At the annual session of the National Committee of the 11th Chinese People's Political Consultative Conference (CPPCC), members from the economic circle commented on the economic policies in Premier Wen Jiabao's government work report. China's top economists, officials of economic monitoring departments, presidents of commercial banks and insurance companies, as well as entrepreneurs from successful private companies, gave their suggestions on how these economic policies could be improved and implemented.

Macro-control against record inflation

Premier Wen made his annual work report to the annual session of the National People's Congress (NPC), China's top legislature, six days before the release of a record-high consumer price index (CPI) for February. The registered rise of 8.7 percent year-on-year, announced by the National Bureau of Statistics on March 11, was the highest CPI reading since May 1996.

While the 4.8 percent CPI hike in 2007 was way beyond the government's control target of below 3 percent, government efforts to cool rising prices have been further dampened by devastating snowstorms in southern provinces since December 2007, which have worsened food shortages. Inflation showed signs of accelerating in January hitting 7.1 percent.

Under these circumstances Wen emphasized core measures of macroeconomic regulation in his work report. These included a prudent fiscal policy aimed at "getting public finance to play its important role in promoting structural adjustment and balanced development and increasing expenditure to shore up weak links and improve people's lives," and tight monetary policy to "control excessively rapid growth in the supplies of money and credit," as well as nine measures to curb vicious inflation.

The government report said to improve the credit structure, the government will limit long and medium-term loans, especially to energy intensive and high polluting enterprises, while increasing credit support for agriculture, rural areas, farmers, service industries, small and medium-sized enterprises, independent innovation, energy conservation, environmental protection and balancing regional development.

Li Yining, a renowned economist, said that curbing credit to some sectors, including the renewable energy sector and agriculture sector, while encouraging credit to other sectors is a necessary monetary policy adjustment in curbing inflation. Li listed five reasons contributing to simmering inflation as booming investment in fixed assets, hot foreign money flowing into China, sizeable foreign reserves, raw material price hikes in the international market and devastating snowstorms that have affected farm produce supplies.

Rong Hai, President of Seastar Group, a Xi'an-based private hi-tech company, said he worries about the implementation of the government's policy of controlling investment in fixed assets. He said he had participated in provincial government meetings and learned that many local officials have hidden their pursuit of a high gross domestic product growth from the Central Government, even if the growth was driven mainly by investment in fixed assets.

Rong said this attitude of local government explained why "Chinese highways have almost luxurious facilities." He said banks often prefer to offer loans for building infrastructure since local governments use their credit to guarantee the repayment of the loans. Therefore, in the context of a tight monetary policy, Rong said companies that really needed loans for cash flow and small and medium-sized companies often become the victims of monetary policies.

Qin Xiao, Chairman of China Merchants Bank, said individual consumption loans should be encouraged. Qin, whose bank relies on credit card loans for up 15 percent of its total loans, said the increase in individual consumption loans, especially loans to credit card holders, will help to correct China's long-time imbalance of limited consumption versus excessive investment in assets.

Qin also said the government should not require banks to downsize non-speculative housing mortgage loans as a large number of people in China are still buying apartments as their residence and have the financial capacity to pay off the mortgage loans.

Nurturing entrepreneurship

Li Zhantong, Chairman of Datong Enterprise, a Tianjin-based private company, said he is glad to see that the government work report has included the establishment of a market for growth enterprises as a new measure of financial system reform. But he thought an even more important measure facilitating the growth of small and medium-sized companies would be to open an over-the-counter market, a decentralized market of securities not listed on an exchange where non-listed small companies can raise money.

"After all, only a small number of companies can be listed on exchanges. An over-the-counter market could be a good channel for small companies to raise money," Li said.

Chen Tianqiao, CEO of Nasdaq-listed Shanda Interactive Entertainment Ltd., suggested the Chinese Government should learn from the United States to create a favorable financing environment for small and hi-tech companies. He summarized that Western countries have set up a complete financing system for small companies, including venture capital investment, private equity investment and getting listed on exchanges.

"I was very glad to see 'trials in the use of venture capital will be expanded' in the premier's work report, which means China has all the measures for nurturing small companies through venture capital, market for growth enterprises and stock exchanges," Chen said. "I think a further opening up step would be to allow foreign venture capital to help Chinese companies to get listed in China."