China says the extra money is desperately needed to
boost spending on rural development and on social security.
But many economists are now starting to question
whether China can afford such heavy deficit spending.
This is the third year in a row that China has
announced another leap in its budget deficit — $1bn more than last
At their root, China's budget problems stem from
massive increases in spending on social welfare and unemployment,
combined with a stubborn failure by the government to significantly
increase its revenues from taxation.
It is a situation Xiang Huaicheng is vowing to
In his speech he lashed out at widespread
falsification of accounts, tax fraud and waste.
He said cracking down on tax evasion will be a major
focus for the government this coming year, but he has said such things
many times before and still China's budget deficit continues to grow.
Mr Huaicheng also announced an increase in China's
It is a significant increase of about $9bn but much
lower than in 2001 or in 2002 when China set off alarm bells around the
region by increasing military spending by nearly 20% each year.
Mr Xiang said the military budget had been set
"with a view to adapting to changes in the international situation,
safeguarding national security... and raising the combat effectiveness
of the armed forces".
EUROZONE INTEREST RATES CUT
The European Central Bank has taken modest action to
shore up the slowing eurozone economy.
The bank — which sets interest rates for the 12
member countries of the euro — cut rates by a quarter-point to 2.5%
Some analysts had been forecasting a more aggressive
cut of a half percentage point, and traders immediately showed their
disappointment by selling shares.
"It really smacks of a compromise... the markets
won't be happy because it shows a lack of courage and the ECB council in
an indecisive mood," said Adolf Rosenstock from Nomura
The announcement came on the same day that European
finance and monetary affairs commissioner Pedro Solbes said Europe's
1.8% growth target for 2003 was "no longer realistic".
The decision marks a change of strategy for ECB
president Wim Duisenberg, who had previously argued that the ongoing
uncertainties over a war with Iraq meant it was not a good time to cut
Mr Duisenberg said that the modest cut had seemed the
most "appropriate" but also stressed the bank would be ready
to act "decisively" again if needs be.
"We can only expect a very modest rate of
economic growth this year given the geopolitical tensions and the
associated rise in oil prices," Mr Duisenberg said at a press
The eurozone grew by a mere 0.8% last year, compared
to more robust growth of 1.4% the previous year.
"The first quarter started sluggishly and the
second quarter was no better," Mr Duisenberg said, predicting
average growth of 1% during 2003.
Recent figures have painted an increasingly bleak
picture of the eurozone's economy as the threat of a war with Iraq
undermines recovery hopes.
Unemployment across the 12 countries using the euro
is at its highest level in almost two years while consumer confidence is
at a five-year low.
WAR FEARS BURDEN US ECONOMY
Fears over war against Iraq, coupled with poor
weather and rising energy costs, saw the US economy struggle at the
start of 2003, an influential report has said.
The Federal Reserve has, in its latest round-up of
reports from regional offices, warned of "subdued" growth in
economic activity in the first two months of the year.
"Many reports indicated that geopolitical and
economic uncertainties were constraining consumer and business spending
and tempering near-term expectations," the Fed, the US central
But concerns over global instability had at least
stimulated one sector — suppliers of home protection goods, survey
FRANCE CUTS ECONOMIC GROWTH TARGET
The French finance minister has admitted the
country's economy will not grow this year by the 2.5% that the
government has forecast.
"In the past six months ... the environment has
changed, and of course that figure is no longer attainable,"
Finance Minister Francis Mer said in a television interview last week.
The admission came as the French government's
statistics bureau INSEE reported that the economy grew by only 0.2% in
the last three months of last year, and by only 1.2% in the whole of
The figure was the lowest since 1996.
French consumer confidence fell in January to its
worst level in five years, as unemployment increased and talk of war
added to the uncertainty.
The European Commission said earlier this week that
its growth forecast of 1.8% for the euro zone for 2003 was
Mr Mer said the French government would at the end of
next month release a new estimate for 2003 economic growth.
HONG KONG BUDGET RAISES TAXES
Hong Kong's corporate and personal taxes will rise
for the first time in 20 years to tackle its ballooning budget deficit
and reassure investors.
"Though the economy has shown signs of
improvement in real terms, the government's huge fiscal deficit, if not
resolved early, will dampen investors' confidence and stifle economic
Financial Secretary Antony Leung said in his 2003/04
budget speech last week.
The deficit is expected to reach a record HK$70bn
(£5.7bn; $9bn) at the end of this financial year in March and only fall
to HK$69.8bn in 2003/04 despite the tax rises.
There could also be more new taxes in the future,
including a goods and services tax that Mr Leung said the economy was
too weak to absorb right now.
SCHROEDER'S ECONOMIC HEADACHE
Aside from sparring with the US over Iraq policy,
Chancellor Schroeder has to occupy himself with just one big issue, the
Annual growth weighed in at a mere 0.2% — the
slowest in Europe — last year. And, with zero growth in the
October-to-December period, there is little sign of any recovery.
For two years, until 2001, German exporters
experienced a brief boom, driven by the weakness of the euro.
But since the US economy is in recession, demand for
goods made in Germany is falling sharply, and euro interest rates are
too high for the liking of the country's industry.
RECORD LOSS FOR FRANCE TELECOM
Heavily indebted France Telecom has reported a record
full-year loss of 20.7bn euros (£14.3bn; $22.5bn) in 2002 after write
downs wiped out revenues.
The state-owned company reported a net loss of 8.3bn
euros in 2001.
AFRICA'S AID PLAN SEEKS HEALTHY GROWTH
Africa's ambitious new development plan, Nepad, must
confront the huge tasks of improving health and education.
"Good health is an essential pre-requisite for
equitable development and fair globalisation," says Tanzanian
President Benjamin Mkapa.
Africa remains by far the world's poorest continent,
with millions of its people living on less than $1 a day.
LAST-MINUTE TIMOR GAS DEAL CLINCHED
Australia has finally ratified the Timor Sea Treaty,
a crucial revenue-sharing agreement with East Timor, which may allow the
fledgling nation to prosper from local reserves of gas.
The deal will finally permit the multi-billion-dollar
development of the promising Bayu-Undan gasfield.
GALLAHER PROFITS RISE
The cigarette firm Gallaher has credited a raft of
acquisitions and partnerships for a 16% rise in profits last year.
Gallaher reported profits of £455m in the year to
December 2002, 15.7% higher than the £392m reported a year earlier.
AUSSIE DOLLAR HITS THREE-YEAR HIGH
The Australian dollar has hit a three-year high last
week, after a prediction that the country's economy should shrug off the
current global downturn.
Describing Australia as one of the industrialised
world's top performers, the Organisation for Economic Cooperation and
Development (OECD) predicted that the country's economy would grow by
3.25% this year and 3.75% in 2004.
GREENSPAN WARNS OF HOUSING SLOWDOWN
The US housing boom is likely to slow in 2003, but
will avoid a hard landing, Alan Greenspan, head of the US Federal
Reserve has said.
For five years the housing market in the US has
thrived, with prices increasing by 7% during the past year.
However, the second half of 2002 saw a sharp slowdown
in value of property, relative to previous years.
A key obstacle in the way of the UK joining the euro
has been eased after a fall in the value of the pound, Bank of England
governor Sir Edward George has conceded.
TINY GERMAN FIRM FEELS US ANGER
A tiny eastern German leather goods maker has become
the first company to be boycotted because of Germany's opposition to war
US company Enefco International said it would no
longer buy leather products from German firm Lederett, apparently
because of political differences.
NO CHANGE FOR UK INTEREST RATES
The Bank of England's Monetary Policy Committee has
left interest rates on hold at 3.75% last week.
The decision was expected after economists warned
that any further cuts could send borrowing levels dangerously high and
leave many Britons with excessive debt.
The Bank surprised economists last month when it cut
interest rates to their lowest level since 1955.
LOAN LINKS RUSSIAN EAST WITH WEST
Russia's dream of a highway linking its Pacific coast
with Western Europe has taken another step forward.
The Transport Ministry says it has been granted $290m
by the European Bank for Reconstruction & Development (EBRD) for the
completion of a stretch of road in the far east of the country.
When finished, possibly by the beginning of next
year, the route will allow drivers to travel the 5,000 miles from
Vladivostok to Warsaw, Berlin and beyond on the same highway.
US DIVIDED OVER REGIME CHANGE
A colossal battle is being waged within the Bush
administration over plans for rebuilding and governing Iraq after Saddam
Hussain is overthrown.
Having lost its fight to prevent a war to force a
"regime change", the State Department is leading the attempt
to stop the Pentagon installing Ahmad Chalabi, leader of the Iraqi
National Congress, as interim leader of Iraq.
DEBACLES PROVE RELEVANCE OF ISLAMIC INVESTMENT NORMS
Rushdi Siddiqui works for the Dow Jones Islamic Index
Group based in New York, where he is responsible for creating new
Islamic market indexes.
Thanks to some pioneering work by him, the Group last
month announced the launch of the Global Dow Jones Islamic Market Titans
100 and three subset blue chip indexes called the US Islamic Titans 50,
Europe Islamic Titans 25 and the Asia Pacific Titans 25.
Rushdi, who was in Dubai for the recent International
Islamic Financial Forum, explained how the Dow Jones Islamic screens
filtered out companies such as Enron, WorldCom and Global Crossing much
before these companies turned themselves into scarecrows of
misdemeanours in the global corporate museum.