Mr. Schnell, GBA President,
Your Excellency Ambassador Schlegel,
Ladies and Gentlemen:

I am very happy to have this opportunity to come to the German Business Association and discuss with you the current economic and social situation of China. I hope my briefing will be helpful to your further understanding of China and your business in the country.

I thank His Excellency Ambassador for encouraging me to make today's presentation, and I must thank Mr. Schnell in particular for kindly putting my speech after this wonderful lunch. Otherwise it would be very difficult for me to entertain a hungry audience.

Ladies and Gentlemen,

As you know, China has made great achievements over the past 20 years in its drive to reform and open up. By finishing the first two steps as is shown here, and giving its people a "Xiao Kang" life, China has fulfilled its plan on economic development according to schedule.

China has found the way to development that conforms to its national conditions. Its policy serves the people and the economy, and therefore has won all the supports across the country.

Today, China enjoys a sustained and healthy economic growth. It also enjoys social and political stability. Its people are living in peace and contentment. They are working very hard to build a modernized country.

Last year, China's economy is satisfying.  

Our GDP jumped the one trillion US dollar line for the first time in history. The 8.3% annual growth rate is quite impressive. Now China ranks the 7th on the world GDP list. China's foreign exchange reserve, trade volume and foreign investment also grew fast.

Over the years, China geared its economy with skill and success. It cooled down an overheat at first by making a "soft landing", and then forcefully curbed the trend towards deflation. The economy is now steered into the sound cycle.  

It you look at the chart, you see that the overheat took place in early 90s which in fact brought up heavy pressure of inflation on the market. The government took effective measures, and the seething growth was checked in time and the economy was stabilized.

However, in 1997, this region was attacked by the infamous crisis, and there was no escape for China of its serious impact. Our economy continued to slow down until 1999, when it struck the bottom at 7.1% as the year's growth rate. Our government lost no time to start off a series of counter-measures, the main part of which is to expand domestic demand and to carry out an active fiscal policy and a stable monetary policy. These moves turned out to be a very good cure, the downfall was halted and the country's economy showed a significant upturn.  

Today, the overall economic situation of China is good. The economic quality and benefit are improving. The supply and demand on agricultural produce is balanced. Progress has been made in industrial restructuring. The IT and Hi-tech industry is booming. Many big-and-medium-size state-owned companies have grown out of red and begin to make profit. The poor people in the remote areas now have enough food and shelter. The trade and investment are expanding in scale and better in structure.

There is no denying that China faces grave challenges for maintaining the ongoing economic momentum. We must continue to reshape our industries and prepare our companies for international competition. We need a balanced development between various regions of the country. Our resources and environment have to be used in a more efficient way. The population must be put under control, with a view to ensuring adequate employment. The city life and country life should be less different as they are now. And we will go on with more input on scientific research and education.

In view of this, the Chinese Government stipulated a tenth "Five Year" plan as the strategic guideline to the national economic and social development for the next five years.

Let me talk a little bit more on this plan.

The plan covers a wide range of issues in China's economic and social life. I will pick up the economic contents for your special concern.

According to the plan, from 2001 to 2005, China's GDP growth will be around 7%. By 2005, the GDP will rise to 1.5 trillion US dollars, that's 1140 per capita (now it's about 800). I believe this objective is well projected and achievable.

During this period, our focuses for economic development will be the following.

First, we will try to upgrade our traditional industries by using new, advanced and applied technology, so that we can improve their quality, efficiency, structure and the product mix. The hi-tech industry will be given a boost, with emphatic support on a number of projects in the fields of IT, bio-technology, electronics, aerospace and aviation.

Secondly, we will tap harder the potential of our service industry, which is now far from being fully developed. Housing development will be the No.1 focus, and it will stimulate growth in related sectors, such as communal facilities and service, commercial networking, transport and postal service. Besides, we will pay more attention to developing financial, insurance, accounting, legal and consultant services.

Thirdly, China is determined to push forward its information industry and the social adaptation to this digital era. The government will construct more information infrastructure and networks and will help build up the nation's capacity for developing and manufacturing electronic and information products. Since our society is still not IT-based, it will take us tenser effort to step up IT application in the local communities.

The bottleneck of China's economy has for long been the shortage of infrastructure, which calls for immediate actions to change and improve. According to our tenth "Five-Year" plan, a batch of infrastructure projects will be launched, mainly on water conservancy, communications and energy supply. The most important ones include piping natural gas, harnessing water flow and transmitting electricity across the country.

The other two topics, developing the west part of China and expanding our opening-up, are also very important. May I take some time to give you some details.

First, on China's strategy to develop the west. The "West" I said here means the 12 provinces, municipality and autonomous regions in the western part of China, as is shown on the map. The West covers 71% of China's land and homes 28% of its population.

When China decided to start reform, the eastern coastal provinces took off first and moved ahead with astonishing speed, while the West was a bit slow and left behind. The different pace of development between the west and the east leaves us today a cross-country economic imbalance. Take GDP for example, the west, so vast in breadth, takes up only 17% of the country's total volume. Import and export, less than 6%; foreign investment, less than 5%. The disparity can be no starker.
If China is to maintain its steady growth at a fair speed, the west must catch up. That's why our government put forward this strategic "develop the west" programme and made it an essential part of our tenth "Five-Year" plan.  

As this map shows, the east part of China is seaboard, plain, fertile, easy to cultivate and develop. The west, on the contrary, is full of highlands and mountains, and even deserts, much less ideal for habitation, more difficult for communications. However, the west has its own special advantages for economic development.

First, the west is rich in natural resources, energy and mineral in particular. The northwest has a huge reserve of petroleum and natural gas. The southwest has plenty of hydropower. Among 140 minerals we have found in China, the west has 120. The reserve of certain rare metals ranks on top of the country's list and even the world's.

Another advantage of the west is its market, big, accessible, though dormant at present. One quarter of the Chinese people live there, that is, more than 350 million, equal to the population of the United States and Russia together. Sichuan province alone has 80 million people, almost another Germany. And this market is still underdeveloped, there is still considerable demand for basic commodities. The saturation of certain industries in the east can be easily dissolved here.

Next, the west has inherited a considerable industrial capacity in processing, manufacturing, machinery and research and development. There are quite a number of large-scale industrial enterprises and research institutions in this area. The labor supply is abundant.

Moreover, if you study each of these 12 provinces separately, you find unique assets here and there. For example, Yunnan is famous for its biodiversity, Sichuan for manufacturing, Shaanxi for hi-tech marketing, and Xinjiang for "Black and White", which means oil and cotton.

Finally, I have to mention tourism, which is the common resource of the region. The landscape of the west is so different from the rest of the country, and possibly rest of the world. There are snowy mountains, grassland, deep valleys, desert and Gobi. The west is also the cradle of the Chinese civilization. There are many historical relics, such as the Dun Huang Cave Carving, temples and monasteries. The region has already become a major attraction to travelers all around the world. And the number of visitors keeps growing.

Taking into consideration the level of development of the west and its special economic features, the Chinese Government set the following as the key sectors for its development: infrastructure, environment, special industries, science and technology and education.

We welcome foreign business to join our effort in the west, either by trade, cooperation, joint venture or investment. The government has worked out a series of preferential policies to encourage foreign economic involvement.

Taxation: Foreign-invested-enterprises will enjoy lower income tax and tax reduction from 50 to 100% within a certain period of time, if the investment goes to the state-encouraged sectors. There are also special tariff and VAT rules that relieve foreign companies from tax burden.

Next, China will open more sectors in the west to overseas investors. We welcome investment in agriculture, water conservancy, communications, energy, civil engineering, environment protection, mining and tourism. We hope there will come more foreign funds for setting up R&D institutions in this region. The provincial capitals will be open for some pilot projects. Some previously restricted sectors will be further liberalized.

Financing will be an important element in setting up successful cooperation. We will introduce BOT and TOT to more projects and include Ren Min Bi in some financing packages. There will be other methods to attract foreign investment than capital inflow and technical transfer. And we encourage the existing investors to double their effort in China, which will be duly rewarded.

Of course, a favorable environment, here I mean social or administrative, in addition to the natural one, will bring more business into the field. China understands this and is improving its institutional software in the western provinces, either on customs, immigration, business licensing, trade quota or legal framework. We hope people from outside will find it more convenient and pleasant to travel and work in China's West.

In sum, China's west has good resources and market. It enjoys special policy preferences. There lies profound cultural heritages and lives a friendly and diligent people. I believe this region will become a new hot spot for foreign business in China.

Now, I'd like to take a minute to brief you on China's opening-up policy.

I know, many people are very concerned about China's entry into WTO and its influence on regional economy. The point I want to stress here is that, China is firmly committed to increasing its openness, and has step by step, and according its level of economic development and its need for economic restructuring, elevated the degree of openness.

For instance, China has lowered it tariff for nine times. Today, our average tariff rate is only 15%, and it will go down to 10% in 2005. We will continue to open our service industry to higher degree, such as banking, insurance, telecommunication, foreign trade, domestic trade and tourism.  

After China becomes a WTO member, its huge market will provide foreign businesses with more opportunities and wider space for future growth. With less tariff and non-tariff constraints, and that foreign company is granted national treatment identical to local company, it'll be much easier, smoother and more profitable to trade, invest or set up business in China.

Ladies and gentlemen,

All these topics we discuss today about China's economy, the WTO issue, the Development of the West strategy, the tenth "Five-Year" plan, are foreign-inclusive, and they offer numerous business opportunities to international enterprises. I already foresee great success of those entrepreneurs who have vision, insight and business strength, who grasp the opportunity to expand and grow in China. Therefore, I foresee greater success for German companies in China, because they are the earliest explorers in the Chinese market, and they have had very good operations there.

China and Germany are very close on economic terms. Germany is China's biggest business partner in Europe. Our trade reached a record high last year and achieved an incredible annual growth of 22.2%. Germany is also the ninth largest investor in China. Our cooperation extends to many areas, such as banking, finance and technical transfer.

The German enterprises now stand on the Chinese market, firm and sound, owing very much to their long-term strategy, well-brooded reputation, mutually beneficial cooperation and quality management. Their products and services are warmly welcome and highly valued by Chinese customers. In fact, some German brands are so well known in China that Chinese people take them as a part of their daily life. For example, the SIEMENS electronic and household appliances, machine tools by BOSCH, a very popular and best-sold car model, VOLKSWAGEN-SATANA, which is a Sino-German joint product, let alone the high-end MERCEDES and BMW.

Dear friends, we are now living in Singapore, but Singapore also has a close economic tie with China. Singapore is regarded as a bridge between the West and the East, through which many European and American companies strive on to China. I was told that many of you already have business connection with China. Some have factories or offices; some are taking care of China business; some are still surveying the Chinese market. It is my sincere hope that my brief presentation today could give you a little push. So, if you've never been to China, you will set out for your first trip; if you don't have business with China, you will be happy to start searching; if your business is doing well in China, you will move on to expand it; if your business is in the east part of China, you will open a new one in the west.

I am convinced, once you start, you will succeed. And your success in the economic field will further promote the friendly cooperation between our two countries and consolidate our relations on all dimensions. I believe it will contribute positively to the prosperity and stability of this region and the world. To this end, my colleague and I are ready all the time to do all that we can to help you for your business with China.

Finally, I wish you success and "Willkommon in Cina".

Thank you.