State Council decision offers long-term remedy
By Xin Bei (China Daily)
Updated: 2004-07-24 11:05

The significance of the State Council's recent decision to deepen reform of investment mechanism is highlighted by the country's ongoing macroeconomic control.

To cool down investment-driven economic growth, the Chinese Government has taken several harsh measures, both administrative and economic, since late last year.

The latest statistics show those measures are drastically slowing fixed investment growth, but the State Council has decided to further reform investment mechanism.

Such an effort, in itself, is a long-awaited response to the continuing debate on how much decision-making power the government should relinquish to investors in the market.

As the country presses ahead with establishing and improving its market economy, policy-makers have increasingly realized the market must be allowed to play a basic role in resource allocation.

The timing of the decision indicates an even greater sense of urgency. In fact, the current macroeconomic control has also exposed the seriousness of investment mechanism-related problems.

In the name of boosting local development, some local governments not only invest in haste by themselves but also urge local branches of the banks to finance local enterprises' expansion regardless of the overall market situation.

So far, administrative measures have worked more effectively than economic approaches in checking reckless investment. But these should only be stopgap measures.

The State Council's latest decision demonstrates the authorities' commitment to the long-term solution of such problems.

By stressing the autonomy of enterprises and banks and introducing an investment accountability system into governments at all levels, the decision prescribes the right remedy for the country's investment mechanism.

Local governments must take it to heart if a sound market economy, a prerequisite of sustainable local development, is to take root.

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