said nine anticipated at least a 100-percent revenue growth in China this year, and many foresaw 40-50 percent annual revenue growth rates over the next few years.
The bullish growth predictions by overseas banks are based on confidence that more clients will be attracted to their deeper and more sophisticated product offerings and global client relationships, PWC said.
But as the financial crisis unfolds, many now fret that the foreign banks, after getting hit hard at home, may drag their feet in pushing into China in the face of a possible economic slowdown.
Zhang downplayed the concerns, saying China's banking system, one of the few in the world that have largely emerged unscathed by the financial chaos, remains stable and healthy, and therefore would maintain its appeal to foreign lenders.
Guo said the foreign banks' buoyant profit growth in China was likely to lose some steam as the crisis drained some of their financing sources at home, although it would remain much higher in most parts of the world. He added that the foreign banks would continue to value their China foothold. A case in point is Bank of America Corp., which has not sold its holdings in China Construction Bank Corp. as many expected, he said.
The worries are turning out to be truly unwarranted, because foreign banks have not bulked from the Chinese market, but continue to look to the country as a calm port in the storm. Since October, several foreign banks, including the Bank of East Asia Ltd. and Standard Chartered Plc, have added new branches to their banking networks in China.
Besides this, a growing number of foreign banks such as Citigroup Inc. and HSBC Holdings Plc, are making a push into the country's vastly under-serviced rural areas. HSBC said it would open about 30 branches in the countryside in the next few years, while the country has approved Citigroup's plans to establish two microcredit firms in the rural areas of Hubei Province in central China.
Guo said rural finance represents the future development trend of the banking sector in the long run and may become fresh growth points for both foreign and Chinese lenders.
Analysts say Chinese banks, particularly the "big four" state-owned banks, are now able to stand on their own feet after a few years of restructuring, but still need to improve their risk management, corporate governance and efficiency in a fully competitive market environment.
As foreign lenders spread across the country, they also face increasing competition in private banking and wealth management from China's large banks, which are eager to reduce their dependence on their traditional lending business and boost their fee income.
In the end, it will be a win-win situation that allows foreign players into the country's internal business cycle, Guo said.
"The arrival of foreign banks has benefited the local banking industry and customers with new services, managerial expertise and methodologies," Guo said. "They can also play a catalytic role in improving the corporate behavior of Chinese banks."
By: Hu Yue
Foreign banks continue to fare well here on the back of the country's torrid economic growth
Sitting on piles of bad mortgages and unpaid credit-card debts and auto loans, several foreign banks have seen their profits plummet along with the broader economic downturn in the West. But the good news is that they still see China as a bright spot for expanding their business.
In the first three quarters this year, foreign banks in China earned 10.12 billion yuan ($1.48 billion) in profit, double the amount they made during the same period last year, said the China Banking Regulatory Commission in a statement on September 25.
The banking regulator said these institutions currently have an average ratio of non-performing loans of 0.52 percent of their total loans and that their capital-adequacy ratio averages 16.9 percent, underlining their healthy fundamentals, good asset quality, adequate capital provisions and sound liquidity.
Guo Tianyong, Director of the Research Center of the China Banking Industry under the Central University of Finance and Economics, told Beijing Review that foreign lenders have enjoyed buoyant business here largely because of China's economic boom in recent years and its strong domestic financial market, which has been growing exponentially.
Zhang Xi, a senior banking analyst at China Galaxy Securities Co. Ltd., agreed. She said a growing number of wealthy Chinese have ensured high returns for the foreign banks' wealth management and private banking services, which account for a big chunk of the banks' total revenues.
China's embrace of foreign lenders dates back to 1978 when the Japan Import and Export Bank was authorized to set up a representative office in Beijing. Ever since then, more and more foreign banks have penetrated China's market by extending their branch networks and product offerings and buying stakes in their Chinese counterparts, particularly after being offered broader access to lucrative retail renminbi services at the end of 2006.
A survey conducted by Pricewaterhouse-Coopers LLP (PWC) indicated that most foreign banks are expected to further tap into the world's fastest-growing major economy. In a poll of 42 foreign banks, the global consultancy said nine anticipated at least a 100-percent revenue growth in China this year, and many foresaw 40-50 percent annual revenue growth rates over the next few years.
The bullish growth predictions by overseas banks are based on confidence that more clients will be attracted to their deeper and more sophisticated product offerings and global client relationships, PWC said.
But as the financial crisis unfolds, many now fret that the foreign banks, after getting hit hard at home, may drag their feet in pushing into China in the face of a possible economic slowdown.
Zhang downplayed the concerns, saying China's banking system, one of the few in the world that have largely emerged unscathed by the financial chaos, remains stable and healthy, and therefore would maintain its appeal to foreign lenders.
Guo said the foreign banks' buoyant profit growth in China was likely to lose some steam as the crisis drained some of their financing sources at home, although it would remain much higher in most parts of the world. He added that the foreign banks would continue to value their China foothold. A case in point is Bank of America Corp., which has not sold its holdings in China Construction Bank Corp. as many expected, he said.
The worries are turning out to be truly unwarranted, because foreign banks have not bulked from the Chinese market, but continue to look to the country as a calm port in the storm. Since October, several foreign banks, including the Bank of East Asia Ltd. and Standard Chartered Plc, have added new branches to their banking networks in China.
Besides this, a growing number of foreign banks such as Citigroup Inc. and HSBC Holdings Plc, are making a push into the country's vastly under-serviced rural areas. HSBC said it would open about 30 branches in the countryside in the next few years, while the country has approved Citigroup's plans to establish two microcredit firms in the rural areas of Hubei Province in central China.
Guo said rural finance represents the future development trend of the banking sector in the long run and may become fresh growth points for both foreign and Chinese lenders.
Analysts say Chinese banks, particularly the "big four" state-owned banks, are now able to stand on their own feet after a few years of restructuring, but still need to improve their risk management, corporate governance and efficiency in a fully competitive market environment.
As foreign lenders spread across the country, they also face increasing competition in private banking and wealth management from China's large banks, which are eager to reduce their dependence on their traditional lending business and boost their fee income.
In the end, it will be a win-win situation that allows foreign players into the country's internal business cycle, Guo said.
"The arrival of foreign banks has benefited the local banking industry and customers with new services, managerial expertise and methodologies," Guo said. "They can also play a catalytic role in improving the corporate behavior of Chinese banks."
Chinese Basic Scientific Knowledge on Rise
November 17, 2008
Xinhua News Agency
Scientific and technological awareness has been increasing among the Chinese people, according to a survey released on Sunday.
The survey by the Chinese Association for Science and Technology (CAST) reveals that people with basic science and technology knowledge account for 2.25 percent of the total population of 1.3 billion, compared to 1.6 percent in 2005 when a similar survey was last conducted.
The survey covers 10,080 people, aged between 18 and 69, from 31 provinces, autonomous regions and municipalities on the Chinese mainland.
Carried out from December 2007 to February 2008, the survey indicates 18.4 percent of the Chinese people understood scientific terms, 33.5 percent understood scientific methods and 59.4 percent understood the relation between science and society.
The respondents held that teachers, scientists and doctors are the most respected professionals and 40.1 percent of the parents hoped their children would become scientists.
As to the relation between scientific development and human resources, 82.8 percent of the respondents agree that "stimulating children's interest in science and technology will be conducive to the development of China's talents."
The Chinese people also have high expectations on future development of science and technology. The survey says that 81.9 percent of the respondents believe modern science and technology will bring the offsprings more opportunities for development.
Xinhua News Agency
Scientific and technological awareness has been increasing among the Chinese people, according to a survey released on Sunday.
The survey by the Chinese Association for Science and Technology (CAST) reveals that people with basic science and technology knowledge account for 2.25 percent of the total population of 1.3 billion, compared to 1.6 percent in 2005 when a similar survey was last conducted.
The survey covers 10,080 people, aged between 18 and 69, from 31 provinces, autonomous regions and municipalities on the Chinese mainland.
Carried out from December 2007 to February 2008, the survey indicates 18.4 percent of the Chinese people understood scientific terms, 33.5 percent understood scientific methods and 59.4 percent understood the relation between science and society.
The respondents held that teachers, scientists and doctors are the most respected professionals and 40.1 percent of the parents hoped their children would become scientists.
As to the relation between scientific development and human resources, 82.8 percent of the respondents agree that "stimulating children's interest in science and technology will be conducive to the development of China's talents."
The Chinese people also have high expectations on future development of science and technology. The survey says that 81.9 percent of the respondents believe modern science and technology will bring the offsprings more opportunities for development.
Sunday, November 9, 2008
China's 4 Trillion Yuan Stimulus to Boost Economy, Domestic Demand
November 9, 2008
Xinhua News Agency
China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.
This is a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.
A stimulus package estimated at 4 trillion yuan (about US$570 billion) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.
The policies include a comprehensive reform in value-added taxes, which would cut industry costs by 120 billion yuan.
Commercial banks' credit ceilings will be abolished to channel more lending to priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.
The decision was announced on Sunday by the State Council, or cabinet, after Premier Wen Jiabao presided over an executive meeting on Wednesday.
The meeting decided that credit expansion must be "rational" and "target spheres that would promote and consolidate the expansion of consumer credit."
With 100 billion yuan from current-year central government funds and another 20 billion yuan brought forward from next year's budget for post-disaster reconstruction, the fourth quarter is expected to see a total investment of 400 billion yuan across the nation.
The massive spending plan was expected to play a remarkable role in sustaining growth as 4 trillion yuan investment is an equivalent of one third of the nation's total fixed asset investment last year, according to Zhang Liqun, researcher with the Development Research Center of the State Council.
"With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation," said the meeting.
The meeting also announced that China will adopt "active" fiscal and "moderately active" monetary policies and map out more forceful measures to expand domestic demand, speed up the construction of public facilities and improve living standards of the poor to achieve "steady and relative fast" economic growth.
The active fiscal policy alone would not bear much fruit without the coordination of easing monetary policy. The two should work together to confront the economic complexity of home and abroad, said Yuan Gangming, researcher with the Center for China in the World Economy of Tsinghua University.
The policy change comes out in time as the global financial crisis begins to affect China's real economy. The adjustment is more resolute and timely as China draw lessons from the Asian financial crisis in 1998, said director of the Research Institute for Fiscal Science of Ministry of Finance Jia Kang. He noted the easing policy was expected to prevent big ups and downs in the economy.
He said the value-added tax reduction would encourage enterprises to invest more in the long run.
The macro-economic policy changes announced on Sunday are one of only a few major shifts during the 30 years since the beginning of reform and opening up in 1978.
The most recent modification was in December, when the government resorted to a combination of "tight" monetary policy and "prudent" fiscal policy to fight inflation.
With the monthly consumer price index, the main gauge of inflation, expected to drop further through year-end -- after plunging from a 12-year high of 8.7 percent in February to 4.6 percent in September -- the focal task of macro-economic control has shifted from beating inflation to sustaining economic growth.
The past three months have seen a series of stimulus policies: interest rate cuts, lower bank reserve requirement ratios, tax changes, higher credit quotas and the injection of central government funds to infrastructure construction.
The meeting decided that higher investment must be able to facilitate economic restructuring, promote growth potential by channeling investment to where it's most needed and spur private consumption.
Although the economy has maintained double-digit growth for years, fixed-asset investment and exports have dwarfed consumption as the two pillars of expansion. With global recession clearly in view, China must sustain itself by exploiting the domestic market to offset weaker demand abroad.
The meeting identified the ongoing world economic adjustment as "a new opportunity" for China to speed industrial restructuring, introduce advanced technologies and talents from abroad.
Despite challenges, China has a great potential to develop its domestic demand and a solid financial system, the meeting noted.
"As long as we take the right measures in a resolute and timely way to grasp the chance and rise to the challenges, we will surely secure steady and relative fast economic growth," the meeting noted.
Xinhua News Agency
China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.
This is a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.
A stimulus package estimated at 4 trillion yuan (about US$570 billion) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.
The policies include a comprehensive reform in value-added taxes, which would cut industry costs by 120 billion yuan.
Commercial banks' credit ceilings will be abolished to channel more lending to priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.
The decision was announced on Sunday by the State Council, or cabinet, after Premier Wen Jiabao presided over an executive meeting on Wednesday.
The meeting decided that credit expansion must be "rational" and "target spheres that would promote and consolidate the expansion of consumer credit."
With 100 billion yuan from current-year central government funds and another 20 billion yuan brought forward from next year's budget for post-disaster reconstruction, the fourth quarter is expected to see a total investment of 400 billion yuan across the nation.
The massive spending plan was expected to play a remarkable role in sustaining growth as 4 trillion yuan investment is an equivalent of one third of the nation's total fixed asset investment last year, according to Zhang Liqun, researcher with the Development Research Center of the State Council.
"With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation," said the meeting.
The meeting also announced that China will adopt "active" fiscal and "moderately active" monetary policies and map out more forceful measures to expand domestic demand, speed up the construction of public facilities and improve living standards of the poor to achieve "steady and relative fast" economic growth.
The active fiscal policy alone would not bear much fruit without the coordination of easing monetary policy. The two should work together to confront the economic complexity of home and abroad, said Yuan Gangming, researcher with the Center for China in the World Economy of Tsinghua University.
The policy change comes out in time as the global financial crisis begins to affect China's real economy. The adjustment is more resolute and timely as China draw lessons from the Asian financial crisis in 1998, said director of the Research Institute for Fiscal Science of Ministry of Finance Jia Kang. He noted the easing policy was expected to prevent big ups and downs in the economy.
He said the value-added tax reduction would encourage enterprises to invest more in the long run.
The macro-economic policy changes announced on Sunday are one of only a few major shifts during the 30 years since the beginning of reform and opening up in 1978.
The most recent modification was in December, when the government resorted to a combination of "tight" monetary policy and "prudent" fiscal policy to fight inflation.
With the monthly consumer price index, the main gauge of inflation, expected to drop further through year-end -- after plunging from a 12-year high of 8.7 percent in February to 4.6 percent in September -- the focal task of macro-economic control has shifted from beating inflation to sustaining economic growth.
The past three months have seen a series of stimulus policies: interest rate cuts, lower bank reserve requirement ratios, tax changes, higher credit quotas and the injection of central government funds to infrastructure construction.
The meeting decided that higher investment must be able to facilitate economic restructuring, promote growth potential by channeling investment to where it's most needed and spur private consumption.
Although the economy has maintained double-digit growth for years, fixed-asset investment and exports have dwarfed consumption as the two pillars of expansion. With global recession clearly in view, China must sustain itself by exploiting the domestic market to offset weaker demand abroad.
The meeting identified the ongoing world economic adjustment as "a new opportunity" for China to speed industrial restructuring, introduce advanced technologies and talents from abroad.
Despite challenges, China has a great potential to develop its domestic demand and a solid financial system, the meeting noted.
"As long as we take the right measures in a resolute and timely way to grasp the chance and rise to the challenges, we will surely secure steady and relative fast economic growth," the meeting noted.
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