Full Text of Premier Zhu's Press Conference (I)

Premier Zhu Rongji met the press at the Great Hall of the People Thursday afternoon. The following is the full text based on recordings.

Q: We have noticed that you have stated in the report that China will continue to pursue a proactive fiscal policy. What is your view about the current fiscal deficit? If additional treasury bonds are issued for a few more years will this entail more fiscal risk year after year, and will this lead to inflation?
A: The Asian Financial Crisis broke out in 1997, and that presented China with lots of difficulties. For instance, our exports suffered a drastic decline. In 1997, our exports grew by 20 per cent from the previous year. However, after the crisis had broken out, in 1998, our foreign exports suffered a zero growth rate, or even a negative growth rate. And our small and medium-sized financial institutions also suffered all kinds of crises, like runs on the banks. Because of the lack of demand and the under-capacity operation of State-owned enterprises (SOEs), 10 million workers in SOEs had to be laid off. Much of our industrial and agricultural production was laid idle. How to cope with these difficulties? What kind of measures should we adopt? At that time, we had before us all kinds of proposals. For instance, some people suggested that we should devalue our currency in order to give a boost to our exports. Some other people said why not simply sell State assets, which would have helped us get over the difficulties. But the CPC (Communist Party of China) Central Committee and the State Council made a resolute decision to pursue a proactive fiscal policy and a prudent monetary policy. These policies have been implemented for three years, and facts have proved how successful these policies are.

It is because of historical circumstances at that time. At that time, China did not lack financial resources because people had saved a lot of money in their bank accounts. But because of the surplus production capacity in our industries, banks could not find ideal and efficient projects to make loans to. So they had to suffer the payment of interest to those saving deposits, which were laying idle. If the banks could not make an efficient use of those savings, it would be a tremendous financial burden on the State. Therefore, through the issue of treasury bonds, we sold the bonds to the banks. In this way, we made the best use of the savings in the deposits.

On the other hand, there were excessive surpluses of production capacity on the part of enterprises, so we had to undertake many projects in order to utilize those surplus production capacities. But even with those measures, there were still lots of workers who had to be laid off. So for three years, we issued a total of 360 billion yuan (US$43.5 billion) of treasury bonds, and that led to 1.5 trillion yuan (US$181.3 billion) of total investment in infrastructure projects.

As a result, the overall national economy has been revitalized. The outcome of these policies has been very effective and successful.

First, the money actually went to the infrastructure projects. Over the past three years, with capital raised through these channels, we managed to build 170,000 kilometres of highway, including 10,000 kilometres of expressway. We have also built or upgraded 10,000 kilometres of railway. We have also consolidated the embankments along such rivers as the Yangtze River, which has made them better prepared for floods. If China is hit once again by a flood as serious as the one that hit us in 1998, it would not cause as much concern because the banks have been consolidated. We have also used the money to improve the ecosystem and the environment. We have built some sewage disposal works. The effects are very evident.

Secondly, with these infrastructure projects, enterprises are able to start operation, and this has led to the turning around of State-owned enterprises in three years. It has also led to the increase of tax revenue. The State's revenues have increased by a wide margin. Last year, we already saw the favourable results of this policy. We saw very clearly that if we boost the production in the national economy, it could lead to the increase of revenue. Last year, the total national revenue amounted to 1.388 trillion yuan (US$167.6 billion), an increase of 196 billion yuan (US$23.7 billion) over that of 1999, and that was a big increase. So we are in a sound financial position to service all those treasury bonds.

It is true that we are seeing a significant increase of fiscal deficits. But we have to keep in mind the fact that all the deficits have been used to support infrastructure projects. We are able to pay back twice as much as the debts that we owe. I don't see any real risk.

Last year, I had a meeting with former US Treasury Secretary Mr Rubin in Xinjiang. During the meeting, I asked his opinion about China's proactive fiscal policy. He asked me about the overall size of the treasury bonds. I said the cumulative amount of the national debt stood at 1.2 trillion yuan (US$144.9 billion), accounting for 14 per cent of the GNP (gross national product). He gave me a very clear-cut answer: "There is no risk at all, because that is still far away from the 20 per cent international safety level." So I was reassured. But certainly I was more reassured by the fact that these policies resulted in the increase of fiscal revenue by 196 billion yuan (US$23.7 billion) last year. So I got real money in my pocket, which gives me real confidence that it won't lead to any risk.

This year, the State Council's proposal was adopted by the current session of the National People's Congress. We will issue an additional amount of 150 billion yuan (US$18.1 billion) of treasury bonds to support the ongoing projects and also to undertake new projects in the development of China's western region. I expect that in the next year, maybe another 150 billion yuan of treasury bonds will be issued. With this new issuance of treasury bonds, we will be able to finish all those ongoing projects in two years, and the programme of developing China's western region will assume an initial scale. At that time, since we have already arrived at the favourable situation of a sound cycle on the part of State-owned enterprises, and have more fiscal revenue and various channels to raise social capital, I don't think there is need for us to issue as many treasury bonds as we do now. Or perhaps there is no need at all to issue any treasury bonds to undertake those construction projects. Let's wait and see.

But I have another concern. When we announce that a new treasury bond will be issued, the general public is very excited. They get up early in the morning and queue before the banks. All the treasury bonds are sold out in a mere morning. If we decide not to issue any more treasury bonds, I am afraid the general public will be quite unhappy.

The reason is simple, it lies in the discrepancy of interest rates. For a one-year deposit, the interest rate is only 2.25 per cent, whereas the interest rate for the three-year maturity treasury bond is 2.87 per cent, and for the five-year maturity treasury bond the interest rate stands at 3.07 per cent. So there is a real difference.

Although we have issued treasury bonds, savings in the banks have not decreased. Since we imposed the interest tax, savings continue to increase in the banks. I think this is proof enough to show that the Chinese public have confidence in the government.

Q: Are there political reforms around the corner for China, and where would they start, in the Party or with the Constitution?

A: Political reform in China has been ongoing, and it is continuing to develop. We will never copy the Western model when we carry out political restructuring. In other words, we will not copy the experience of letting two parties take shifts in running the affairs of the State or introduce a two-chamber congress. It is true that we are going to reform the institutions of the Party. For instance we are going to improve our practice with regard to the appointment of leaders, with regard to organizational aspects and with regard to the human resources aspect of the work of the Party. There is also work to do to improve the operation of governmental institutions and other governmental organs. It cannot be said which will come first.

Q: I'd like to pose a question relating to the textbook issue. Japan has made amendments to the history textbook. What's your view on those amendments? And what kind of impact will this issue have on the Japan-China relationship and on the exchange of visits between the leaders of the two countries? How would you characterize the current state of affairs in the Japan-China relationship?

A: President Jiang Zemin paid a state visit to Japan in 1998. During that visit, both sides agreed to work towards a friendly and co-operative relationship that is oriented towards peace and development. Ever since then the relationship between the two countries has grown significantly. I myself visited Japan last year. In accordance with the spirit of using history as a guide and mirror and looking forward to the future put forward by President Jiang, I held friendly discussions with leaders of the Japanese government. I also worked to enhance trust and reduce misgivings through meetings and talks with people from all social sectors in Japan. In my opinion, the overall relationship between Japan and China is good.

The question of the history textbook is not just an issue between China and Japan. Rather it is an issue between Japan and all the Asian countries and people throughout Asia. If the past history of aggression started by Japanese militarists is denied and if the historical facts are distorted, it will not only hurt the feelings of the Chinese people, but also those of people throughout Asia.

Since the textbook would have to be reviewed by the Japanese Government, or to be more specific, the Ministry of Education, the Government of Japan bears unshirkable responsibility to have those amendments made.

They should not avoid taking responsibility on the grounds that people have freedom of view and freedom of speech. I know that certain changes to the amendments have already been made. But according to the views of people throughout Asia, these changes are not enough.

I don't think this is an issue that should be regarded as interference in Japan's internal affairs. Rather, this is a serious issue that will have a bearing on whether or not the people of Japan and of other Asian countries, including China, can develop a friendly relationship from generation to generation. So it is also in the interests of Japan to have this problem solved.

I don't think this should affect interactions between China and Japan or exchange of visits between senior leaders. On this occasion I'd like to once again extend my invitation to the Japanese Prime Minister Yoshiro Mori to visit China this year. Last year I paid a visit to Japan. I felt I had very good communication with Japanese people during my visit, and it left me with a memorable impression.

Q: I would like to ask a question relating to political restructuring. We have noticed that significant progress has been made since you took office in the institutional reform of the government as well as the transformation of the functions of government. In the outline of the 10th Five-Year Plan (2001-05), you also said efforts should be made to further separate government administration from enterprises' management to effectively transform the functions of government. May I ask about the progress made so far in this field? What has left you satisfied and what has left you feeling unsatisfied? And in what area are you going to press ahead with greater efforts?

A: I think our efforts in carrying out government institutional reform have been successful. Since 1998, in a very short period of time, we have managed to cut down the size of the staff of the State Council from 33,000 to 16,000, a margin of 50 per cent, and no dislocation resulted. And the provincial and municipal governments have also reduced their staff by the same proportion. And this year we have asked county and city level governments to cut their staff by 20 per cent. For those people that are not in the personnel quota, they will be asked to leave government offices. As a result, I think the government has improved its work efficiency and improved its institutional functions. So I can say that as far as the State Council departments are concerned, our work efficiency has improved significantly.

Of course, there are still some aspects that I am not very satisfied with. For instance, we are yet to complete our task in transforming the functions of government. Our staff are too accustomed to working under the planned economy. They are not adjusted well enough to the socialist market economy, so they are not highly aware of the proper role they should play under the socialist market economy. And the reforms in this area is still going on. Last year we actually reformed 10 bureaux, bureaux that were actually ministries in early days. So we dissolved nine industrial bureaux and we reformed one bureau. That was a very significant change. With regard to other departments, for those that meet the needs of the socialist market economy, we have reinforced them, particularly institutions like the State Administration of Industry and Commerce, the State Bureau of Quality and Technical Supervision and the State Exit-entry Inspection and Quarantine Bureau. For these types of institutions, they have to be reinforced and upgraded from the vice-ministerial level to full ministerial level.

Of course, it is no easy job at all to transform the functions of government. It takes time, and we will continue to work very hard.

Q: In the second half of this year, there will be the first ever summit of the "Shanghai Five" (The group consists of China, Kazakhstan, Tajikistan, Russia and Kyrgyzstan) at the prime ministerial level. What is your view of the prospects for economic co-operation and trade among the "Shanghai Five." What kind of role could it play to facilitate China's development of western regions?

A: Certainly the summit of the prime ministers in the "Shanghai-Five" meeting will build on what we have already achieved in the past. The heads of governments of the "Shanghai Five" states will try to work for even greater results from their co-operation. Of course, since the development of China's western regions is an important policy outlined in the 10th Five-Year Plan, we will certainly discuss it in the meeting, and we will try to work out measures to promote these efforts.

Q: The closing session of the NPC says there are quite a few no-votes and abstentions on the work report - Supreme Court and Chief Procurator reports. Do you agree that this kind of response from the NPC delegates reflects the lack of confidence in the government's ability to deal with corruption?

A: Well, after seeing the results of the votes, I do actually feel it is quite serious. But on the whole I feel quite happy because it is a big improvement over the situation last year. Both reports were adopted with over two-thirds majority.

Of course, this still shows that people are less satisfied with the work of the government, particularly the State Council.

We should use the voting result as a constant reminder and urge that we should work even harder to strengthen our work in the judicial field and carry out anti-corruption work even better. But I do not think this reflects the loss of confidence among the general public on the ability of the government to wipe out corruption. The general public do trust the government.

Q: Not so long ago, you said you would invite financial experts from Hong Kong to compete for the position of deputy governor of the central bank. Have you already found appropriate candidates for this post?And, in addition to the People's Bank and China Securities Regulatory Commission (CSRC), what other departments in the central government would recruit people from Hong Kong or overseas to take leading positions?

Would their service cause discontent among their fellow colleagues in the mainland? And what expectations do you have on these professionals recruited from outside mainland?

A: In today's world, competition among states is mainly a competition among talented professionals. Therefore, it is a decision adopted by the Central Committee of the Communist Party of China to fully absorb and make use of the talented people among our overseas students and among the professionals in Hong Kong, Macao and Taiwan. This will help us strengthen our competitive edge.

The departments that would introduce talented people from outside are those that are exposed to increasingly fierce competition and that are opening wider to the outside world. This would include departments mainly in the banking sector, securities industry, insurance industry, etc. And, also, there is particular need for some large State-owned enterprises to recruit outside talented people to serve at the top management level.

Madam Shih May-Lung of the Hong Kong Securities and Futures Commission will serve as the vice-chairwoman of the CSRC. This move only represents the beginning of our work in the field. We will continue to pursue this policy. I don't have any fixed candidates yet. I would rather hear recommendations from people from all walks of life, and maybe you can also make suggestions regarding the best candidates for those posts.

Q: I have a question concerning National Missile Defence (NMD) and Theatre Missile Defence (TMD) systems. We know China is firmly opposed to the development of NMD by the US and also opposed to the US attempt to incorporate Taiwan under the TMD system. My question is that if the United States decides to go ahead with these two programmes, how will China react?

A: It is hard for me to answer your question in a single sentence. Maybe I can share with you my observation on China-US relations.

We know there has been a new US administration with George W. Bush taking office, and we are not familiar with it. We have not got acquainted with some members of the US Government, and it takes time for the two sides to get to know each other.

We have heard information from Washington, and with regard to this, we always take a very close look at it and try to analyze what the implications are. But sometimes we do get very complicated information from Washington. We would ask them to make clarification. In some cases they have made clarifications to our satisfaction. And in other cases, because of the misunderstanding, there is a need for us to make effective communication with each other. Vice-Premier Qian Qichen will soon pay a visit to the United States, and this represents an exchange of views at a high level. I myself have received a letter from Secretary of State Colin Powell.

Now I want to tell you that the channel of exchange of views between President Jiang Zemin and President George W. Bush is open and unimpeded and they have kept in close touch.

The message we have received directly from the United States is that President Bush attaches importance to relations with China, and in his view, the China-US relationship is important and helpful for the shaping of the 21st century. He has also expressed the hope that, together with President Jiang, he will work to bring about a stable and steadily growing China-US relationship.

They have told us in clear-cut terms that the United States continues to adhere to the one-China principle and they will continue to honour the commitment as enshrined in the three China-US communiques.

With regard to the differences between China and the United States, President Bush has also stated that these should be resolved through consultation on the basis of equality and mutual respect. He also expressed that he believes the question of Taiwan will certainly be appropriately resolved.

There also exist some differences between China and the United States. For instance, according to certain senior members of the US administration, they believe that the constructive strategical partnership with orientation towards the 21st century as agreed upon by the two sides was a misnomer and it does not reflect the true picture. Relations between the two countries should be characterized as competitive rivalry.

But it is also their view that competitors are not necessary enemies.

There is a need for better communication to properly understand the connotations of the constructive strategical partnership. We actually mean to strategically bring about a long-term stable relationship with the United States. In our foreign policy, it has been our consistent stance not to enter into any alliance with any other country and the relationship will never target any third country.

Partnership and competition are not always at odds with each other. Now the theme of the world is peace and development, and we are seeing the growing trend of economic globalization, so countries compete and co-operate at the same time. I am therefore pleased to hear from Mr Powell that although China and the United States are competitors, they are indeed partners in the field of trade.

He also holds the view that China and the United States are to co-operate in other areas, so I do not think the differences are very serious.

I still remember my meeting with former US President George Bush when I went to London in 1998 for the Asia-Euro meeting. He asked me how I am progressing with the privatization programme in China. I was quite shocked. I told him that China did not go for privatization.

What we are doing in China is actually corporatization, and corporatization is only one of the many ways to realize public ownership. The answer I got from former US President George Bush was "Well, no matter how do you describe it, we know what is going on." We all agree.

And I also had the impression that he was quite right. Maybe this can also be described as each expressing the consensus in their own way.

I fully endorse this view of President Bush that friendly relations and co-operation between China and the United States would be helpful for the shaping of the 21st century, and also believe that the long-term stable friendly relations and co-operation between 1.6 billion Chinese and the American people would be in the interests of peace, development, prosperity and stability for the entire 6 billion world population.

I am also very happy that President Bush has already accepted the invitation from President Jiang to attend the informal APEC leadership meeting that is scheduled for October 20 this year in Shanghai, and also pay a state visit to China. I am very pleased because the visit to China by President Bush will present an excellent opportunity for the two countries to communicate better with each other.

Now I can come back to your question concerning NMD. Our stance is a clear-cut one: We are opposed to NMD.

We are opposed to it because it is against the Anti-Ballistic Missile Treaty and it can only lead to an international arms race.

We have explicitly expressed our position on many occasions on this issue to the US side, and we have noted that President Bush has expressed the view that they will have consultations with China on this issue.