Endnotes

¹ According to the official data, the unemployment rate in urban areas was 4.2 percent (about 8 million) at the end of 2004. However, it is widely estimated that there are about 10 million laid-off employees (xiagang) in the SOE sector and 150 million members of the excessive labor force in the rural areas, of which 8–10 million come to the urban areas to look for job opportunities every year. In addition, roughly 8–14 million new workers flow into the market every year.

² At the early stage after the AMCs were set up in 1999, the PRC authorities already expressed interest in or acknowledged the necessity of inviting foreign investors to solve this problem. For instance, at the international forum on NPL, which was held in Beijing in 2001, the Governor of the PBOC, while admitting to the poor management environment of the AMCs and referring to the limited financial measures available to cope with NPLs, expressed the need for the mobilization of foreign funds to solve this problem. The State Development and Reform Commission (SDRC) issued the “Circular on Administration of Foreign Debts Relating to External Transfer of NPL by AMCs” in 2004. This circular aims to streamline the procedure and entice foreign investors to invest in NPL. It is reported that Huarong AMC attempted to sell a package worth 150 billion RMB for a record largest sale targeting foreign investors in late 2004 (SCMP Oct. 20, 2004). It is also reported that Silver Grant International Industries Ltd., a Hong Kong, China listed company controlled by China Xinda AMC, which has dealt with the disposal of NPL, unveiled a plan to sell more than 200 million USD worth of new shares and convertible instruments to Citigroup Global Investment Management and that Silver and Citigroup signed an MOU to establish a joint venture that will invest in NPL in the PRC (China Economic News Jan. 10, 2005). External sources are also expected to be used to strengthen banks’ capital adequacy ratio (e.g., the injection of 4.5 billion USD of foreign reserves as an additional capital fund to two of the four SOBs).

³ M2 in the PRC increased by 12.3%, 17.6%, 16.9%, 19.6%, and 14.6% in each year, respectively, from 2000 to 2004 (PBOC statistics) compared to the average economic growth of 8–9%. Although the growth rate of M2 declined in 2004, the velocity of money rose sharply, due primarily to the expansion of credit demand.

⁴ The National People’s Congress in 2005 launched another regional development initiative called the Central Area Development Plan (Zhongbu boxing), in addition to the Go West Policy (Xibu daikaifa) and the development plan for northeast area.

⁵ The Zou chuqu policy encourages not only SOEs but also all kinds of ownerships to invest abroad. Under this policy, the State Administration of Foreign Exchange (SAFE) streamlined the approval procedures for companies who invest abroad, only requiring the approval of local foreign trade authorities. The policy also includes various measures, such as permitting PRC enterprises involved in international transactions to retain more foreign currency holdings and allowing Chinese citizens emigrating overseas to transfer assets to their new locations.

⁶ In the PRC, a high proportion of investment to GDP is eminent. It has not been lower than 35% since 1983 and recently stood at more than 40%. While the saving rate of households declined in 2003, consumption has not necessarily increased. Instead, households took greater advantage of investment channels (state bonds and funds) due to the negative interest rates on bank deposits.

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