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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

Conservation and environmental protection keys for 2007

According to requirements stipulated in the 11th Five-Year Plan, by 2010, China must cut energy consumption by 20 percent per unit of GDP and reduce emissions of major pollutants by 10 percent. These are binding goals. However, an official from the State Environmental Protection Administration (SEPA) said that emissions of major pollutants in 2006 had increased and according to the National Development and Reform Commission (NDRC), the national goals of conserving energy and reducing energy consumption in 2006 had not been reached. Statistics showed that only provinces or municipalities such as Guangdong, Shandong, Beijing, Shanghai and Tianjin accomplished their goals last year.

Now is a crucial time for China to conserve energy, reduce energy consumption and promote the transformation of economic growth patterns through conservation and reduction of consumption. President Hu Jintao stressed late last year the urgency of building an environmentally friendly, energy conserving society and doing the utmost in conserving energy and reducing energy consumption. The NDRC released a document at the end of 2006 requiring local departments responsible for energy consumption to verify energy reports and plan for energy conservation of 1,000 enterprises within prescribed time limits. As of January 1, 2007 they are also tasked with carrying out accession and examination of energy conservation in fixed assets investment projects. Projects that are not carried out or fail to pass examination shall not be approved and permitted for construction.

As for environmental protection, the SEPA and the People's Bank of China declared on January 9, 2007 that the incorporation of environmental protection information from enterprises will be added into the corporate credit information system as of April 1. This will require commercial banks to consider whether the enterprises abide by environmental protection laws as important grounds when considering granting loans. That is to say, enterprises that break environmental protection laws will not receive loans.

To China, the ultimate way to establish an economical and environmentally friendly society is to promote market reform and enhance scientific and technological innovation. Since property rights reform of enterprises has lagged behind, some enterprises do not care about environmental costs and don't see the point in conserving energy and reducing energy consumption. Moreover, market reform of resource prices has also lagged behind, meaning prices do not reflect scarcity. Accelerating technological innovation can lead China out of a growth pattern that depends on exhausting resources and the environment; the sooner the better.

The growth of SMEs as an economic focal point

At present, China is witnessing rapid growth of small- and medium-sized enterprises (SMEs). These are playing an active role in strengthening economic growth, expanding employment channels, opening the economic system, optimizing ownership structure, improving industrial competitiveness and promoting urbanization and industrialization. Further, SMEs are a major force in technological innovation.

By the end of October 2006, the number of SMEs in China had reached 42 million. This accounts for 99.6 percent of the total number of enterprises in the country. SMEs contributed 58.5 percent to the county's total value of final products and services, 59 percent to the retail sales of total commodities that the country produced, 48.2 percent to taxes and 75 percent to job opportunities. At present, 65 percent of the country's invention patents and 80 percent of new products are developed by SMEs. A large number of new technologies are utilized for industrial production by SMEs. This sector is also promoting adjustment of the economic structure, with many developing businesses in fields such as infrastructure, mechanical, electrical manufacturing and services.

Expanding consumption provides a vast market for SMEs. Improvement in policies supporting and providing a beneficial environment for SMEs is occurring. Economic globalization, innovation in science and technologies, as well as industrial restructuring worldwide, will provide ample opportunities for the development of SMEs during the coming years.

In the future, China will strive to promote the transformation of SMEs in four aspects, improving their quality and competitiveness all round: transforming from quantity-oriented to quality-oriented; transforming from extensive growth to sustainable development; transforming from sole ownership to entering into partnerships; and transforming the motive of economic benefit by focusing on both economic benefits and social responsibilities.

The Chinese Government, based on the idea of allowing market mechanisms to work, will ensure practical policies providing more effective services to SMEs. Relaxation of regulations on market access for SMEs, with principles of equal access and fair treatment, will improve the environment for business start-ups. Every effort will be made to relieve difficulties in accessing financing, and mechanisms will be established for protocols of initial investment and exit. Improvement of social services and strengthened efforts in technological innovation, as well as human resource development, will also help promote healthy development of SMEs.

Prospects for China-ASEAN relations

Since the establishment of the dialogue mechanism in 1991, China and the Association of Southeastern Asian Nations (ASEAN) have carried out continuous communication and cooperation. Bilateral relations have developed into close and strategic cooperation in multiple fields. China and the ASEAN members are all developing countries. Although there are differences and competition between the two parties, they are also complementary to each other in many fields.

ASEAN is China's fifth largest trading partner, the nation's fifth largest exporting destination and its fourth largest importing source. According to statistics from the Ministry of Commerce, since 1991, bilateral trade between China and ASEAN countries has been increasing at an average annual rate of more than 20 percent. Many ASEAN members have trade surpluses with China. In 2006, China's trade deficits from ASEAN nations totaled $18.22 billion, with $11.94 billion from the Philippines, $10.04 from Malaysia and $8.2 from Thailand.

Renminbi appreciation strengthens this trend and will bring huge opportunities to ASEAN members. ASEAN not only needs Chinese products, it also needs Chinese technologies, experience and capital. Huge potential exists in terms of bilateral cooperation. Increasingly, Chinese companies are attentive to and willing to cooperate with ASEAN members. China's three petroleum companies have established four energy development areas in the world, one of which is located in Southeast Asia with Indonesia, Malaysia and Brunei as the key areas of concentration.

At the Commemorative Summit marking the 15th Anniversary of ASEAN-China Dialogue Relations in October 2006, Premier Wen declared that China-ASEAN relations are now in their best stage of development. The average tariff between China and ASEAN will fall to 6.6 percent in 2007 and 2.4 percent in 2009. By 2010, 90 percent of the products China imports from ASEAN countries will be tariff free.

In January 2007, China and ASEAN signed a free trade area, service trade agreement. Starting from July 2007, China will further open its market in 26 fields within five service sectors: environmental protection, construction, commerce, sports and transportation. The aim of this is to expand trade exchanges between the two partners. At the same time, ASEAN will also open its markets in education, tourism, construction and finance to China, allowing ASEAN to establish sole proprietorship companies or joint ventures. Stock-holding restrictions will also be reduced.


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