COUNTRY REPORT China Mongolia At a glance: 2000-01 OVERVIEW The regime will face a number of domestic problems over the next two years. The Taiwan issue remains unresolved. Fiscal policy will be expansion- ary in 2000, but may begin to be wound back in 2001. A relatively loose monetary stance will be maintained throughout the forecast period. GDP growth will rise to 7.8% in 2000, before falling back to 7.5% in 2001. Consumer price inflation will average just 0.3% in 2000 but will pick up to 1.4% in 2001. The current Rmb8.3:US$1 exchange rate will be maintained throughout the forecast period, but trading may be permitted between wider bands. The current-account surplus will fall in both 2000 and 2001. Key changes from last month Political outlook • The anti-corruption campaign has claimed an important victim, with the former National People’s Congress vice-chairman, Cheng Kejie, sentenced to death in early August. There has been a continuing stalemate in relations with Taiwan. Economic policy outlook • Strong first-half growth figures will not result in an immediate fiscal tightening. Monetary policy is also likely to remain relatively loose. Economic forecast • The EIU has revised its GDP growth forecast for 2000 to 7.8%, but brought the growth forecast for 2001 down slightly. Consumer price inflation is now expected to average just 0.3% in 2000. The forecast current-account surpluses for 2000 and 2001 have also been revised downwards, in the expectation of substantial income deficits. August 2000 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. 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ISSN 1350-7109 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Contents 3 Summary China 5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2000-01 8 Political forecast 9 Economic policy outlook 10 Economic forecast 14 The political scene 22 Economic policy 25 The domestic economy 25 Output and demand 28 Industry 30 Agriculture 31 Infrastructure and energy 31 Money and finance 35 Foreign trade and payments Mongolia 39 Political structure 40 Economic structure 40 Annual indicatorsa 41 Quarterly indicators 42 Outlook for 2000-01 42 Political forecast 43 Economic forecast 44 The political scene 47 Economic policy 48 The domestic economy 48 Economic trends 48 Industry and mining 50 Agriculture 50 Infrastructure and services 51 Foreign trade and payments List of tables 11 China: international assumptions summary 11 China: forecast summary 12 China: gross domestic product by expenditure EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 2 25 China: key indicators, Jan-Jun 28 China: industrial value-added, Jan-Jun 32 China: money supply 36 China: major export commodities, Jan-Jun 2000 37 China: major import commodities, Jan–Jun 2000 37 China: trade by type of enterprise, Jan-May 2000 38 China: balance of payments 47 Mongolia: central government budget, Jan-May 51 Mongolia: foreign trade, Jan-Apr 2000 List of figures 13 China: gross domestic product 13 China: renminbi real exchange rates 31 China: money supply growth 35 China: major export commodities, Jan-Jun 2000 36 China: major import commodities, Jan-Jun 2000 41 Mongolia: exchange rate 41 Mongolia: foreign reserves 44 Mongolia: gross domestic product 44 Mongolia: real exchange rate EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 3 August 15th 2000 Summary August 2000 China Outlook for 2000-01 The forecast period promises to be a challenging time for the regime, for a number of reasons. Continuing economic reform will raise unemployment, possibly triggering outbreaks of discontent. Tensions within the regime will increase in the run-up to the 2002 National Congress, where the “third generation” of leaders are likely to begin to withdraw. The Taiwan issue remains unresolved, and many problems remain in the relationship with the US. With China’s likely entry into the World Trade Organisation (WTO), the pace of economic restructuring may accelerate in 2000-01, but restrictions on foreign entry will remain. Fiscal policy will be expansionary in 2000, but may begin to be wound back in 2001. A relatively loose monetary stance will be maintained during the forecast period. GDP growth will rise to 7.8% in 2000, before falling back to 7.4% in 2001. Consumer price inflation will average just 0.3% in 2000 but will pick up to 1.4% in 2001. The current Rmb8.3:US$1 exchange rate will be maintained throughout the forecast period, but trading may be permitted between wider bands. The current account surplus will fall in both 2000 and 2001. The political scene The president, Jiang Zemin, has unveiled his Doctrine of Three Innovations. The battle against corruption has claimed some important officials. Despite an improvement in Sino-US relations, differences remain deep. Russia has joined China in opposition to US missile plans. There is a continuing stalemate with Taiwan. Economic policy Reform commitments will not stop pump-priming. The state’s liabilities will add to pressure for tax reform. Fuel taxes will be levied from October 2000. Exchange-rate liberalisation will be a gradual process. The WTO is forcing change at the banks. The domestic economy GDP growth accelerated in the first half of 2000. Export growth has been rapid, but domestic demand growth has also picked up. Manufacturing output has increased and the profits of state-owned enterprises (SOEs) have risen. Lay-offs have continued, and wealth gaps have been widening. Industrial output growth has accelerated. A million small enterprises are to go on-line. Rules on software investment have been eased. A poor grain harvest has pulled down agricultural growth. The soya VAT regime is still a source of uncertainty. Money supply is on target. Several lessons can be learnt from China Unicom’s successful initial public offering (IPO). Despite a spate of financial sector reforms, capital markets can not meet the needs of firms. EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 4 Foreign trade and Exports are growing, and going upmarket. Imports of oil and high-tech payments products are increasing particularly quickly. Growth in SOE exports has been rapid. National balance of payments data have been released for 1999, with an uncomfortably large outflow categorised as errors and omissions. Mongolia Outlook for 2000-01 The new government of former communists is faced with wrangles over the legality of constitutional amendments. Factions in the Mongolian People’s Revolutionary Party (MPRP) could cause additional problems. Herding livelihoods damaged by recent natural disasters will recover slowly, and GDP growth will be minimal. The political scene In the July 2nd general election the MPRP won 72 out of 76 seats. The party’s leader, N Enkhbayar, has been appointed prime minister but has kept his parliamentary seat. The constitutional court will re-examine constitutional amendments. An amnesty law has been passed and prisoners have been released. A transit agreement is under discussion with China and Russia. Economic policy Tax collection improved in the second quarter and the outgoing government cleared the backlog of social security payments, but the budget remains in deficit. The MPRP has pledged to continue privatisation but at a slower pace, and to continue attracting foreign investment. Domestic economy Reserves have increased but the tögrög has fallen against the US dollar. A national cashmere project has been launched.