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China To Spend More on Economy

January 6, 1999

BEIJING (AP) _ China’s cash-strapped government will be reaching even deeper into its overstretched pockets this year as the country struggles to spend its way out of recession, the finance minister said today.

The government hopes to stimulate consumer and industrial demand and stave off the economic malaise that has afflicted the rest of Asia by spending more on river embankments, irrigation projects, roads and other infrastructure.

To boost lagging exports, tax rebates and preferential incentives for foreign investors also are to be extended.

Such policies could push China’s 1999 budget deficit above the Finance Ministry’s initial estimate of $12.75 billion, Finance Minister Xiang Huaicheng said at a news conference.

A statement released by the ministry acknowledged that while heavy spending in the second half of last year helped keep economic growth at a respectable 7.8 percent, ``the internal and external economic situations in 1999 leave no room for optimism.″

Export growth was likely to be low, or perhaps negative; state-owned enterprises continued to perform poorly and the Asian economic crisis was still ``biting and aggravating,″ it said.

China has looked to its underdeveloped domestic markets, particularly in rural regions, as potential sources of pent-up demand _ but consumers fearful of losing their jobs were not in a mood to spend.

``Conventional consumer goods have lost much of their glamor and the demand for new ones has yet to come. Consumer prices remain low, but people tend toward saving more than usual,″ the ministry said.

The ruling Communist Party has made land and water conservation a top priority for 1999. Xiang said the government also was devising ways to eliminate or substitute taxes for arbitrary fees imposed by local governments that have caused much conflict in many areas.

Xiang admitted that such projects would strain national coffers.

To help finance such efforts, as well as its three-year program to steer $1.2 trillion toward infrastructure and construction projects, the government plans to float about $38 billion in domestic bonds this year, Xiang said. China also hoped to offer a sovereign debt issue overseas.

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