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UPDATED: April 23, 2007 NO.16 APR.17, 2007
Hot Economic Issues 2007
The following selections are China Institute for Reform and Development (CIRD) opinions on this year's hot economic issues

Second, reform of the rural banking system will accelerate. A system of rural financial organizations with a proper division of work, diversified investment and a full range of functions that provide efficient services will be established. The Agriculture Bank of China and the Agricultural Development Bank of China will serve as the backbone of rural banking. Rural credit cooperatives will be reformed and the role of the China Postal Savings Bank in serving agriculture, rural areas and farmers will be strengthened. Controls will be relaxed on the establishment of rural financial institutions, with banking functions and investment in rural financial institution form varied sources of capital encouraged. New types of financial organizations suitable for rural areas will be explored, and efforts to innovate financial products and services will be strengthened, eliminating difficulties farmers encounter in obtaining loans.

Third, development of capital markets will be a priority. The development of a multi-level system for capital markets will be promoted, and the amount and proportion of direct financing will be increased. The development of the stock market, the accelerated development of the bond market and the active yet prudent development of the futures market will be encouraged. Basic market systems will be further strengthened, reforms of the system for issuing stocks and bonds will continue to make it more responsive to market conditions, effectively raising the quality of listed companies and strengthening market oversight.

Fourth, reform of the insurance sector will deepen. Expanded insurance coverage and improved services will be provided by insurance companies. Their ability to handle risk will be addressed.

Fifth, the financial sector will further open to foreign competition.

Sixth, strengthening and improving financial oversight, improving mechanisms for coordinating oversight and effectively guarding against and defusing financial risks will be developed in order to maintain China's financial stability and security.

Reigning in housing prices

Over the past year, rising real estate prices have been a hot topic across China. A survey conducted last year by the Social Survey Institute of China querying residents of over 16 cities found that 75.3 percent of respondents were concerned about the high cost of real estate.

While it will be difficult to reverse these trends in 2007, government intervention is attempting to control the rapid increase of housing prices.

In recent years, the government has put stabilizing housing prices at the top of its list of priorities. At the beginning of 2007, Premier Wen Jiabao stressed the importance of attending to this area and reiterated that securing and improving the livelihood of the people is the basic function of the government. Hence, regulation measures by the Central Government will be strengthened, instead of weakened, in 2007.

In his government work report, Premier Wen pointed out that the real estate industry plays a major role in developing the economy and improving the housing conditions of the people, and the government must promote the industry's sustained and sound growth. The following summarizes Premier Wen's remarks:

In 2007, the government will attempt rational regulation of the real estate sector. Taking into consideration the fact that China has a large population and relatively little land available for building housing, as well as the current level of its economic development, appropriate plans are needed. Environmentally friendly buildings that conserve energy and land, and development of a Chinese model for housing consumption, are important goals.

Second, the real estate industry should focus on developing affordable housing for ordinary people. The government will pay particular attention to addressing the housing problems of low-income families by increasing fiscal and tax policies supporting and setting up a sound system of low-rent housing. Improving and standardizing the system of affordable housing is important in this respect.

Third, the proper use of both government regulation and market forces to maintain a reasonable scale of real estate investment, while improving the supply of commercial housing, strengthening oversight and regulation of housing prices, preventing overheating in housing prices and keeping prices at a reasonable level should be aimed for.

Fourth, efforts will intensify to ensure order in the real estate market, strengthen oversight over it, and uphold laws and regulations in all facets of the real estate industry, including development, sales and real estate agencies. Local governments at all levels must assume their full share of responsibility for regulation and oversight of local real estate markets.

Transforming the energy sector

In the government work report, Premier Wen Jiabao stated that the country fell short of targets for cutting energy consumption by about 4 percent per unit of GDP, and by 2 percent on the total discharge of major pollutants. However, he also pointed out that meeting these two mandatory targets in the 11th Five-Year Plan is very important. The targets cannot be revised, so working resolutely to reach them is a major goal.

Since conserving energy and reducing energy consumption is so important to the transformation of economic growth patterns, the State Council has established detailed targets for every province, autonomous region and municipality. Leaders in these localities are tasked with working out objectives and plans in varying stages and creating objectives for accomplishing them.

Judging from circumstances in China, it is increasingly urgent to improve the energy structure. At present, the reliance on coal as the major energy source ensures stable development of the world's most important economic system, and helps growth of global trade. At the same time, it also leads to low efficiency of energy utilization, heavy pressure on the environment and high costs of social management. To change the structure away from using coal as the major energy source will be the only road for China to transform its economic growth pattern.

From a sustainable development point of view, gas will likely become the most important energy source, along with simultaneous development of gas, petroleum and coal resources. This could be the most ideal road for China's modernization of energy structure.

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