MEETING WITH MR LAN SHILIANG¡]ÂÅ¥@¨}¡^, DIRECTOR-GENERAL OF THE DEPARTMENT OF LONG-TERM AND INDUSTRIAL POLICY OF THE STATE DEVELOPMENT & PLANNING COMMISSION, and

	Mr Han Xizheng (ÁúÁí¥¿¡þ°]ª÷¥q¥qªø), Director-General of the Monetary Department.
	Mr Dong Heyi (¸³¶P¸q¡þ¿ì¤½ÆU°Æ¥D¥ô), Deputy Director-General of the Administrative Office.
	Mr Shen Dafong (¨H¤j­·¡þ°ö°V¤¤¤ß°Æ¥D¥ô), Deputy Director-General of the Training Centre.
	Mr Geng Shuhai (¯Õ®Ñ®ü¡þ¥«³õ¥q³Bªø), Division Director of the Department of Market.
	Mr Ning Jizhe (¹ç¦N›Õ¡þ¤T²£¿ì³Bªø), Division Director of the Tertiary Industries Office.
	Ms Ma Li (°¨²ú¡þ¥~¨Æ¥q°Æ³Bªø), Deputy Division Director of the Foreign Affairs Department.
	Ms Yang Yuying (·¨¥É­^¡þ¤T²£¿ì°Æ³Bªø), Deputy Division Director of the Tertiary Industries Office.
	Mr Sun Guojun (®]°ê§g¡þ¤T²£¿ì¥D¥ô¬ì­û), Official.

National Economy

To maintain stable growth of the economy, Chinese Government aims at:

	achieving an annual growth of 8%;
	controlling inflation rate to 3%; and
	stabilising Renminbi.

In 3 years' time, the Government hopes to achieve 3 accomplishments (¤T¨ì¦ì):

1. modernisation of state-owned enterprises;
2. completion of financial system to be regulated by the Central Bank; and
3. government restructuring.

and complete 5 reforms (¤­§ï­²) on:

1. food distribution (³­¹¬y³q)
2. Investment regulations (§ë¸ê¨î«×);
3. commercialisation of housing and removal of the welfare element in housing (¦í©Ð¨î«×°Ó·~¤Æ¤Î¨ú®øºÖ§Q¤Æ);
4. medical reform (ÂåÀø§ï­²); and
5. taxation system to avoid abuse (µ|¦¬¨î«×¨¾¤î¶Ã¦¬¶O).

The state-owned enterprises would be in a more difficult position if the Government could not achieve 8% economic growth. But the Chinese Government is confident that the target would be reached, although the growth was only 7.2% early this year and the total exports are expected to decline as a result of the Asian financial crisis. To achieve target, the Government will take a series of measures:

	To encourage state-owned enterprises to invest by offering loans;
	To issue treasury bonds to enlarge investment scale;
	To avoid duplication of investments on infrastructure projects and to concentrate on the development of transportation;
	To promote exports by increasing tax rebate (e.g., from 9% to 11% for textiles);
	To offer tax incentives for importing technological equipment and items;
	To increase government spending (e.g., from 10% of GDP in early this year to 15-18% now); and
	To instruct local governments to take various kinds of means to promote the economy.

As long as there would not be any major natural disaster, the 8% growth would be achieved, and the Renminbi would not be devalued

Tertiary Industries

The 15^th Party Congress had confirmed the opening of tertiary sectors, which is being implemented by the promulgation of the "Guiding Catalogue for Foreign Investment (¥~°Ó§ë¸ê«ü¤Þ¥Ø¿ý)" in end-1997. One of the major areas being opened was tourism, for which foreign companies were allowed to form joint-ventures with Chinese enterprises.

Recently, the Ministry of Foreign Trade and Economic Cooperation had been encouraging foreign investments in the fields of commerce, retail and distribution, in central and western regions. Besides, the Central government had approved 2 more foreign banks to operate RMB business and 1 more insurance company to operate in Shanghai (with possibility of opening another one in Beijing) early this year. In the field of retail, China had been pressing ahead with measures to liberalise the sector.

¡@

MEETING WITH MR HUANG HAI¡]¶À®ü¡^, DIRECTOR-GENERAL OF THE INTERNAL TRADE BUREAU (ITB), and

Mr Long Wenyuan (Às¤å¤¸³Bªø) Division Director of the Internal Trade Bureau

Subsequent to the government restructuring, the Ministry of Internal Trade was renamed as Internal Trade Bureau under the State Economic and Trade Commission.

Liberalisation of Services

In the areas of opening wholesale and retail sectors, the Internal Trade Bureau is responsible for studying and formulating polices, whilst the State Economic and Trade Commission is the authorised body to approved investment projects. China would promise to eliminate the number and area restrictions on investing in wholesale and retail businesses within 5 years after her entry into the WTO.

The retail sector is being opened gradually from 11 cities at present to 30 cities, but there is no timetable for the opening of wholesales business yet. In practice, many joint-ventures engaging in manufacturing and trading are having wholesale operations.

In regard to the distribution (ª«¬y), it is sometimes considered as a form of wholesale so it is not yet liberalised. But different cities are having different practices. The Bureau has submitted a report on ¡§Distribution is not Wholesale¡¨ and prepared regulations governing the sector, but the final decision has yet to be made by the State Council. Officials believe that the opening of the distribution sector would be of help in bringing in modernisation.

The logistics («á¶Ô) sector is cross-monitored by a number of ministries and administrative departments, and the concept has not been clear in the past. As with the distribution sector, different cities may have different perception on the sector. Some of the local governments may consider the logistics business as a part of manufacturing activities and hence approval is not required.

Networking Sales (¶Ç¾P)

The Central Government had no alternative but to ban all form of networking sales on 8 May 1998. Networking sales in China began in the early 90s but they created many social problems. Since 1995, the Government had put in efforts to address the issues but these efforts had eventually failed.

Networking sales is a kind of "contagious business behavior (­·®ð©Êªº°Ó·~¦æ¬°)" involving one-to-one business interaction, which the Government is hard to regulate. There may be many successful cases in foreign countries but not so in China. For companies which have not discussed with the Internal Trade Bureau and obtained formal approval to operate the business, they will be considered to have violated the Chinese Laws and for this reason, compensation will not be granted.

Internal Trade Bureau has now suggested two basic guidelines to the Central Government in trying to find a solution for the opening of networking sales:

	The sales price shall be the same as retail price.
	A formal receipt shall be issued.

The conditions are quite reasonable but the details are yet to be discussed. In the event of re-opening the sector, those companies shall register again and adjust their business operations.

Besides, it is suggested to the State Council classify and make a distinction between direct sales (ª½¾P) and networking sales. The government will be working out the principles for operating direct sales business such as TV and postal selling activities.

¡@

MEETING WITH MR ZHU MINGCHUN (¦¶©ú¬K°Æ¥qªø) , DEPUTY DIRECTOR-GENERAL OF THE STATE ECONOMIC AND TRADE COMMISSION (SETC), and

	Wan Zhigui (¸U½è¶Q³Bªø) , Division Director.
	Mr Wang Yong (¤ýµú), Division Director, Industry Division of the Comprehensive Department.
	Mr Fong Chun (¶¾¬K), official.

Government Investment

Vice Premier Li Lanqing reiterated that the Central Government would spend US$750 billion to reflate the economy over the next 3 years. The decision was made in the context of change.

China in the 70s and 80s was short of materials and resources, and balance was achieved on self-supply through the development process. But now an over-supply occurs due to the lack of adjustment and declining exports to the Asian countries. Owing to the change, the future economic growth will rely on the growth of domestic demand.

The objectives of pumping US$750 billion into the economy are to:

	raise the living standards of farmers;
	improve infrastructure such as railways, roads, technology level, environmental protection, etc.; and to
	improve municipal facilities.

All of these will be priorities, and participation from Hong Kong is welcome. Capital will be obtained from:

	physical budget of the government;
	international bonds;
	international treasury bonds;
	domestic capital market; and
	Hong Kong H shares.

Housing Reform

The contents of the housing reform are:

	to change the investment system from the state-owned enterprises to individuals;
	to socialise, establish, distribute and manage the housing system;
	to commerialise the housing from a welfare-based system;
	to target mid- and low-income groups of purchasers.
	to develop a credit system and related insurance system; and
	to set up standards of trading and marketing behavior.

Houses will be sold at cost with government subsidies. The actual policies have not yet come out but it is expected that the reform will create tremendous impact on the nation's economy.

Private Spending

Growth in private consumption spending (retail sales) slowed to 6.9% in the first quarter this year from 12.8% in the same period last year. The SETC and the State Administration for Industry and Commerce are joining forces to stimulate the market. Measures include:

	to explore agricultural markets by investigating consumption power, establishing department stores in rural areas and organising trade exhibitions;
	to develop urban markets by setting up chain stores and convenience stores, and to promote national products in the large department stores on a voluntary basis;
	to promote services sector such as catering and fast food chains;
	to develop multi-market channels;
	to develop and stimulate used-goods markets; and
	to formulate policy for large consumption such as credit system and guarantee.

Government Restructuring

After the government restructuring, there will be 10 industrial ministries or departments renamed as "Bureaus" under the SETC. The role of SETC used to be more on coordination in the past but now it is more regulatory in nature. Its major tasks are:

	to build up and adjust the national economy;
	to formulate and implement industrial policies;
	to lead a healthy growth of enterprises;
	to promote the reform on state-owned enterprises; and
	to formulate industrial regulations.

¡@

MEETING WITH MS QIU GUANGLING (¤³¥ú¬Â³Bªø), DEPUTY DIVISION DIRECTOR OF FOREIGN INVESTMENT ADMINISTRATION OF THE MINISTRY OF FOREIGN TRADE AND ECONOMIC COOPERATION (MOFTEC).

Government Restructuring

MOFTEC has remained unchanged after the restructuring but its line of responsible is not yet determined until the "3 Settlements (¤T©w¤è®×)". It is expected that MOFTEC will be given more responsibilities in macro-economic affairs.

China's Accession to WTO

The principles of China's accession to WTO remained unchanged and her attitude is clear and firm, in particular on liberalisation policy. At present, China is:

	studying the plan to liberalise distribution and other sectors such as finance and banking, insurance and telecommunications;
	developing related polices such as preferential tax treatments for imported equipment;
	working out detailed rules offering incentives for investing in the central and western region;
	allowing investments in restricted areas in the form of BOT; and
	enlarging the coverage of investments to tertiary sectors which were restricted in the past.

Liberalisation

Liberalisation of service sectors in China is an unavoidable trend to meet with the nation's requirements and to comply with international practices. As to the opening process:

Retail:

Each of the selected 6 cities and 5 SEZs began with one or two joint-venture on a trial basis. Local governments are completing the rectification process. Those enterprises failing the experiment will be given guidelines to improve, whilst those are operating well will be given the government confirmation. The government will enlarge the pilot scheme in terms of area, number of participating companies and scope of business.

Wholesale:

Given the above result, the wholesales sector might also be opened on the same basis.

Trading:

There are three trading joint-ventures operating in Pudong and one in Shenzhen. In accordance with the guidelines of the State Council, officials are investigating the results of the pilot scheme and considering further liberalisation.

Travel Services:

The government is formulating basic rules to liberalise travel services on a trial basis.

Professional Services:

Respective departments are researching on the basis of past opening to plan for further liberalisation of accountancy and legal services.

Banking & Insurance

The government is considering to allow more foreign banks to operate RMB business, in addition to the existing nine banks. The opening of insurance sector will follow.

Telecommunications

The WTO's Telecommunications Agreement has put pressure on China, although not all countries have agreed to open. Discussions are being held within the government for the possibility of opening on a pilot basis. Some local governments allowed foreign investment in telecommunications facilities in the form of BOT, which is not tightly regulated.

Franchise

At present, there are rules to regulate chain stores operation but no particular rules governing franchising activities.

Promotion of Trade and Investment

The major priorities now are to promote exports and to absorb foreign funds following the Asian financial turmoil. These can be done by providing protection on investment, offering preferential treatment and increasing tax rebate.

Go back to the report