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Wednesday, October 20, 1999 Published at 15:16 GMT 16:16 UK

Business: The Economy

UK investment boost in China

China would like to encourage more trade and investment with the UK

UK businesses have won contracts worth $3.5bn in China.

The news comes on the second day of President Jiang Zemin's state visit to Britain, the first by a Chinese head of state.

The largest contract is between BP Amoco and the China Petroleum Corporation to build a chemicals complex near Shanghai.

Other projects include a power plant in Hunan province, to be built by National Power, and a fibre optic cable network for China's railways from Marconi.

"These deals show the massive commitment which UK companies are making and their confidence in China as a major market for the 21st century," said trade and industry minister Stephen Byers.

The UK is the sixth largest investor in China, with $13bn of direct investment.

Economic problems

Meanwhile, Chinese President Jiang Zemin conceded that China faces some difficult economic problems during his state visit to Britain.

Speaking to businessmen at a lunch hosted by the China-Britain Business Council, Jiang admitted that there were "new situations and new problems" facing the Chinese economy in the future.

[ image: China's market economy is showing signs of instability]
China's market economy is showing signs of instability
"Exports are under considerable pressure and consumption in the domestic market is lagging," the Chinese president explained.

But he maintained that "China's economy on the whole is doing well."

Problems for investors

China's economy has been slowing down sharply in the past year, posing problems for Western investors.

Growth declined to 7% in the third quarter of this year, well below the average 10% growth rate during the extraordinary economic boom of the last twenty years.

And prices fell by 2.8% - the second year of falling prices.

In a bid to restrict output, the Chinese government has banned new investment in factories producing most consumer goods.

Qiu Xiaohua, deputy head of the State Statistics Bureau, blamed the deflation on the spread of the market economy.

"In a market economy, consumers pay more attention when they see a bargain and when goods they buy have better value. They are not in a rush to buy," he said.

Exports have also been hurt by the devaluation of rival Asian currencies during the Asian crisis.

Joining the World Trade Organisation

Jiang Zemin maintained that China was still determined to join the World Trade Organisation, which could help boost investment and trade.

It has been seeking membership for the past 13 years, but has still not reached agreement with the United States and the EU over measures to open up its markets in return.

The Chinese President said that it was both in the world's and China's interest for China to be inside the WTO.

But he made it clear there was a limit on Chinese concessions to obtain that goal.

"We are firm on not sacrificing our national interests in undertaking any international economic cooperation," he told the businessmen.

David Aaron, U.S. Under-Secretary of Commerce for International Trade, said on Tuesday that China's WTO bid was approaching the "midnight" hour, and that it would become very difficult to salvage a market-opening pact this year.

China's central bank insisted that the opening up of the financial sector, one of the key reforms, will continue whether or not China wins WTO membership.

"China's reform of the financial sector will absolutely not be affected (by the WTO outcome). Reform polices outlined since 1998 will materialise step by step," Cai Esheng, Assistant Governor of the People's Bank of China, said.

Several major UK financial institutions, including the Prudential, are waiting for clearance to begin selling insurance policies in China.

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