Part I Monetary Performance
In the first quarter of 2002, the People's Bank of China (PBC) continued to implement the sound monetary policy and intensified support to economic growth while making efforts to prevent financial risk. Currently, the money aggregate and total credit are basically kept in line with total demand for fund. Monetary policy has achieved its envisaged targets and the financial sector is performing soundly.
I. Major Monetary Policy Measures
The PBC took the following additional measures to consolidate the effectiveness of the measures introduced over the previous years. First of all, lending and deposit rates were cut in response to the economic slowdown and declining consumer prices. On 21 February, the PBC cut deposit rates by an average of 25 base points and lending rate by 50 base points with the approval of the State Council. It is estimated the cut will reduce enterprise net interest payment by more than RMB30 billion yuan. The interest rates on required reserves, central bank lending and repurchase in open market operation were also lowered by the PBC, bringing down interest rates in the money market and in the primary bond market. Second, open market operation of the PBC has been expanded. Open market operation includes operation in both foreign and local currency. In the first quarter, RMB 116.1 billion yuan of base money was injected through foreign currency transactions, RMB32.1 billion yuan more than the Q1 2001. A net RMB1.6 billion yuan was put into circulation through local currency transactions, RMB159.7 billion yuan more than Q1 2001. Third, guidance of credit policy has been strengthened. For four years in a row, the PBC has increased lending to rural credit cooperatives (RCCs) to support agricultural development. This year, an additional RMB26 billion yuan was lent by the PBC to the RCCs with approval of the State Council. At end of March 2002, the balance of PBC lending to RCCs was RMB76.3 billion yuan, a growth of 19.6 billion yuan over the beginning of 2002 and 5.4 billion yuan more than Q1 2001. Micro credit to rural households was promoted. In the first quarter, 28,992 RCCs, or 82 percent of the RCCs, were providing micro credit to 41 percent of the total farmer households. The household coverage increased by 7 percentage points over end 2001. When allocating the additional amount of agriculture-support lending, the PBC focused on grain and cotton producing regions and western regions in short credit supply. In addition, RMB5.2 billion yuan was earmarked to disaster affected areas such as Inner Mongolia, provinces in the northeast and Henan. In the first quarter, all the additional agriculture-support lending was channeled to promote crop planting, animal farming, processing and transportation of agricultural produce, as well as consumer credit in rural areas. PBC branches in Tianjin, Shenyang, Jinan, Wuhan, Chengdu and Xi'an received 95 percent of the additional amount of agriculture support lending. As a result, lending capacity of the RCCs increased, and fund shortage in the middle and west regions and in disaster affected regions was alleviated, especially during the spring farming season when credit demand was high. Fourth, monitoring of international foreign exchange, particularly the US dollar, Japanese Yen and Euro market was improved. After the currency swap agreement signed with Bank of Thailand last year, the PBC concluded a bilateral currency swap agreement with the Bank of Japan.
II. Monetary Performance in Q1 2002
Money supply grew smoothly. At end-March, balance of broad money M2 was RMB16.4 trillion yuan, up 14.4 percent over the corresponding period last year. The growth rate was by and large consistent with that of end last year, but 1.2 percentage points higher than that of Q1 2001. Balance of narrow money M1 stood at RMB5.94 trillion yuan, up 10.1 percent over the corresponding period last year. M1 growth would have been 13.7 percent if stock margin deposits had been included. Cash in circulation M0 amounted to RMB1.55 trillion yuan, up 7.1 percent. Net cash withdrawal totaled RMB14.4 billion yuan, 14.7 billion yuan less than the corresponding period last year.
Lending by financial institutions gradually picked up as credit structure continued to improve and turnover of loans speeded up. The foreign exchange and local currency lending by all financial institutions increased by RMB349.8 billion yuan, up RMB64.2 billion yuan over the same period of last year. Lending in local currency increased by RMB333.5 billion yuan, RMB37 billion yuan more than the increase in Q1 2001. Out of the loan incremental, 71 percent was channeled to support industrial production, agricultural development, infrastructure building and consumer credit. Industrial loans increased by RMB80.1 billion yuan, up RMB69.7 billion yuan; agricultural loans grew by RMB61.9 billion yuan, up RMB24.5 billion. In the first quarter of 2002, the turnover of loans was 0.77 times, 0.1 times faster than Q1 2001, reflecting more efficient use of credit fund.
Enterprise deposits declined while household savings increased by a large margin. RMB deposit incremental in the first three months of 2002 was RMB397.3 billion yuan, RMB143.2 billion less than that of Q1 2001. Enterprise deposit shrank by RMB116.5 billion in Q1 2002, a deceleration of RMB196.5 billion yuan over Q1 2001, which was mainly caused by transfer of fund from deposit accounts to stock margin accounts by enterprises for IPO subscription. At end March 2002, deposits with securities firms, securities registration and settlement companies totaled RMB701.7 billion yuan, up RMB319.1 billion yuan against that of the beginning of 2002. The bulk of the increase came from enterprise deposits being transferred to stock margin accounts. Household deposits grew by RMB505.1 billion yuan, RMB99 billion more than the increase in Q1 2002.
Base money grew rapidly and financial institutions had sufficient liquidity. The balance of base money at end March stood at RMB4.1 trillion yuan, up 18.4 percent. Excess reserve ratio of financial institutions averaged at 7.9 percent, with the average ratio for wholly state-owned commercial banks, other commercial banks, urban credit cooperatives and rural credit cooperatives standing at 7.8 percent, 11.5 percent, 4.6 percent and 5.1 percent respectively.
Foreign exchange reserves registered a marked increase and the exchange rate of RMB remained stable. The over supply of foreign exchange persisted in the market. The surrender of foreign exchange to the banks and sale of foreign exchange totaled US$51.4 billion and US$39.2 billion respectively, resulting in a surplus of US$12.2 billion, 2.5 percent higher than the growth in Q1 2001. The surplus included three components: a surplus of US$12.8 billion under trade account which was up 126.7 percent against Q1 2001, a surplus of US$4.3 billion of non-trade account as against a deficit of US$200 million in Q1 2001, and a deficit of US$4.8 billion under capital account as against a surplus of US$6.5 billion in Q1 2001. In the first quarter of 2002, foreign exchange reserves increased by US$15.4 billion to US$227.6 billion. RMB exchange rate remained stable, which was 8.2774 yuan per dollar at end-March.
III. The aggregate money and credit supply remains appropriate; however structural imbalances are to be addressed. Overall, the aggregate amount of money and credit has been kept at an appropriate level in recent years. First, growth of money supply is appropriate. Broad money grew at an average annual rate of 14.6 percent from 1998 to 2001, which was 7.3 percentage points higher than the sum of the average annual growth rates of GDP and CPI, basically in line with the average between 1990 and 1997. Second, loans of financial institutions have increased steadily. Loans issued by financial institution grew by RMB1149.1, 1084.6, 1334.6 and 1291.3 billion yuan respectively from 1998 to 2001. Third, interest rates remained at historical low level. The PBC has cut interest rates eight times since 1996, bringing down interest rates of deposit and lending on average by 6.24 and 7.42 percentage points respectively. Weighted average of inter-bank rate decreased from 8.71 percent in January 1998 to 2.16 percent in April 2002. Fourth, liquidity of financial institutions remained adequate. The excess reserve ratio of the commercial banks remained high at 8.8 percent on average after 1998 when the PBC adopted the sound monetary policy, and was 7.0 percent at the end of April, reflecting commercial banks' strong capacity to expand loans.
However, there still remain some problems. First, access to credit by farmers is yet to be increased. Wholly state-owned commercial banks have reduced their branch outlets in recent years. Moreover, 60 percent of the postal savings were collected from the rural areas and this has made it more difficult for the financial institutions at or below the county level to take adequate deposits. Although the financial institutions at or below the county level play the most important role in financing the economic development in the rural areas, their business has been affected adversely by the funding difficulty and the high non-performing loan ratio. To address such a problem, the PBC has provided certain amount of fund in the form of central bank lending to RCCs to support its business development, however it still could not make up for the reduced funding capacity in the rural areas resulted from the closure of wholly state-owned commercial bank branch outlets at or below the county level. Therefore, new measures should be explored to increase RCCs' fund source and to ease the borrowing difficulty faced by the farmers. Second, the commercial banks, especially those wholly state-owned, have concentrated their lending activities excessively in big cities and on large enterprises in recent years, and loans granted to support the small and medium-sized enterprises and county-level economic development have decreased sharply. Currently the small and medium-sized enterprises have limited access to bank loans while the commercial banks find it difficult to locate good borrowers. Additionally, due to the change of economic structure, the supply of many products has exceeded the demand. Thus the real effective demand for bank loans is insufficient. For example, many of the township enterprises, which had developed rapidly in the past years, were restructured or closed. New enterprises in the rural areas are to be developed gradually and cannot generate effective demand for bank loans. The relatively short lifespan, high inventory level, lack of financial transparency of many small and medium-sized enterprises, insolvency or debt service evasion by some enterprises, together with the weakness of financial service of the commercial banks, especially the wholly state-owned commercial banks, have made the problem even worse. All these problems should be handled comprehensively and be resolved gradually. Third, the operation mechanism of commercial banks should be further improved. In recent years, the wholly state-owned commercial banks have streamlined their grass root branch outlets, however a new service system has yet to be set up. Some of the banks excessively centralize the authorization of working capital loans and do not have an incentive and restraint mechanism for branches to market loans. At the meantime, as the commercial banks have not become market-oriented enterprises and a proper incentive and restraint mechanism has not been established, the loan officers are not willing to actively cultivate and select good customers, impeding some of the qualified customers from obtaining bank loans.
Part II Macro-economic Development and Monetary Policy
I.World economy has begun to recover while uncertainties remain.
In the first quarter of 2002, the world economy began to recover and international trade also slightly increased. According to the preliminary estimation released by the US Commerce Department April 26, US GDP grew 5.8 percent in the first quarter, accelerating by 4.1 percentage points from the previous quarter. Economic situation in the Euro area was still grave, as industrial output in most members continued to slide. Euro area may see zero or negative growth in the first quarter of 2002. The Japanese economy has yet to demonstrate any convincing signs of recovery. In January and February, its industrial production declined by 11.1 percent and 11.5 percent respectively. It is estimated that Japan's GDP growth will remain negative in the first quarter, though the decline is likely to decelerate slightly. As CPI in the first two months dropped by 1.4 percent and 1.6 percent respectively, Japan was still in serious deflation. To a large extent, poor economic performance in Europe and Japan slowed the pace of global recovery.Broadly speaking, global stock markets went up amid high volatility.
In the first quarter, global stock markets rallied close to that of pre- "9.11" level. Dow Jones average index rose by 11 percent in the first quarter, and the indexes of the stock markets in Japan, Germany, UK and France followed and rebounded as well. On March 22, the NIKKEI225 rebounded from the lowest point of 9421 in 2002 to 11834, up 25.6 percent. NASDAQ index was still depressed, down17 percent in the first quarter.
The US dollar remained basically strong, while the Euro fluctuated between 0.86 and 0.89 against the dollar in most of the time, except touching 0.90 temporarily in January. The Japanese Yen once depreciated to 135.15 against the US dollar, down 15.6 percent compared with the lowest level of 114.08 against the US dollar in 2001. In early March, the Yen rebounded but then kept fluctuating between 127 and 130 against the US dollar till the end of April. Continued depreciation of the Yen has raised extensive international concern. China's export to Japan and sales of the Chinese machinery and electronic products in the European and US markets have already suffered from the depreciation of the Japanese Yen.
After cutting interest rate in 2001, the US Fed stopped trimming interest rate in 2002. Other major industrial countries have also turned from expansionary to neutral monetary stance. In the first quarter of 2002, short-term interest rates in most industrial countries went up slightly while the rise of long-term interest rates was even larger.
II.Chinese economy maintained a favorable growth momentum with price running at subdued level.
In Q1 2002, GDP grew by 7.6 percent, up 0.3 percentage points from that of 2001. The total industrial value-added increased by 10.9 percent, recovering after three-quarters deceleration. The sales ratio of industrial products increased 0.13 percentage points over the same period of last year. The composite index of economic efficiency of the industrial enterprises declined by 0.6 points due to the fluctuation of international crude oil price and relatively high index of last year.
Consumption, investment and net export demand grew steadily. From January to March, aggregate retail sales of consumer goods increased by 8.4 percent, down 1.9 percentage points over the same period of last year. If advanced purchase of consumer goods triggered by the suspension of gift vouchers during the last Spring Festival were deducted, the sales growth would be the same as that of the same period in 2001. Total fixed assets investment rallied substantially from the second half of the last year by 26.1 percent, among which, investment in infrastructure, technical transformation and real estate development increased by 20.6 percent, 22.8 percent and 36.2 percent respectively. Fast increase in investment in Q1 2002 could be mainly attributed to the policy that all the infrastructure projects started since 1998 were required to be completed within 2002. Foreign trade reached USD122.1 billion in the first quarter, up 7.7 percent. Exports totaled USD64.7 billion, up 9.9 percent and imports USD57.4 billion, up 5.2 percent, resulting in USD7.3 billion of trade surplus, USD2.57 billion more than the same period of the previous year. Committed foreign direct investment reached USD17.855 billion, 11.43 percent higher than the same period of the last year and utilized foreign direct investment grew by 27.5 percent to USD10.16 billion. Up to the end of March 2002, a total number of 396197 foreign-funded enterprises had been approved with the contracted and actually utilized foreign direct investment amounting to USD763.146 billion and USD405.334 billion respectively.
In recent years, insufficient social investment has left investment growth mainly rely on government bond issuance and bank loans induced by government bond investment. From 1998 to 2001, Chinese government issued RMB510 billion yuan of long-term construction bonds to finance infrastructure investment, a key factor in the steady increase of fixed assets investment in recent years. In terms of the funding sources of fixed assets investment, the government budget funds increased fast and its proportion grew to 7.2 percent in 2001 from 2.8 percent in 1997. On the other hand, the proportion of bank loans also steadily increased from 18.9 percent in 1997 to 22.2 percent in 2001. The projected RMB150 billion yuan long-term construction bonds issuance of this year will promote the steady growth of investment in 2002.The proactive fiscal policy has been in place for four years.
Although very effective, fiscal stimulus will be gradually phased out in the coming years clearly indicated by relevant government agencies. At present, national savings are excessively concentrated in banks which function as the main channels to convert savings deposit into investment. However, due to the existing relatively high ratios of NPLs, lending capacity of the banks is greatly contained by the mounting financial risks. Under such a situation, reforms on investment and financing regime should be accelerated, channels converting savings deposit to investment be enlarged and the ratio of direct financing be increased to boost social investment.
Market price still ran at a subdued level. The CPI again decline by 0.6 percent year-on-year in Q1 after growing for two years, particularly, the CPI declined by 0.8 percent in March. The enterprise commodity price index compiled by the PBC (the wholesale price index) has kept on declining for 10 months year-on-year, down 3.2 percentage points on average in Q1. The main reasons for the persistent fall of price level in Q1 are as follows: first, with tariff and non-tariff barriers reduced after China's accession to the WTO, domestic demand for capital goods like metal, refined oil, machinery and electronic products and automobiles has significantly promoted import growth due to growing disparity of the prices of primary products in the domestic and international market, which generated great impact on domestic price and intensified downward pressure of the market price. To offset possible shock of the WTO accession, some enterprises are voluntarily cutting the prices of their products, especially enterprises in the automobile industry. Second, since China is still in the process of economic restructuring, both the market oversupply resulted from excessive production capacity and the persistent decline of production costs triggered by sluggish price of production materials made it difficult for the price of consumer goods to quickly regain growth momentum. Since 1998, the price of grains has declined by 4.6 percent annually on average, and the sufficient grain reserve has continued to exert downward pressure on the price of grains, further depressing food prices. Third, the rise of service price decelerated so that its role in pulling the overall price level was weakened. The rise of service price narrowed from above 10 percent in previous years to 7 percent in 2001 and only 3.3 percent in Q1 2002. Fourth, the growing disparity between the rural area and urban area, slow growth of the farmer's income and underdevelopment of the rural market have all discouraged steady growth of consumption demand. In 2001, consumption expenditure of the farmers, who constitute 62 percent of thel population, accounted for only 34.7 percent in the total household consumption in China, down 12.8 percentage points compared with 1997.
Part III Financial Market Performance
I. Inter-bank market remained active
The accumulated turnover of the inter-bank market transactions doubled from RMB 936.8 billion yuan in Q1 2001 to RMB 1,893.7 billion yuan in the first quarter of 2002. The inter-bank borrowings dropped RMB8.7 billion yuan year-on-year to RMB 231.4 billion yuan, the turnover of spot bonds transaction in inter-bank market increased RMB50 billion yuan year-on-year to RMB60.7 billion yuan, and the turnover of bonds repurchase increased RMB895.6 billion yuan year-on-year to RMB1,601.7 billion yuan. During the first quarter of 2002, the state-owned commercial banks were the largest source of financing in the inter-bank market, their net provision of loans growing RMB645 billion yuan year-on-year to RMB889.4 billion. At the same time, the joint-stock commercial banks and city commercial banks became the largest recipients of funds, with their net borrowing climbing RMB361.3 billion yuan year-on-year to RMB413.6 billion yuan. In addition, net borrowings by other market participants including associations of RCCs, policy banks and finance companies grew from RMB251 billion yuan to RMB271.1 billion yuan.
Driven by the demand and supply of funds in the market and interest rate cuts by PBC of the renminbi deposit and lending on February 21, 2002, the monthly weighted average of interest rates on inter-bank lending and bonds repurchase further declined from 2.37 percent and 2.14 percent in January to 2.22 percent and 1.96 percent in March, by 0.15 and 0.18 percentage points. Downward movements of interest rates in these two markets reflected both an oversupply of funds in inter-bank market and a strong financial position of banks in the first quarter of 2002.
II Smooth issuance of treasury bonds and policy financial institutions bonds
The first quarter of 2002 witnessed an aggregate issuance of RMB56 billion yuan worth of treasury bonds, up RMB6 billion yuan or 12 percent over Q1 2001. Issues of bearer bonds increased RMB6 billion yuan or 20 percent to RMB36 billion yuan, and book-entry bonds issue remained at RMB 20 billion yuan. The redeemed treasury bonds totaled RMB66 billion yuan in the first quarter, and the outstanding treasury bonds RMB1,551.2 billion yuan at the quarter-end, which accounted for 16.2 percent of GDP in 2001.
In the first quarter of 2002, the policy banks issued RMB20 billion yuan of financing bonds, RMB 15 billion yuan or 42.9 percent less than that of the corresponding quarter of 2001. The reduction, mainly caused by changes in maturity structure, was not comparable to previous periods. The accumulated redemption of financial institutions bonds issued by policy banks totaled RMB 13.5 billion yuan in the first quarter of 2002, and the outstanding balance of the financing bonds issued by policy banks stood at RMB860 billion yuan at the quarter-end. This balance was 7.7 percent higher than that at end-2001 and accounted for 9 percent of GDP in 2001.
III Capitalization of stock market declined
In the first quarter of 2002, enterprises raised an aggregate of RMB23.5 billion yuan in the stock market, down RMB32.42 billion or 58 percent. The total financing through A share issue was RMB23.32 billion yuan, down RMB31.11billion yuan or 57.2 percent; through H share issues was US$21 million, down US$159 million or 88.3 percent.In January of this year, both the Shanghai and Shenzhen stock composite indexes declined further to the bottom of 1339.2 and 366.8 respectively, losing 306.8 and 109.1 points from the closing levels at end-2001.
However, affected by a number of policies, the stock market began to move up strongly in late February this year. As of end-March, the Shanghai Stock Exchange composite index closed at 1603.9, losing 42.1 points or 2.6 percent from the level at end-2001, and the Shenzhen Stock Exchange composite index closed at 466.5, losing 9.4 points or 2 percent
.The turnover of stock transactions in both Shanghai and Shenzhen stock exchanges was RMB789.1 billion yuan in the first quarter of 2002, RMB216.8 billion yuan lower than Q1 2001. As a result of both declined turnover and lowered stamp duty on stock transactions effective in November 2001, the stamp duty revenue from stock transactions decreased accordingly.In the first quarter of 2002, the aggregate stamp duty revenue was RMB 2.38 billion yuan, RMB5.38 billion yuan or 69.3 percent less than Q1 2001.
IV Turnover of inter-bank foreign exchange transactions increased remarkably.
In the first quarter of 2002, the total turnover in inter-bank foreign exchange market in 58 business days amounted to US$19.78 billion, up US$3.01 billion over Q1 2001. On average, the daily turnover was US$341 million, up US$66 million or 24 percent over Q1 2001.
The increased turnover in the inter-bank foreign exchange market was mainly attributed to the 9 interest rate cuts on foreign currency deposits in China during 2001. At present, the interest rate spread between 1-year US dollar deposits and renminbi deposits was narrowed from 2.75 percentage points at end-2000 to 0.73 percentage point, leaving households and enterprises with more incentives to cut their foreign currency holdings and sell their foreign exchange to banks. The second reason was endeavors of the State Administration of Foreign Exchange to give both households and enterprises easier access to foreign exchange for current account transactions, thus reducing the incentives of some enterprises to keep foreign exchange in overseas accounts and households to hold foreign exchange. The third reason was the favorable trade balance.
Part IV Sectoral Developments and the Monetary Policy
I Performance of major sectors in the first quarter
The first quarter of this year witnessed structural improvement with the first, second and tertiary industries growing at 3.3 percent, 9.3 percent and 6.2 percent and accounting for 7.6 percent, 55 percent and 37.4 percent of the GDP respectively. Efforts were stepped up in sectoral structure adjustment. The major sectors, which functioned as the driving force of economic growth, maintained their momentum. Manufacturing of equipment of telecommunications, transportation and electric machinery and the industries of chemicals and metallurgy played significant roles in promoting the growth of industrial production and contributed 48 percent of its growth rate.
Industries of real estate and automobiles turned out to be the pillars of the development of national economy. The real estate sector continued to grow. In 2001, completed real estate investment reached over RMB510 billion yuan, growing by nearly 30 percent year-on-year or 13 percentage points higher than growth of fixed assets investment. In specific, investment for commercial housing posted RMB360 billion yuan, up 30 percent; the sold commercial housing units registered at 120 million square meters, up 21 percent. In the first quarter of this year, the real estate sector maintained its momentum of rapid development and completed investment of RMB92.2 billion yuan, up 36 percent and accounting for 28 percent of the increased fixed assets investment. Of it, completed commercial housing investment amounted to RMB63.1 billion yuan, up 36 percent. Investment in real estate stimulated demands for housing decoration, furniture and daily consumer commodities, constituting one of the engines of economic growth in the recent several years. The high growth rate of real estate investment was largely attributable to sharp growth of housing mortgage loans provided by commercial banks. The outstanding balance of individual housing loans was only RMB19 billion yuan at the end of 1997, but reached as high as RMB 596.1 billion yuan at the end of the first quarter of this year, an increase of RMB 37.3 billion yuan from the end of 2001. On February 21, the PBC lowered the interest rates for housing loans issued out of the public housing provisional fund following its interest rate cut for deposits and loans by financial institutions, further contributing to the development of housing financing.
The sector of automobiles developed rapidly. In the recent 10 years, the sector grew at the annual rate of 10 percent, and sales of family-use autos increased at the annual rate of 20 percent, culminating in the fact that sales of family autos accounted for over 62 percent of the total auto retail sales after 1996. In the first quarter of this year, the auto sector boomed in both production and sale. Auto production registered at 696,000, up 18.1 percent, of which 178,000 were sedans, up 18.2 percent. At present, the PBC is considering promulgating provisions for auto consumer loans so that commercial banks could improve their financial services to enhance issuance of auto consumer credit.
II Efforts to be strengthened in providing financial support for construction of small towns
International experience shows that the rail system is the main means for intra-city traffic while private cars are mainly used for inter-city traffic. Speeding up construction of small towns has significant strategic implications for a sustained and rapid development of the automobile and real estate industries, promotion of sectoral structure adjustment, employment, transfer of surplus rural labor, hike of income of farmers, the tapping of the rural consumer market and ultimately the sustainable development of the national economy.
The number of towns increased from 2,678 in 1981 to 19,692 in 2000, by 7.35 times in nearly 20 years. Township population increased from 58 million in 1981 to 367 million in 1998, by 6.29 times. For the recent 10 years, small towns have absorbed more than 60 million of surplus rural labor forces, accounting for 50 percent of the outflow of the surplus rural labor in the same period.
Urbanization is generally measured by the ratio of township population to the total population. China's urbanization ratio increased from 19.39 percent in 1980 to 36.22 percent in 2000. Urbanization in China, however, still lags far behind considering the economic development and industrialization in China and behind the rest of the world. Per capita GDP of China has already exceeded US$800, but its urbanization ratio is 24 percentage points lower than the world at such a development stage. Large disparity exists between industrialization and urbanization in China. While the ratio of the output of the second industry to the GDP has reached 50.9 percent (China Statistical Yearbook, 2001), the urbanization ratio is only 36.22 percent with a 14.68 percentage point difference. In 1998, while the average urbanization ratio for countries across the world was 47 percent, that of China was only 30.4 percent, nearly 16 percentage points lower.Comparison of Urbanization and Industrialization in China for the Past 20 YearsYearRatio of Urban Population to the Total ( percent)Ratio of the Second Industry to GDP( percent)Per Capita GDP (RMB yuan)198019.3948.5460199026.4141.61634200036.2250.97078 (nearly US$ 848) Source: China Statistical Yearbook, 2001.Measures should be taken to speed up construction of small towns in a bid to enhance urbanization.
Development of urbanization will not be possible without financial support from the banking sector, including financing infrastructure construction, SME development, and human resource development. Firstly, the banking sector should actively support infrastructure construction of small towns. In abiding by the principle of "initial project capital", banks are encouraged to extend project financing, fixed assets loans, loans with interest subsidies from local governments etc. Secondly, efforts should be made to support development of township enterprises by channeling funds into township enterprises through means of favorable credit policy, preferential interest rates, central bank lending, stock financing and private investment etc. Thirdly, endeavors should be made to enhance credit support for productio
