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ADB warns China to cool state-sector economy.

BEIJING, April 28 Kyodo

China should limit state-sector growth instead of relying on interest rate hikes to cool its economy and also strive for balanced growth to help farmers and the unemployed, the Asian Development Bank said Wednesday.

Interest rate increases are a ''blunt instrument'' that hit all sectors, said Bruce Murray, resident representative of the bank's mission in China.

Cooling measures should instead be directed at sectors that show signs of overheating, he said, proposing a real estate development contract tax, deferment of new government projects and a slowing of the conversion of farmland to commercial land.

Without such measures, China could overheat and spark inflation, which would in turn devalue savings and affect consumers in certain sectors, including everyday retail items.

Chinese officials said recently they would consider such measures following the announcement that China's economy expanded 9.7% in the first quarter of 2004 on the year.

China overheated in 1993, causing inflation that lasted until the Asian economic crisis of 1997.

Murray made the comments at a news conference to outline the China segment of the bank's Asian Development Outlook 2004 report released Wednesday.

The report said China overall looks ''robust'' thanks to six years of new fiscal policies and its 2001 accession to the World Trade Organization.

But the potential for overheating, while farmers, workers and some entire regions remain poor shows a growth imbalance, the report said.

China needs a ''rural minimum living standard,'' arable land and better social security to ensure pensions, Murray said. About 900,000 people live in agriculture-dependent rural areas.

Reemployment is also tricky, Murray said, because this process relies on the private sector and the service industry to absorb the unemployed. State sectors, where economic reforms have led to layoffs over the past decade, cannot absorb the unemployed, he said.

China's 2003-2004 government work report released last month notes pledges to help farmers and unemployed people as part of the nation's development.
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Publication:Asian Economic News
Date:May 3, 2004
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