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Q: Since 2003, the Chinese economy has experienced another period of overheating. What are the causes of this? People from other countries have expressed concern about negative consequences in the aftermath of macro control policies adopted by the government. What kind of measures will the Chinese Government take to avoid negative impacts?

A: Every country practices macro control policies, varying only in means. China's economy had witnessed three rounds of overheating during its economic development and had solved the problem through macro control. Different from the previous rounds, which involved all the main sectors, the latest round, which started in 2003, is characterized with over supply in the industrial sector and short supply in the service sector.

Economic overheating has jeopardized the coordinated development of the Chinese economy. Sharp increases in China's demand of natural resources and raw materials have turned China into a big importer, resulting in soaring prices in both domestic and international markets. Take the iron and steel industry as an example. After China completes the construction of all undergoing iron and steel projects, the total annual production capability will reach 350 million tons. This means that even if China purchased all iron ore produced in the world, it still would not meet the demand of its iron and steel industry.

A fundamental reason for economic overheating is low investment efficiency. Huge investment without raising efficiency is not a feasible way to sustain growth for a country like China that has limited natural resources. Macro control becomes a must.

In the past, China's macro control usually featured administrative means, leading to some negative consequences. By comparison, an obvious characteristic of current macro control is its main reliance on market and legal methods. The concrete measures are as follows:

First, combining the adjustment of credit policies with that of industrial policies. The government on one hand requires commercial banks to strictly control loans to overheated industries such as steel. On the other hand, it gives capital support to projects that are conducive to structural adjustment, expansion of consumption and increasing job opportunities.

Second, the government will not approve acquisition of land for projects that do not conform to State industrial policies and industry entry standards. Approval of land acquisition will be suspended in regions where land embezzlements are prevalent. Illegally acquired land will be retrieved.

Third, projects either under construction or on the waiting list will be stopped if they are found to have violated State laws, environmental protection regulations, city planning, and loan policies and procedures.

Fourth, the government has raised the required proportion of up-front capital for construction projects in the steel, cement, electrolytic aluminum and real estate (excluding affordable housing) by 15 percentage points. The examination and approval of any new project in these sectors must strictly follow newly released policies and entry standards on environmental protection, safety, energy consumption, technology and quality of products.

Fifth, the government has strengthened the coordination of coal, electrical power, oil and transportation to maintain the link between supply and demand of major raw materials. It has also reduced allocation quotas for consumption of electricity, oil and coal for companies that fail to meet industry entry standards.

Sixth, the government has taken a series of policy measures to encourage grain production, including direct subsidies, seed subsidies, exemption of agricultural taxes and price control on agricultural production materials.

Since China has adopted different policy measures to different industries and has implemented moderate macro control, it has successfully halted sharp declines in grain sowing areas and in grain output in the previous five years. On the other hand, the government has also put a lid on surging investment in fixed assets, excessive expansion of some industries and runaway bank loans. These efforts of macro control have already paid off as dramatic ups and downs of the overall economy are being avoided.

The Chinese economy still enjoys vigorous growth. In 2004, China's GDP grew by 9.5 percent, government revenue by 21.4 percent and profit of industrial enterprises by 38.1 percent.

Despite achievements in macro control, we are fully aware of the deep-rooted problems of the Chinese economy. We believe that blind investment and lopsided economic expansion will not be eliminated at root level without solving problems in economic structure, economic mechanism and modes of growth. Without solving these deep-rooted problems, disturbing factors in economic development are liable to pop up again at any time. Close attention must be paid to this.

A woman in Nanjing shows her certificate after taking part in a reemployment training program. She will work as a housemaid.

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