COUNTRY REPORT China Mongolia 3rd quarter 1996 The Economist Intelligence Unit 15 Regent Street, 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 40 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent Street The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, USA Hong Kong Tel: (44.171) 830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.171) 499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 Electronic delivery EIU Electronic Publishing New York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 London: Moya Veitch Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 This publication is available on the following electronic and other media: Online databases CD-ROM Microfilm FT Profile (UK) Knight-Ridder Information World Microfilms Publications (UK) Tel: (44.171) 825 8000 Inc (USA) Tel: (44.171) 266 2202 DIALOG (USA) SilverPlatter (USA) Tel: (1.415) 254 7000 LEXIS-NEXIS (USA) Tel: (1.800) 227 4908 M.A.I.D/Profound (UK) Tel: (44.171) 930 6900 Copyright © 1996 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. 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 1 Summary China, Mongolia 3rd quarter 1996 August 14, 1996 China Political and economic structures pages 3-4 Outlook: Jiang Zemin’s position at the apex of state and party is being con- solidated as the forthcoming party congress approaches. Political controls will be tightened, although debate about the boundaries of socialism will continue. Nationalism will remain an important rallying call. Pragmatism will continue to drive economic policy; a soft landing is assured and there are even fears that the austerity measures in place since 1993 have been overdone. But the EIU believes that growth, mainly investment-led, will be about 9% in 1996-97, with a recovery in export performance in the second half of the year. We also expect a lower trade surplus in both these years, combined with a rising invisibles deficit, to produce a modest current-account deficit in 1997. Inflation, having subsided, is likely to accelerate a little, adding to the need to correct for real appreciation of the renminbi in 1995-96. pages 5-9 The political scene: The 15th CCP Congress looms closer and some leader- ship changes are expected, although the current ruling group will remain dominant. The search for a contemporary ideology continues, manifest in debates about the role of socialism in the economy and a drive to rebuild moral in and outside the party. Corruption overshadows this quest. The clampdown on crime has continued. There have been reports of separatist activities in Xinjiang, and Tibet remains a thorn in Beijing’s flesh, but one that cannot be drawn. China is hoping that South Africa will switch recognition soon. Sino-US relations have undergone a (possibly only temporary) warming. China has adopted a less belligerent attitude towards Taiwan. pages 9-20 Economic policy and the economy: There has been a further relaxation in the form of lower interest rates. State enterprise reform has remained basically stalled, bar a few minor experiments. The political climate is not conducive to bold initiatives, but there are continuing, pragmatic moves on several fronts, including measures to aid the unemployed and incentives for foreign invest- ment in the interior and in agriculture. The currency is now virtually convert- ible on current account. New incentives are being offered in some SEZs, and for investment in the centre and the west. GDP growth was 9.8% in the first half of 1996, a slowdown from 10.2% in the first quarter. Inflation has fallen into single figures, but a grain price rise from July will pull it back up. The invest- ment growth rate has been falling. State-owned enterprises have continued to record large losses. pages 20-32 Sectoral trends: A record summer grain harvest has been gathered in, despite serious and widespread floods. The energy sector is the focus of concentrated state effort to alleviate bottlenecks and China avers that it can readily finance the Three Gorges project. Foreign investment is being sought in the coal sector. Retail trade is booming, as are aviation and the telecommunications sector. A EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 2 bond issue of $700m marked China’s successful return to the international bond market in June. There has been progress in liberalising interest rates. Dow Jones has introduced China indices. pages 32-37 Foreign trade, investment and payments: The trade surplus was down to a meagre $880m in the first half of 1996, as exports fell by 8.2%. Low value added exports such as textiles, which compete on price, have fallen sharply. The inefficiency of state-owned trading companies has also hampered exports, as has the poor performance of SOEs. Foreign investment inflows continue to be robust, but little is devoted to infrastructure. Reserves have climbed again. pages 37-40 Mongolia Political and economic structures pages 41-42 Outlook: The surprise victory of a coalition of democratic parties in the June elections could lead to many changes, although the new government will meet strong opposition in the legislature. Economic policy will remain focused on the twin goals of marketisation and poverty alleviation and aid donors will retain a key influence. page 43 The political scene: The victory of the coalition of democratic parties in the June elections was a surprise, not least to the outgoing MPRP, which lost 50 seats and now has only 25. Complacency played a part in the MPRP’s defeat. The new government, led by the prime minister, Mendsaikhany Enkhsaikhan, will work well with the president, with whom the new prime minister has close personal ties. Various reforms are in the offing. Relations with Russia have improved. pages 44-47 Economic policy and the economy: Falling copper prices have taken a toll on government revenue as well as on the trade account. Liquidity management is proving difficult as efforts to increase confidence in the tögrög persist. Infla- tion has eased again, to a monthly rate 1.6% in May. Privatisation has hit a setback. pages 47-49 Sectoral trends: Industrial output growth has continued and Ulaanbaatar is to get a new landmark. Tenders are out for various energy and mining projects but electricity is in short supply and oil stocks need replenishing. Floods fol- lowed devastating fires from February onwards, delaying the 1996 sowing. Additional international flights have started. pages 49-53 Foreign trade and payments, and aid and investment: Exports fell in the first five months of the year, mainly because of falling copper prices. Imports of capital goods rose, bringing trade into deficit of $3.6m. Mongolia has become a member of the World Customs Organisation. Aid from Europe will rise. Japan is concerned about the application of its aid. pages 53-56 Statistical appendices pages 57-60 Editor: Georgina Wilde All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 China 3 Political structure: China Official name: People’s Republic of China Form of government: one-party rule The executive: 15-member State Council elected by the National People’s Congress (NPC) Head of state: a president (currently Jiang Zemin) is elected for a renewable five-year term by the NPC National legislature: unicameral National People’s Congress (NPC): 2,970 delegates elected by provinces, municipalities, autonomous regions and the armed forces; elects the president and members of the State Council and the members of the Standing Committee of the NPC which meets when the NPC is not in session. All the arms of the legislature and executive sit for five-year terms Regional assemblies and administrations: the 22 provinces, three special municipalities and five autonomous regions elect local People’s Congresses and are administered by People’s Governments Last national elections: March 1993 (presidential and State Council) Next elections due: by March 1998 (presidential and State Council) National government: the Politburo (currently 20 members) of the