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--- An interview with Xie Fuzhan, Deputy director with the Development and Research Center under the State Council

The Chinese economy is now still marked on the round of an uprising period and 2005 is going to witness another year of a relatively quick development.

Reporter: One question of which people are very much concerned is whether the Chinese economy can carry on, as did before, a relatively fast development in 2005 and what's your primary judgment?

Xie Fuzhan: Generally speaking, the Chinese economy is still marked on the round of an uprising period. It is going to witness another year of quicker growth. After over a year of effective macro-control the obvious contradictions in the economic operation have tended to be alleviated with unstable and unhealthy factors being put under control and fragile links being strengthened. All these have come to lay a relatively sound foundation for the economic development this year and also created a space for the employment of the macro-control economic policy.

Reporter: Whence does the motive force come from for the economic growth this year in your point of view? Is there still a sanguine expectation for agricultural production this year?

Xie: The motive force for economic growth this year can be dealt with from the following two aspects.

First is the demand in general. The Chinese economy at present is right on the track of a smooth development for industrialization and urbanization, a period for speedy upgrade of consumption structure. The consumption of the inhabitants is now right in the transition from a simple eating, clothing and spending as main consumption to that with housing as a major objective. This is a long tendency, which is also an internal driving force propping up the economic growth and will not be changed according to men's wills nor will it be altered by a short-term policy adjustment. Though the fixed-asset investment has been turned down but still sees an increase rate of over 20 percent, indicating an construction scale of RMB 20 trillion yuan which remain still a very strong pulling force forward. Besides, the world economy witnesses a trend of sustainable growth and so the external environment proves good for China's export and exploitation of foreign capital. The second is to take a look at the supply in general. The bottleneck restriction has been being alleviated. The shortage of power supply in some economy-vigorous-and-strong provinces, cities and municipalities is quite hopeful to get gradually released in the later half of the year, thereby realizing a further emancipation of the productive forces in these areas. The adjustment of investment and resource structure will be good for the alleviation of contradiction caused by the restriction of resources. And still more the transformation of the state-owned enterprises has been intensified while the non-public owned economy has been vitalized. This will also help constitute a supporting factor for a speedy economic growth.

Though the production increase in agriculture and the increase in farmers' income this year will be more difficult than that in last year yet the policy strength from the central government is being reinforced too. What is important now is to have a unanimous viewpoint and put all policies from the central administration into a down-to-earth implementation, so as to strengthen the support from the whole society for agriculture and bring about a harmonious development between the city and the countryside and between agriculture and non-agriculture.

The difficulty in economic operation is the very difficult point for macro-controls, and this is mainly focused on the employment of the tools and the master of forcibility for macro-controls.

Reporter: If we are going to make an assessment of catchword in economy for 2004 the elected one is beyond doubt the ¡°macro-control¡±. And how do you think it will be adjusted in 2005 with regard to its forcibleness and ways for the adjustment?

Xie: In view of the macro-control this year the central administration has already decided a doubly stable policy orientation. The financial policy in the macro-control policy orientation will be shifted from an active financial policy practiced ever since 1998 towards a smooth and stable one. Concretely speaking, both treasury bonds for construction and financial deficit are going to be reduced. The stressed point of financial policy will be changed from stimulating the internal needs for pulling the economic growth along to gradually strengthening the weak links, adjusting the economic structure and for supporting the system reform. Judging from the objective of the currency policy the macro-control policy has not only to support for a relatively speedy economic growth but also to prevent the currency from appreciation. Therefore, a reasonable scale of currency and credit supply has to be maintained with emphasis to be laid on the optimization of credit structure.

Reporter: What are the difficulties in the economic operation and the macro-control for this year?

Xie: The difficulty in economic operation is the very difficult point for macro-controls. And I'm of the opinion that the difficulty is mainly focused on the employment of the tools and the forcibility exercised for macro-controls.

In view of the emphasis for macro-controls it is at once necessary to prevent the comeback of fixed-asset investment and too many and too fast a downturn in the investment and therefore, a reasonable and timely strengthening and improvement of macro-control has to be effectuated. However, there still exit some difficulties in the selection and employment of the policy tools for the macro-controls. For instance, the interest rate and the exchange rate interact each other and the employment of price tool and the control of price level in general will be beneficial for one thing but detrimental to the other and so it is necessary to make a comprehensive balance and policy-making in a circumspect way.

I think the key of macro-control for this year lies in investment. Therefore, the following points must be well carried out: to strengthen the regulatory administration of the land; to optimize credit structure under the condition for maintaining a reasonable credit scale in order to bring about the adjustment of investment structure; to work out as quick as possible the detailed regulations to get along with investment system reform so as to regulate the behavior of investors and the government; efforts to be made as far as possible to make a correction of the variables in economy in order to eliminate and weaken the distortion of the market and enhance the investment efficiency.

The biggest uncertainty in the operation of Chinese economy is mainly the trend of world economy, trend in the changes oil prices and the stability of the US dollars.

Reporter: What are the factors that will affect most the prices this year?

Xie: The factors exerting influence on the prices this year see a duality of both advantages and disadvantages. However, to judge it on the whole it's possible to keep the consumption price index within a range of 4 percent. This year will see a little possible rise of grain price as against that of last year and so the foodstuff price will be maintained relatively stable. The factors that are most likely to affect the rise of prices are the following three: the price of means of production; the price for services which include prices for water, electricity and transportation and the third is the price of real estate. If the prices of the three aspects rise simultaneously or one of them rises drastically it is possible to bring up quickly the other consumption prices. This is a key point that the macro-control has to pay close attention to.

Reporter: apart from prices what are the most uncertain factors that affect the economic development in China this year?

Xie: I think the biggest uncertain factor in the operation of Chinese economy is mainly the trend of the world economy, the tendency and level in the change of oil prices and the stability of the US dollars. The three aspects are the factors that we are unable to control.

Last year witnessed the best economic situation in the world in the recent a few years. The economy told an all round recovery in the US, Japan and Europe, which served a positive influence on China's economy in foreign trade and the national economic situation as a whole.

This year will still see a good operation in world economy as a whole but the growth rate is possible to be somewhat slower than that of last year and the biggest uncertain factor remains still the US economy. At present, there exists a huge deficit in its trade and finance. The US dollar is undergoing a drastic devaluation, the big fluctuation of its exchange rate constituting a threat to the stability of the world economy. Next is the instability of the oil price. China sees a year-on-year increase in oil import, telling a very quick dependence on it and so we should not underestimate the influence of the oil price rise. Still more is that after the entry into the WTO trade friction and coalition is on the increase when the transition period is over and the risk in part of economic sectors opened to the outside world is likely to loom larger. All these are the newly cropped uncertain factors.