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II. Adhering to the Policy of Expanding Domestic Demand
Development is the absolute principle and the key to solving the problems we are facing. Only by sustaining rapid economic growth on the basis of better performance can we mitigate the operating problems facing enterprises, lighten unemployment pressure, make structural adjustments possible and deepen reforms. This is also essential in order to increase state revenue, prevent financial risks and maintain social stability. To achieve all this, we must unswervingly carry out a policy of expanding domestic demand and other related macroeconomic policies.
We should continue to follow a proactive fiscal policy. This is the most direct and effective means for expanding domestic demand at present. The central authorities have been following a proactive fiscal policy over the past two years, while at the same time they have given full play to the role of monetary policy and a variety of other means to regulate the operation of the economy, constantly working to improve these policies and measures. The government issued additional treasury bonds to banks to increase investment and raised people's incomes to stimulate consumption. It improved infrastructure and supported technological upgrading in enterprises. In addition, great efforts were made to expand domestic demand and encourage exports. Experience has shown that following a proactive fiscal policy was the entirely correct thing to do because it was remarkably successful. Take the effect of treasury bonds for example. Over the past two years, the long-term bonds worth 210 billion yuan issued by the government to banks provided the impetus for over 420 billion yuan in bank loans and funds raised by enterprises, which were used to increase investment in infrastructure and finance the construction of over 5,100 projects. Among the completed projects are those which resulted in reinforcing nearly 6,100 km. of dikes on major rivers and lakes, the opening of 12,000 km. of newly built highways for traffic, including 3,358 km. of expressways, and the building of 1,423 km. of new railway lines and 643 km. of double-tracked railway lines. In addition, the development of urban infrastructure and environmental protection were significantly stepped up, leading to remarkable changes in many cities. Efforts to upgrade technology in enterprises and apply more high and new technology in production were accelerated. We added 900,000 km. of modern high- and low-voltage lines to rural power grids through extension or upgrading of the existing lines. State-owned grain depots with a total capacity of 25 billion kg. were built. All the above have not only contributed to current economic growth, but they also have laid a better foundation for long-term economic development.
This year the main content of our sustained proactive fiscal policy is as follows. First of all, long-term treasury bonds worth 100 billion yuan will be issued, and the resulting funds will be invested mainly in water conservation, transportation and communications and other infrastructure projects, science, technology and education facilities, environmental improvement and ecological conservation projects and technological upgrading in enterprises, with more investment directed to the central and western regions of the country. The funds raised from the additional treasury bonds will be earmarked for projects under construction so that they can be completed and go into operation on schedule. We should work hard to raise the return on investments and make sure that no projects without solid funding or long drawn-out projects are launched. Control must be tightened over project quality and inspection and audit supervision must be strengthened to ensure that all projects are built well and that no project funds are misappropriated. Second, we must continue to carry out the policy measures introduced in 1999 for adjusting income distribution to ensure steady growth in the incomes of urban residents in the middle- and low-income range. Enterprises should also appropriately increase employee salaries whenever better economic performance is achieved. Government finance departments at all levels should make adjustments in their pattern of expenditures to ensure that the basic cost of living allowances for workers laid off from state-owned enterprises, basic old-age pensions for retirees, the subsistence allowances for urban residents, and salaries of public servants are paid out in full and on time. Third, we should make more use of means such as taxation and pricing, and continue to revoke policies, laws and statutes restricting consumption in order to encourage investment, promote consumption and increase exports.
Over the past few years deficits and the national debt have increased to some extent, but this is necessary to guarantee reform, development and stability. Because the servicing of treasury bonds is listed in this year's budget, the deficit is somewhat larger than originally expected. Nevertheless, the deficits and the issue of treasury bonds this year will roughly stand at the previous year's levels and still be kept within limits our national economy can sustain. So long as our economy continues to grow rapidly and economic performance keeps improving over a fairly long period, we will be able to repay the debt. At the same time, we must take measures to guard against financial risks.
We should take better advantage of the role of monetary policy. Financial institutions should balance their efforts to support economic growth and prevent financial risks. In accordance with the principle of prudent operation, they should adopt a variety of measures to increase support for economic development. The People's Bank of China should regulate total money supply as necessary by using various tools of monetary policy. Financial services should be substantially improved. In state banks, internal capital allocation should be improved, and limits of authority for examining and approving loans should be rationally defined. We should promptly grant fixed asset loans to support projects financed by the issue of treasury bonds. We should guarantee floating capital loans for profitable and trustworthy enterprises whose products are readily marketable. More loans should be granted to small and medium-sized enterprises with various types of ownership, especially enterprises based on advances in science and technology. We should also make the efforts necessary to solve the problem of farmers having difficulty taking out loans. We should stop or reduce lending to enterprises that are building redundant projects or have large stocks of unsold products or whose production capacity needs to be reduced. We should vigorously expand housing loans, student loans and major commodity loans for consumers, and improve methods and simplify procedures to increase the efficiency in processing loan applications. We should further standardize and develop the securities market so that enterprises will be able to increase the proportion of direct financing. We should improve the system for issuing and listing stocks on stock markets. We should also support large state-owned enterprises and high and new technology enterprises in their efforts to seek financing by listing on the stock market. In order to expand the insurance industry we should strictly examine
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