China’s gross domestic product (GDP) reached 18.3085 trillion Yuan in 2005, up 10.2% over the previous year. The added value of the primary industry was 2.3070 trillion Yuan, up 5.2％; that of the secondary industry, 8.7047 trillion Yuan, up 11.7%; and that of the tertiary industry, 7.2968 trillion Yuan, up 10%. The contribution rate of the primary, secondary and the tertiary industries to GDP in the year was 12.6%, 47.5% and 39.9%, respectively.

Section I: Basic Industries and Infrastructure Facilities

I. Energy

China is the second largest energy consumer in the world, only after the United States. And the country’s energy consumption mainly concentrates in coastal developed area. In terms of distribution of energy resources, China’s energy resources reserve is abundant in north and few in south, rich in west and meager in east. As for variety distribution, North China abounds in coal resources; South China, water; West China, oil; and offshore area, offshore oil resources. Coastal provinces, municipalities and autonomous regions produce about 70% of China’s GDP, however, they possess less than 20% of the country’s total energy resources, and have to rely on quantities energy import from other places in China and from overseas. The contradiction between energy resources distribution and economic layout has decided China’s energy flow from west to east and from north to south. Comparatively speaking, coastal provinces and municipality in China run short of energy supply.

As Chinese economy has developed rapidly in the past few years, energy has become a strategic problem that has a bearing on the State economic safety. Viewing this, an authoritative institution in charge of energy sector in China, the State Energy Leading Group, has been established.

China’s output of primary energy sources totaled 2.06 billion tons of standard coal in 2005, up 9.5% from 2004, at a slower growth rate than that of 2003. Raw coal totaled 2.19 billion tons, up 9.9%. Crude oil totaled 0.181 billion tons, up 2.8%.

1. Power Industry

China generated 2.4747 trillion kwh of electricity in 2005, up 12.3% over the previous year.

Social power consumption was 2.4747 trillion kwh in the year, up 12.3% over the previous year. Thermal power was 2.0180 trillion kwh, and hydroelectric power was 0.4010 trillion kwh, with increases over 2004 of 12.4% and 13.4% respectively. China’s installed capacity of power increased by a net 63.26 million kw in 2005.

Shortages of coal, power, and oil transportation were eased in 2005. The number of provinces with blackouts decreased from 26 to 12. However, shortages of coal, power, and oil transportation have not been settled completely.

2. The Coal Industry

The coal industry in China has acquired the capability of designing, constructing, equipping and managing 10-million-ton-class open-cut coal mines and large and medium-sized mining areas. China’s raw coal output topped 2.19 billion tons in 2005, up 9.9% over the previous year.

3. Petroleum industry

As the Chinese economy maintains high-speed growth, especially in terms of rapid development in automobile manufacturing and aviation industries, China’s oil consumption has grown sharply, by an annual average of 6% throughout the past 10 years. China depended on imports for 36%, 42%, 50% of its oil supply in 2003, 2004, and 2005 respectively. China has replaced Japan as the second largest oil importer in the world.

China’s crude oil output reached 181 million tons in 2005, maintaining a stable slight growth of 2.8% over 2004.

China’s natural gas output grew 20.6% over the previous year to reach 50 billion cubic meters in 2005.

II. Communications and

Transportation

Freight transport volume in 2005

Passenger transport volume in 2005

Freight throughput of ports was 4.9 billion tons in 2005, up 17.7% over the 2004 Of the 2005 total, foreign trade freight throughput was 1.36 billion tons, up 18.0%.

1. Highway

By the end of 2005, China’s total mileage of highways open to traffic reached 1.9305 million km, 59,900 km more than at the end of 2004. The network structure of highway was further improved. Some 121,200 km of highway was newly constructed in the year, and 195,300 km renovated.

Mileage of newly constructed expressways opened to traffic totaled 6,717 km in 2005. China’s highway density reached 20.1 km per 100 square km, 0.6 km per 100 square km over the total at the end of 2004.

2. Inland navigation

By the end of 2005, China’s total mileage of inland river transportation routes open to traffic reached 123,300 km.

3. Port

The number of ports, wharf spaces and berths has kept increasing. By the end of 2005, all ports in China possessed a total of 35,242 berths for production use, a net increase of 134 over 2004. This includes 1,034 10,000-ton-class berths, a net increase of 90. Coastal ports possessed a total of 4,298 berths for production use, including 847 10,000-ton-class berths. Meanwhile, inland ports possessed a total of 30,944 berths for production use, including 187 10,000-ton-class berths. The locations of 10,000-ton-class inland berths included main streams and branches of the Yangtze River, as well as Pearl River water system, 179, 4 and 4 respectively. Ports, wharf spaces and berths developed toward large-scale operation and specialization.

The new increase of handling capacity for 10,000-ton-class berths reached 189.89 million tons in 2005.

4. Civil aviation

The number of civil airports with aerial liners in traffic in China reached a sum of 135 in 2005 (not including those of Hong Kong and Macao). The number of cities with airline traffic was 133.

5. Railway

By the end of 2005, China’s total mileage of railway in operation was 75,438 km, an increase of 1,030 km or 1.4% over 2004, of which, 62,200 km were State owned; 8, 462 km were built by joint ventures; and 4,775 km were local railways. Meanwhile, the mileage of double track railway reached 25,566 km at the end of 2005, an increase of 658 km or 2.6% over 2004; and the rate of railway with double tracks reached 33.9%.The mileage of railway electrified reached 20,151 km, an increase of 848 km or 4.4%; and the rate of electrified railway was 26.7%.

Investment in China’s railway infrastructure was 88.916 billion Yuan in 2005, up 67.3% over 2004, of which, 75.318 billion Yuan was invested by the Ministry of Railways, up 53.9%; Local governments, state-owned enterprises, and joint ventures invested 11.95 billion Yuan, 3.5 times that of 2004; with 1.649 billion Yuan invested by local governments. There were 919 km of rails laid along new railways and 661.9 km along double tracks. New railways of 1,146.8 km, double tracks of 486.3 km, and electrified railways of 862.7 km were brought into operation.

The Qinghai-Tibet Railway was completed ahead of schedule in October of 2005, drawing worldwide attention.

III. Electronic Information and Post and Telecommunications

China exported 268.2 billion US dollars worth of electronic information products in 2005, up 29.2% over the previous year, accounting for over 1/3 of China’s total foreign trade exports. Electronic information product exports formed a complete system including communications equipment, computers, home appliances, electronic components, and software. The growth rate of exported mobile phones, optical communication equipment, digitally controlled telephone switchboards, color television sets, liquid crystal displays, routers, notebook computers, and cable equipment exceeded 30%. Approximately 4 billion US dollars of software was exported, up 40% over 2004.

1. Internet

By Dec. 31, 2005, the number of Internet subscribers in China reached 111 million, an increase of 17 million or 18.1% over the number at the end of 2004. The popularization rate of Internet enthusiasts in China was 8.5%. Currently, there are 970 million Internet users worldwide, with an average popularization rate 15.2%. To be specific, the number of subscribers to broadband reached 64.3 million, an increase of 21.5 million or 50.2% over 2004. The number of broadband-connected computers exceeded that of dial-up computers for the first time.

By Dec. 31, 2005, the number of domain names in China reached 2,592,410 (including national top-level domain names registered as CN URLS, and general top-level domain names COM, NET, and ORG addresses); the number of domain names registered under CN URLS reached 1,096,924, exceeding one million for the first time. The total number of websites in China reached 694,200, an increase of 25,300 over 2004.

By Dec. 31, 2005, the number of IPv4 addresses in China reached 74,391,296, only lower than those of the US and Japan; the bandwidth of international network outlets increased to 136,106M, up 82.9% over 2004.

2. Post and telecommunications

The total business volume of shipping and telecommunications fulfilled in 2005 was 1.2199 trillion Yuan, up 24.6% over the previous year. From this total, the business volume of shipping fulfilled was 62.4 billion Yuan, up 10.1%; and that of telecommunications was 1.1575 trillion Yuan, up 25.4%. China installed 46.08 million new switchboard gates in 2005, bringing the total to 470 million gates. Meanwhile, 38.68 new fixed telephone subscribers were registered, raising the total number of fixed telephone subscribers to 350.43 million by the end of 2005. This includes 239.77 million fixed phone subscribers in urbn areas and 110.66 million fixed phone subscribers in rural areas. As for mobile phone users, the country registered 58.6 million new mobile phone subscribers in 2005, raising the total number of mobile phone subscribers to 393.43 million by the end of 2005. By the end of 2005, the total number of subscribers to fixed phones as well as mobile phones in China reached 743.86 million, 97.28 million more than those at the end of 2004. The popularization rate of telephones reached 57 sets per hundred persons.

 

Section II: Commercial Environment

Over the past 20-plus years since China adopted the policy of reform and opening to the outside world, income as well as personal assets of Chinese people has kept increasing. House, car, computer, share, overseas trip, all these have become the focus of investment and consumption in people’s daily life.

The net income per capita among rural residents in China was 3,255 Yuan in 2005, up 6.2% over the previous year, corrected for inflation. The per capita disposable income of urban residents was 10,493 Yuan in the year, up 9.6% after being corrected for inflation. The Engel coefficient of rural households (namely the proportion of food consumption expenditure in total consumption expenditure of a household) was 45.5% in the year; while that of urban households was 36.7%. Calculating based on the standard of annual per capita net income below 683 yuan, the population in abject poverty in rural areas of China was 23.65 million by the end of 2005, 2.45 million fewer than those at the end of 2004. Calculating based on the standard of annual per capita net income is between 684-944 yuan, the low-income population in rural areas of China was 40.67 million by the end of 2005, 9.1 million less than those at the end of the previous year.

I. Pricing policy

China practices a mechanism in which most prices are determined by market forces under macro control at present. And currently, there are three types of price forms: valorized price of the government, indicative price of the government and price according to regulation through the market.

Valorized price refers to prices set by competent departments of the government, and without approval, these pries cannot be changed. Fixed prices are usually imposed on products and services that are directly linked with the national economy and people’s livelihood, including products that are rare and scarce in China. Valorized price only aims at products and services, regardless of ownership of related enterprises. All import products enjoy the national treatment in terms of valorized price of the government.

Indicative price of the government is a kind of flexible pricing form, with price management authority setting base price or the range of fluctuation, which usually stands between 5-15%. Within the limits of indicative price, enterprises may allow for market conditions and then set prices on their own.

By market regulated price, enterprises are authorized to set prices according to market supply and demand within the limits permitted by available laws, regulations and policies.

Upon its entry into the WTO, China has begun to practice existing price control and other price controls in line with WTO rules, allowing for the benefits of WTO export members stipulated in Clause 9 of Article 3 of GATT1994 at the same time.

II. Co-existence of multiple econ- omic forms

The Chinese Government published “Proposals of the State Council for Encouraging, Supporting and Guiding Development of Non-public Economy” in 2004, aiming to encourage, support and guide development of non-public economy while consolidate and develop the public economy, to create a fair competition legal, policy and market environment for the development of non-public economy, and to introduce policies and measures to encourage, support and guide development of the non-public economy. The proposal has for the first time put forward the words of “energetically developing mixed ownership”, of “making joint-stock system a major form of the public ownership”; it has for the first time “allowed non-public capital to enter infrastructure facilities, public service and other sectors and fields which are not prohibited entry by laws and regulations”; and has for the first time proposed “equal treatment with other enterprises for nonpublic enterprises in the fields of investment and financing, taxation, land use and foreign trade”. These policies have acted as a strong propeller to boost the trade entry by non-public economy. As a result, many trades are more open to private investors than ever.

 

 

China’s State-owned Assets Supervision and Administration Commission (SASAC), in charge of managing State-owned enterprises (SOEs), published “Interim Rules on Management Buy-out of State-owned Property Rights of Enterprises” in April 2005, aiming to strengthen supervision and management of State-owned assets of enterprises, and to standardize the transfer of State-owned property rights of enterprises.

III. Competition policy

The Chinese Government encourages fair competition and opposes competition by inappropriate means in various forms. It promulgated “Law of the People’s Republic of China against Competition by Inappropriate Means” on September 2, 1993, which became effective as of December 1 in the same year. Besides, “Price Law”, “Bidding Law”, “Criminal Law” and other related laws have also had stipulations against monopoly and competition by inappropriate means. In June 2006, the State Council passed the “Anti-monopoly Law of the People’s Republic of China (Draft)”, making stipulations on forbidding monopoly agreements, forbidding abuse of dominating positions in the market, as well as stipulations on monopoly investigations and settlements. The State Council will put forward the draft to the Standing Committee of the National People’s Congress for comments after revision.

 

 

                           Section III: Finance

 

I.Banking

In China, a financial system that features regulation and supervision by the central bank, take the State banks as the main body, has divided the work of policy finance and commercial finance, and boasts of cooperation and functionally mutual-complementality among financial institutions of various ownerships has basically taken shape.

By the end of December, 2005, total assets in domestic and foreign currencies of financial institutions in China topped 37.47 trillion Yuan, up 18.6% from 2004. By ownership, total assets of state-owned commercial banks were 19.66 trillion Yuan, up 16.1%; those of joint-stock commercial banks, 5.81 trillion Yuan, up 23.7%; those of urban commercial banks, 2.04 trillion Yuan, up 19.4%; and those of financial institutions of other ownerships, 9.96 trillion Yuan, up 20.6%.

Gross liabilities in domestic and foreign currencies of financial institutions in China totaled 35.81 trillion Yuan in 2005, up 18.1% over the previous year. To be specific, gross liabilities of state-owned commercial banks were 18.77 trillion Yuan, up 15.8%; those of joint-stock commercial banks, 5.6 trillion Yuan, up 23.5%; those of urban commercial banks, 1.95 trillion Yuan, up 18.6%; and thoset of financial institutions of other ownerships, 9.48 trillion Yuan, up 19.5%.

China’s balance of broad defined money supply (M2) was 29.9 trillion Yuan at the end of 2005, up 17.6% from the end of 2004. The balance of the narrowly defined money supply (M1) was 10.7 trillion Yuan, up 11.8%. The cash balance in circulation (MO) was 2.4 trillion Yuan, up 11.9%. Year-end outstanding deposits of various types of all financial institutions in China were 30.0 trillion Yuan, up 18.2% from the end of 2003; while outstanding loans reached 20.7 trillion Yuan, up 12.8%.

The outstanding loans of rural financial cooperative institutions (including rural cooperatives, rural cooperative banks, and rural commercial banks) across China were 2.2 trillion Yuan at the end of 2005, an increase of 345.1 billion Yuan over the figure at the end of 2004. The outstanding RMB consumer loans of all financial institutions in China were 2.2 trillion Yuan, an increase of 199.6 billion Yuan. This includes 1.84 trillion Yuan in loans for individual housing, an increase of 244.4 billion Yuan.

 

Deposits and loans in domestic and foreign currencies of all financial institutions in China in 2005

 (Unit: 100 million Yuan)

II.RMB and exchange rate system

Renminbi (RMB) is the legal currency of China, uniformly issued and managed by the People’s Bank of China (PBC), China’s central bank. The exchange rate of RMB is set by the PBC and published by the State Administration of Exchange Control (SAEC). China exerts unified management over foreign exchanges, and SAEC has undertaken the right of management.

China continued reforms on the formation mechanism of the RMB exchange rate so that the RMB exchange rate could better reflect market trends. During the process, the Chinese government should consider actual conditions of China, and establish a market-based exchange rate mechanism. Instead of merely pegging it to the value of the US dollar. The RMB exchange rate involved a variety of major currencies differently weighted, and formed a currency basket according to actual conditions of China’s economic development. Based on financial situations at home and abroad as well as on market supply and demand, China referred to a basket of currency to calculate multi exchange rate indexes of the RMB so as to manage and regulate the RMB exchange rate and maintain a stable standard for the RMB.

By the end of 2005, China’s State foreign exchange reserve reached 818.9 billion US dollars, 208.9 billion dollars more than at the end of 2004. On July 21, 2005, reforms were performed on the formation mechanism of the RMB exchange rate, with the year-end exchange rate of the RMB against the US dollar standing at 8.0702:1, an appreciation of 2.56% above the value at the end of 2004.

III.Opening of banking industry

To honor its commitment to the WTO and to promote economic development in China, the Chinese Government will further open its banking industry to foreign investors.

“Measures of China Banking Regulatory Commission for the Implementation of Administrative Licensing Items Concerning Foreign-funded Financial Institutions” was passed and implemented on February 1, 2006.

In accordance to “Regulations of the People's Republic of China Governing Financial Institutions with Foreign Capital” and  “PRC Administration of Foreign-funded Financial Institutions Regulations Implementing Rules”, foreign banks engaging in stock assets trusteeship business of insurance companies may be put on records in CBRC branches. The following materials shall be put forward: 1. an application letter signed by persons authorized by headquarters of foreign banks; 2. detailed introductions of businesses to be opened, including operation procedures, risk-return analysis, internal control system, related personnel and equipment of facilities. CBRC branches shall notify applicants regarding additional materials needed within five days after receipt of application materials, and make approval decisions within 3 months after receiving complete application materials, and reply to applicants in writing with a copy delivered to CBRC.

IV.Securities

China practices a centralized and unified governance system over security market. China Securities Regulatory Commission (CSRC) is the governing body of China’s security market. .

There are only two securities markets in China at present: Shanghai Stock Exchange and Shenzhen Stock Exchange. Their business covers self-managed and agency transaction, subscription and sales of marketable securities. Marketable securities that have been quoted on the two stock exchanges include: (a) various bonds issued by the State; (b) various construction bonds issued by provincial governments or local people’s governments at the provincial level; (c) various bonds issued by financial institutions; (d) enterprise bonds publicly issued in localities nationwide; shares and various documents of title.

Securities companies and trust and investment companies have opened business offices in large and medium-sized cities, namely securities trading departments, for people to buy and sell various listed securities.

The amended “Company Law of the People's Republic of China” and “Securities Law of the People's Republic of China” was passed by the Standing Committee of the National People’s Congress on Oct. 27, 2005, and was implemented on Jan. 1, 2006. Based on practices in recent years as well as current economic rules in China, the revised editions made adjustment, complementarity and changes on original company legal systems and securities legal systems, and made improvements and innovations on related systems.

China raised a total of 188.3 billion Yuan through issue and displacement of shares in the securities market in 2005, an increase of 36.3 billion Yuan over 2004. To be specific, 20 A shares (including additional issues and convertible bonds) were issued, and 2 shares were rationed, raising 33.8 billion Yuan, a decrease of 49.8 billion Yuan compared with 2004; 24 H shares were issued, raising 154.5 billion Yuan, an increase of 88.7 billion yuan. By the end of 2005, the number of listed companies (A and B shares) in China had increased from 1,377 at the end of 2004 to 1,381, with the combined market value reaching 3.243 trillion Yuan, 12.5% less than the combined market value at the end of 2004. China issued 65.4 billion Yuan in enterprise bonds with with terms of more than one year, an increase of 33.2 billion Yuan over 2004.

V.Insurance

Observing its commitment to the WTO, China has fully opened its insurance market on December 11, 2004. The Chinese Government has correspondingly published “Regulations of the People’s Republic of China on Management of Foreign Insurance Companies” and related implementing rules.

As of December 16, 2005, a total of 43 foreign insurance companies (including three in preparation) from 15 countries and regions had opened 100 business offices (including 9 in preparation) on the Chinese mainland.

Premium income earned by Chinese  insurance companies totaled 492.7 billion Yuan in 2005, up 14.0% over the previous year. In a breakdown, premium income from life insurance was 324.4 billion Yuan; from health and accidental injury insurance, 45.3 billion Yuan; from property insurance, 123 billion Yuan. Meanwhile, a total of 113 billion Yuan was paid in compensation during the year, including 30.7 billion Yuan for life insurance; 15.1 billion Yuan for health and accidental injury insurance; and 67.2 billion Yuan for property insurance.

Section IV: Taxation

Starting from 1994, China introduced the financial system of tax division, and under the principle of unifying financial independence and the authority, it has reasonably divided the tax revenues between central and local authorities. By tax reimbursement and transfer payment system, the central government has coordinated local fiscal revenues. Meanwhile, two revenue offices have been set up to carry out management respectively.

 

Current Taxation System in China

Item of taxation	Content
Circulating tax	Value added tax (VAT), consumption tax, business tax
Income tax (IT)	Corporate IT, IT for foreign-invested and foreign enterprises, personal IT
Resource tax	Resource tax, urban land use tax
Specific items of taxation	City maintenance construction tax, farmland use tax, fixed capital investment orientation regulating tax, land value increment tax
Property tax	House tax, urban house property tax, estate tax (yet to be collected)
Act tax	Vehicle and vessel use tax, vehicle and vessel license tax, stamp tax, contract tax, securities transaction tax, animal slaughter tax, entertainment tax
Agricultural tax	Agricultural tax, animal husbandry tax
Tariff

Not every enterprise, unit or individual has to pay various taxes mentioned above. Generally speaking, industrial and commercial enterprises should pay VAT; enterprises of communication and transportation, construction, financial and insurance and service sectors should pay industrial and agricultural taxes; agricultural enterprises should pay agricultural tax; and profit-making enterprises should pay business income tax. Besides, enterprises that produce taxable consumer goods should pay consumption tax; mining enterprises should pay resources tax; enterprises engaging in fixed assets investment should pay fixed capital investment orientation regulating tax; enterprises should pay stamp tax for their production and operation books and various contracts signed; enterprises that possess real properties and vehicles should pay house tax and vehicle and vessel use tax; citizens whose personal income has exceeded certain standards must pay personal income tax. According to stipulations of taxation law, some taxpayers may enjoy tax exemption and reduction to certain extent.

Of all law and administrative rules related to taxation China has published so far, only 14 clearly apply to foreign-invested enterprises, foreign enterprises and foreign individuals, namely VAT, consumption tax, business tax, IT for foreign-invested and foreign enterprises, personal income tax, resources tax, land value increment tax, urban house property tax, vehicle and vessel license tax, stamp tax, animal slaughter tax, agricultural tax and tariff.

Besides IT for foreign-invested and foreign enterprises, urban house property tax and vehicle and vessel license tax, which solely apply to foreign-invested and foreign enterprises, foreign-invested and foreign enterprises and citizens of foreign countries enjoy the same treatment for Chinese enterprises and Chinese citizens in terms of other taxation. For enterprises launched by compatriots from Hong Kong, Macao and Taiwan and by overseas Chinese, taxation policy catering to foreign-invested and foreign enterprises and citizens of foreign countries applies.

In order to safeguard the rights and interests of the State and to avoid double taxation and prevent tax evasion, China has successively signed agreements with 85 countries on avoidance of double taxation and prevention of tax evasion.

 

Section V: China’s Industrial Policies and Regional Economic Development

I.China’s industrial policies

China classifies economic activities into three industries, with each industry containing several trades: the primary industry is agriculture (including forestry, animal husbandry and fishery); the secondary industry is industry (including mining, manufacturing, power, water and heat supply, etc) and construction; and the tertiary industry covers all trades other than the primary and the secondary industries, such as service trade. It also includes government organizations.

China’s targets for the adjustment of industrial structure in the “11^th Five-Year Plan” period (2006-2010) are: to speed up industrial optimizing and upgrading; to promote healthy and coordinated development of the primary, secondary, and tertiary industries; to gradually form an industrial pattern with agriculture as a base, high-tech industry as a pioneer, infrastructure and manufacturing industry as support, along with all-around development in the service industry; to ensure development in the ways of conservation, cleanliness and safety; and to achieve sustainable development.

The Chinese Government has resorted to five kinds of industrial policies to promote the realization of its industrial restructuring targets.

First is priority guideline of industrial policy, or supportive industrial policy. Targets that this kind of industrial policy supports are: specific industries, enterprises and products that play important role in enhancing the country’s competitiveness and industrial upgrading. China will support development of these industries and enterprises by way of capital injection, discount interest, bond issue, and debt-equity swap. The scope the support covers will gradually shrink, but the strength of support will increase.

Second is incentive industrial policy. For traditional industrial renovation and growth strategic industries and growth strategic products, China will grant them tax exemption and reduction for a certain period, in a bid to encourage upgrading of traditional industries. The policy will help boost investment and bring the internal enthusiasm into full play. It is also conducive to attracting investment from all sides.

Third is competitive industrial policy, or functional industrial policy. Except the backbone enterprises of sectors that are related to the State safety, are natural monopolized and offer important public products and services, and of pillar and high-tech sectors, most trades, enterprises and products are within the competitive scope. For competitive enterprises and products, China will create a fair, just and transparent environment for them from four aspects: fair investment and taxation policies, strict technical and quality standards, standardized anti-monopoly rules and rapid market information service. As a result, the fittest will survive.

Fourth is restrictive industrial policy, which will be applied to oversupplied products that pollute environment and are of low technical content.

Fifth is protective industrial policy. Agriculture and service, as well as some “infant industries”, are comparatively weak in terms of international competitiveness. For them, China has adopted protective industrial policy that does not run against the WTO rules on one hand and may protect the industrial safety on the other hand. This will be conducive to the rapid development of infant industries and agriculture and service.

China’s fixed asset investment totaled 8.8604 trillion Yuan in 2005, up 25.7% over the previous year. Fixed assets investment totaled 7.5096 trillion Yuan in urban areas, up 27.2%; and 1.3508 trillion Yuan in rural areas, up 18.0%.

In terms of fixed assets investment in urban areas, state-owned and state-controlled investment totaled 4.0047 trillion Yuan, up 17.5% year on year. Investment in the primary industry totaled 82.3 billion Yuan, up 27.5%; investment in the secondary industry totaled 3.1598 trillion, up 38.4%; and investment in the tertiary industry totaled 4.2675 trillion yuan, up 20.0%. In terms of industries, investment in coal mining and dressing industries grew 65.6% in 2005; investment in power manufacturing and supply industries grew 33.7%; investment in petroleum and natural gas extraction industries grew 29.7%; investment in railway transportation industries grew 45.7%; investment in traffic equipment manufacturing industries grew 51.1%; investment in textile industries grew 38.0%; investment in education grew 8.4%; and investment in health grew 28.9%.

China’s investment real estate development reached 1.5759 trillion Yuan in 2005, up 19.8% over the previous year. Area of completed commodity houses totaled 487.93 million square meters, up 14.9%. Sales volume of commodity houses totaled 1.8080 trillion Yuan, of which, that of completed flats accounted for 35.5%, and that of forward delivery housing 64.5%.

II.Regional economic development

China eastern area covers 12 provinces, municipalities and autonomous region, namely Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Shandong, Zhejiang, Fujian, Guangdong, Guangxi and Hainan. The area makes up 14% of China’s territory but is home to 40% of its population. The area has convenient transport facilities and dense population, it has started comparatively early in economic development and abounds in high-quality labor resources.

Since China adopted reform and the opening to the outside world policy in 1978, the country’s investment focus has shifted to the eastern coastal area. Most of the reform measures published have also been first piloted here. The area has accommodated most of China’s special economic zones and open cities, and over 85% of foreign direct investment have been dumped here, which has further promoted development of the area. Therefore, eastern coastal area has always been the most economically developed area in China.

China western area covers 10 provinces, municipality and autonomous regions, namely Gansu, Guizhou, Ningxia, Qinghai, Shaanxi, Sichuan, Tibet, Xinjiang, Yunnan and Chongqing. It makes up 64% of the country’s territory but is home to only 22.8% of its population. The area abounds in mineral, energy (including hydro-energy), tourism and land resources. Overall speaking, China eastern area is located in the downstream of large rivers and owns 14,000 km long coastal lines; while China western area is located in the upper stream of rivers, borders on more than 10 countries and owns a land borderline of 3,500 km. It is regarded as the second gold belt China may open to the outside world.

Since China began to implement its “Ninth Five-Year Plan” in 1996, the Chinese Government has increased its investment in west area, and under equal conditions, priority has been given to resources development and infrastructure construction projects in west China. Unless there are specific requirements, most foreign government loan and multiple and bilateral-aid projects have also been arranged in the area.

Re-invigorating the old industrial base in Northeast China” has become part of the State development strategy in recent years. As a result, the three provinces in Northeast China (Heilongjiang, Jilin and Liaoning) are becoming new economic development engines. Northeast China is an old industrial base in China, and used to contribute greatly to China’ independent construction of an industrial system and a national economic system of its own.

In March of 2006, the Chinese government put forward the strategy of promoting development in Central China, including in the regional classification the six provinces of Shanxi, Henan, Hunan, Hubei, Jiangxi, and Anhui. It was another important decision following the strategies of encouraging the coastal areas to take the lead in economic development, implementing western development, and invigorating the old industrial base in Northeast China. Based on the initial success of coastal development, the recent strategy serves as an important assignment to promote coordinated regional development.

SectionVI: The 11^th Five-Year Plan of National Economic and Social Development

The six key points of China’s national economic and social development in the “11^th Five-Year Plan” period (2006-2010) are: promoting changes of economic growth modes, adjusting and optimizing the industrial structure, settling problems of agriculture among farmers in rural areas, promoting healthy urbanization, promoting coordinated regional development, and strengthening harmonious construction of society.

Main targets of China’s national economic and social development in the “11^th Five-Year Plan” period (2006-2010) are:

-- Maintaining steady macro-economic development; annual GDP grows rate of 7.5%; and GDP per capita doubling that in 2000. Some 45 million urban residents will find jobs and 45 million rural laborers will be transferred; with the urban unemployment rate controlled at about 5%; the price level will basically remain stable; and the international payments will be basically balanced.

-- Industrial structure will be upgraded. Organizational structures will be upgraded and made more reasonable in industries, on product lines, and throughout enterprises overall. Value added figures in the service industry among GDP will increase by 3 percent, and employment in the service industry among the country’s total employment will increase by 4 percent. Self-innovation ability will improve. The proportion of research and test expenses among GDP will rise to 2%. Additionally, a group of famous enterprises will form a group with their own IPR, famous brands, and powerful international competitiveness.

-- Resource utilization efficiency will improve greatly. Energy consumption for GDP per unit will decrease by an estimated 20%; water consumption for industrial value added per unit will decrease by 30%; the effective utilization coefficient of agricultural irrigation water will rise to 0.5; and the utilization rate of industrial solid waste will rise to 60%.

    -- Rural and urban regional development will become coordinated. New socialist countryside construction will witness obvious achievements. The urbanization rate will rise to 47%. Regional development patterns will take shape. The trend of enlarging distances between public services, income per capita, and living standards of urban and rural areas as well as of disparity between different regions will be restrained.

    -- Basic public services will improve greatly. The average time period during which citizens receive compulsory education will increase to nine years; public health and medical service systems will improve; social security coverage will be enlarged; 223 million people will receive urban endowment insurance; the coverage rate of new rural cooperative medical services will exceed 80%. The proportion of poor will decrease; disaster prevention ability will improve; social security and safe production situations become better.

    -- Sustainable development ability will improve. The total population will be controlled within 1.36 billion. The total area of arable land will be maintained at 120 million hectares; protection standards will be improved for fresh water, energy sources, and major mine sources; environmental deterioration will be restrained; the amount of major pollutants released will decrease by 10%; forest coverage rate will be 20%; and the releases of greenhouse gases will be effectively controlled.

    -- The market economy system will improve. Reforms and system construction in the fields of administrative management, state-owned enterprises, finance, taxation, science and technology, education, culture, and health will make breakthroughs; market supervision capability and social management standards will improve greatly; opening to international cooperation will be better coordinated with domestic development; and the open economy will step onto a new level.

    -- People’s living standards will further improve. Urban residents’ disposable income and rural residents’ net income per capita will increase by 5% annually; urban and rural residents’ living standards will improve; housing, traffic, education, culture, health, and environmental conditions will improve greatly.

    --Development of democratic and legal systems will make new progresses. Legal system development will speed up, forming a socialist legal system with Chinese characteristics; morality will be further clarified, with new progress made toward building a harmonious society.