Published by: THE WORLD UYGHUR NETWORK NEWS October 10, 1997

Urumqi XINJIANG RIBAO, 03/25/97

Comrade Editor, One way to look at the economic situation in the country in 1996 is to be "optimistic about the macroeconomy and pessimistic about the microeconomy." In 1996 the Chinese economy chalked up a fairly rapid growth rate, price increases retreated substantially, inflation was brought under effective control, and the government"s macroeconomic regulatory and control objectives were largely achieved. Microeconomically, however, state enterprise reform ran into all sorts of difficulties and made only slow and halting progress. Enterprises posted a low production to sales ratio even as they incurred heavy losses. Is this a correct assessment of the economy? Does this problem exist in the region's economy as well? What were the causes? It is hoped that the editor can provide an answer.

Sui Mengyi [1596 1322 5030],Urumqi.

Editor: We asked Comrade Quan Bingzhong of the Xinjiang branch of the People's Bank of China, who is a consultant to the autonomous region and a senior economic lecturer, to answer this question.

The microeconomy is the basis of the macroeconomy, while the macroeconomy reflects the microeconomy. In my opinion, there are both good news and bad news on the macroeconomics and microeconomic fronts. The nation's macroeconomics climate continued to improve last year. Economic growth remained brisk and price increases slowed considerably. On the other hand, the balance between revenue and expenditures at home was less than ideal. Unemployment, both open and hidden, continued to worsen.

Microeconomically, enterprise development was not all bad. Most large state enterprises were profitable, while the bulk of unprofitable enterprises were small enterprises. Moreover, the non-state economy did quite well. Given the market situation, some enterprises in the textile, military, and machinery industries were in a bad shape. Actually, that enterprises were experiencing difficulties, including a decline in profits, has many deep-seated reasons. Thus all the talk about "macroeconomics optimism" and "microeconomic pessimism" cannot sum up China's economic situation fully.

The situation in Xinjiang is slightly different from that in the country. After reviewing the development of the Xinjiang economy last year, one should say that the region's economy has entered the zone of steady development. Macroeconomically, all economic indicators performed satisfactorily last year. The region's gross output value is expected to rise 9 percent, fairly close to the national average of 9.8 percent, and should be considered a reasonable growth rate.

The inflation rate dropped from 16.6 percent early in the year to 8.8 percent, a socially acceptable level. Although the rate of 8.8 percent was slightly higher than the national average, prices fell in Xinjiang by a margin similar to that in the rest of the country. Investment picked up steam. Social fixed assets investment in the region rose 28.7 percent, 9.8 percentage points higher than the nation"s average growth rate. Total social consumer goods retail sales increased 21.8 percent, foreign trade grew 6.2 percent, regional government revenue climbed 22.8 percent, and both the amount of money put into circulation and the total volume of credit stayed well within the targets in the plan. It may be said that the region"s macroeconomy performed very well in 1996.

Turning to the microeconomy, the region has a fairly large state economy and although the non-state economy made headway last year, its contributions were not obvious because it accounts for only a small share of the economy. For the region as a whole, the overall profitability of enterprises showed a downward trend even as losses mounted. Some state industrial enterprises had trouble staying in business.

The credit assets of many banks and financial institutions shared a widespread "three-poor-and-one-high" problem: They scored poorly on mobility, safety, and return but were high in risk. Since last year the microeconomy has experienced growing problems and some economic indicators indeed showed signs of worsening. Nineteen ninety-six can be described as the most difficult year in recent times.

Why the big gap between macroeconomy and microeconomy? First of all, the macroeconomy and microeconomy pursue different goals and also mirror diverse things. In a general sense, the goals pursued by the two are both similar and different. In the final analysis, both the macroeconomy and microeconomy seek healthy rapid economic growth. This is common to both of them, yet they differ in specific goals. People in charge of macroeconomic regulation and control focus on the sustained, stable, and coordinated development of the economy as a whole.

Their goal is to regulate and control the size of the total economy mainly through financial and fiscal tools and through planning. The emphasis is on the quantitative aspect of the economy. Microeconomic sectors and units concentrate on the interests of a particular sector or industry. Their objective is the maximization of profits. It reflects mostly the qualitative aspect of the economy. Some macroeconomic regulatory and control policies which promote overall economic development benefit the microeconomy in the long haul.

In the short run, however, macroeconomic regulation and control works against the interests of the microeconomy. For example, the government raised the prices of some agricultural byproducts in recent years in order to consolidate agriculture as the foundation and boost the development of the primary industry. Such a move was absolutely critical to macroeconomic regulation and control and indeed succeeded in boosting agricultural output value. At the microeconomic level, nevertheless, it inevitably drove up the costs and depressed the profits of some enterprises, especially those in the light industry and textile industry.

Second, state enterprises have a host of problems inherited from history. After years of economic planning, state enterprises are lagging behind in reform. Their operating mechanism does not work flexibly and they are seriously strapped for capital funds and have little capacity for self-transformation and self-development. Their product mix is ill-suited to meet the needs of the market economy. Even as fund inputs increase, stocks of unsold goods pile up. Loans increase sharply and financial costs go up.

Third, enterprises fare poorly in productivity and have a limited ability to absorb price adjustments. Even as the government works to control the overall rate of commodity price increases, it must also adjust unreasonable price relations. This has proved too much for the enterprises to cope with. Consequently, their profits have dropped and their losses keep mounting, sharpening the contrast between the macroeconomy and microeconomy. In times of economic transition, the adjustment of priced ratios, especially those between industrial and agricultural products and between raw materials and processed industrial goods, must be absorbed by lowering consumption and raising labor productivity.

At present, however, enterprises engage in an extensive mode of production, their management standard is slow, their workers are of a poor caliber, and their technology and equipment are backward, making it hard for them to cut consumption and improve productivity. Thus faced with macroeconomics regulation and control, enterprises find themselves in a passive situation and have difficulty adapting.

Fourth, state-owned commercial banks have been able to make only slow progress in their reform and fail to fully discharge their functions as commercial banks. In macroeconomic management in Xinjiang in the future, how can we ensure the sustained and stable development of the economy while bridging the gap between the macroeconomy and microeconomy and expediting the transformation of the mode of economic growth in the region?

First, intensify reform. Concentrate on putting large enterprises and enterprise groups on a sound footing. Further energize small state enterprises through deregulation. The future of state enterprises lies in the adoption of a modern enterprise system. In order to raise understanding and sort out our thinking, we need to come to grips with three points right now.

To begin with, the reform of the property rights system is unavoidable. Next, we must not slacken off in developing the shareholding system. Third, the transformation of government functions cannot be delayed.

As far as the reform strategy is concerned, we must combine "tackle the big and deregulate the small" with "provide guidance according to category." Use the "three benefit" rule as our criterion and proceed from reality in everything we do. Differentiate clearly between enterprises of a pubic welfare type and profit-oriented enterprises; between monopolistic enterprises and competitive enterprises; and among enterprises which are the lifeblood of the economy, enterprises which serve as the industry"s backbone, lead enterprises, and ordinary enterprises. Make reform demands on enterprises and vary their format of reform depending on their nature, type, status, and characteristics. Draw up a plan and implement it step by step.

Second, intensify the adjustment of the economic structure. For starters, tackle the adjustment of the industrial structure properly. Even as we continue to strengthen agriculture as the base and promote agricultural development and the all-round development of the rural economy, we must put our resource advantage to work. Make an all-out effort to develop the petroleum and chemical industries and the multiple processing of agricultural byproducts. Expedite the development of the secondary and tertiary industries.

Second, tackle the adjustment of the mix of enterprises aggressively. When it comes to making project investment decisions, we must adhere to the principle of "intensive development." Resist the tendency to be "small but comprehensive" and "large and comprehensive." Do not fund low-standard duplicated projects. Reorganize existing assets properly. Encourage mergers and acquisitions among enterprises. Expand capital, optimize the structure, and put existing assets to active use.

Third, take effective practical measures to expedite the technological transformation of state enterprises. Promote the adjustment of the product mix. Stop manufcturing products which have no takers on the market and of which there is already a huge stockpile. Develop upscale new products that are oriented to the market. Develop brand-name products. Increase the market share of local products.

Fourth, promote the adjustment of the fixed assets structure by modifying the amount of long- and medium-term loans and the recipients of such loans. Low-standard duplicated projects which are inconsistent with the industrial policy, which fail to take advantage of economies of scale, and which do not make effective use of the resources should be firmly denied bank loans. Right now low-standard duplicated projects not only exist in the region, but do so in large numbers in some industries such as cotton spinning, silk, leather, sugar manufacturing, tomato-processing, and the plastic industry.

In addition to wasting precious resources and taking up a huge amount of funds, low-standard duplicated projects burden enterprises with massive debts. If this problem is not effectively prevented and resolved, more enterprises will find themselves in dire straits, inventories of unsold goods will continue to increase, and more products will have to be pulled off the market, which will only complicate the transformation of the mode of economic development from extensive to intensive.