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China Boosts Defense Spending, Struggles To Raise Growth Rate

By John Pomfret

Chinese leaders painted a picture Monday of an economy still struggling to shake off the effects of the Asian financial crisis, forecasting only a 7 percent growth rate and a record budget deficit. Defense spending will get another double-digit rise, however, reflecting the army’s continued ability to wring more money out of a cash-strapped government.

The figures were contained in two reports on China’s economy and budget presented on the second day of the Third Session of the National People’s Congress.

A 7 percent growth rate is considered slow in China, which needs to grow 5 percent just to create enough jobs for the 50 million young people who enter the job market each year. Last year China’s economy grew by 7.1 percent.

“We must make great efforts to increase domestic demand to promote fast, healthy development of the national economy,” Zeng Peiyang, head of the State Development Planning Commission, told about 2,900 delegates to the annual 11-day session of parliament. Zeng said he expected urban unemployment to rise from 3 percent to 3.5 percent because of efforts to reform China’s lumbering state-owned enterprises. Many economists believe the real figure is substantially higher.

Separately, Finance Minister Xiang Huaicheng presented a draft budget that projects a record deficit of $28 billion, caused in part by the continuation of a plan to pour billions of dollars into moribund state-run industries and infrastructure projects. Interest payments from billions of treasury bills are also being included in the deficit this year. Last year’s shortfall was $18.3 billion.

Xiang also said that export tax rebates aimed at promoting overseas sales are expected to rise nearly 28 percent to $9.75 billion. Western governments and businesses have criticized this program, contending it amounts to a hidden subsidy and thereby violates international trade rules. China is seeking entry to the World Trade Organization, where the program would likely be challenged.

Xiang announced that publicly acknowledged defense spending in 2000 would rise 12.7 percent to $14.6 billion, with the increase going mainly to salaries and subsidies.