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China continues to have 'enormous impact' on world economy

          CHINA will continue to have an "enormous impact" on the world economy, said a report published by British parliament on Sunday.
The growth of China's trade provides consumers with cheap goods, and China's companies are striving to "increase the technological content of their products" and so the challenge for companies competing in this sector will be very likely to intensify, said the report entitled "East Asia", which was conducted by the Foreign Affairs Committee (FAC) of the House of Commons.
"However, foreign investors and traders can profit greatly from these transformations, provided China adheres to its World Trade Organisation commitments," the report said.
According to the report, the world must take account of the economic changes occurring in China and cannot simply close the door on Chinese goods, and any attempts at protectionism would damage attempts to bind Beijing effectively into the existing international order.
"The preservation of the global multilateral trading structures has become more important than ever with the emergence of the Chinese economy," said the report, adding Britain should "maintain its championship of free trade between the European Union and China, by working with other advocates of free trade within the EU to support trade with China".
Britain must urge its counterparts in Washington and in the EU not to succumb to the temptations of protectionism, even in the face of growing trade frictions such as those over the value of the Chinese currency, said the report.
It is the FAC's seventh report of session 2005-06. The FAC, appointed by the House of Commons, is responsible for scrutinising the administration, expenditure and policy of British Foreign Office and its associated agencies.
Meanwhile, China's Ministry of Railway has planned to issue railway bonds worth 40 billion yuan this year to meet the country's capital need in railway construction.
Once approved by the Central bank and the State Development and Reform Commission, it will be the largest railway bond issue since China launched this kind of bond in 1995.
The bond term, interest rate and major underwriters are yet to be decided, but it is certain that all the funds raised will be used for railway construction, the Xinhua Daily Telegraph reported on Sunday.
Previous reports from the Ministry said China would need 1.5 trillion yuan in railway construction from 2006 to 2010. The past two years alone has seen the commencement of 89 construction projects whose aggregated investment is estimated around 600 billion yuan.
To alleviate the capital shortage, the Ministry is seeking to establish a more effective financing system which can make better use of foreign direct investment, bank loans and equity markets at both home and abroad.
Among all above-mentioned financing channels however, bond issue has been viewed as the most convenient way to close the capital shortfall for having little risks and relatively higher interest rates.
The Ministry of Railway has issued 10 railway bonds since 1995, raising a total of 28.662 billion yuan.
In the next five years, the Ministry will also explore and establish a more effective way to utilise social security funds and insurance funds.
A special investment fund for railway industry is being deliberated.
Besides, several share-holding companies will be set up to get listed in either home or overseas securities market.
In another development, China has called on its 31 provinces to rein in their economies, state media said Sunday, in a sign the central government has yet to persuade local bureaucrats that red-hot growth is bad. Vice Premier Zeng Peiyan emphasised that investment in factories, residential buildings and other fixed assets must be cooled down, according to the Xinhua news agency.
"The central government has made explicit requirements on economic work in the second half," Zeng said during a recent trip to the southwestern province of Yunnan. "Fixed-asset investment should be put under tight control and more efforts made to lower energy consumption and improve environmental protection."
China's economy, the world's fourth largest, expanded by 10.9 per cent year-on-year in the first six months of 2006, boosted by massive investment.
Significantly, Xinhua said 90 per cent of all investment in the first half had been approved by governments at provincial level or below, reflecting different agendas in Beijing and elsewhere in the vast country.
Whereas the central government is concerned about macro-issues such as inflation and other symptoms of overheating, local governments prioritise growth because it means more jobs and less risk of social unrest.
Beijing may have awesome formal powers but its actual clout over decisions made hundreds of kilometers away is limited. In reality local officials are frequently calling the shots, according to observers.
"Local government dominance in Chinas economy appears the most important factor in Chinas macro-behaviour," Andy Xie, a Hong Kong-based economist at Morgan Stanley, said in a recent research note. In the complex game between Beijing and the provinces, the provincial players have important tactical advantages, according to Xie.
"Local governments can create a fait accompli by starting numerous projects to deter macro-tightening by the central government, as cutting off liquidity would keep these projects unfinished," he said.
"Second, local government leaders often have a more senior rank than their regulators in the Communist Party hierarchy and, hence, have a major say in macro-policy." The economies in three quarters of China's provinces expanded at 12 per cent or more in the first six months, above the national figure of 10.9 per cent, the country's key economic planner said in a report last week.
Prime Minister Wen Jiabao, at a teleconference with senior party and government officials at both the provincial and county level in late July, demanded obedience to Beijing's macroeconomic directives.
"All localities and departments must unify their thinking and bring it in line with the central government's assessment of the current economic trends," Wen said in remarks carried in the People's Daily on July 27.
It is testimony to the current importance of the provinces that local banks, often outside Beijing's direct supervision and control, have been able to continue lending to investment projects.
Commercial banks extended 2.34 trillion yuan (290 billion dollars) in the first seven months of the year, according to statistics from the People's Bank of China, or central bank. This means the banks have already used up 94 per cent of the total loan quota of 2.5 trillion yuan they have been given for the whole year.


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