- The Washington Times - Tuesday, March 6, 2001

From combined dispatches

BEIJING Citing "drastic changes" in the international military situation, China plans to raise defense spending by 17.7 percent this year, Finance Minister Xiang Huaicheng said today.

The double-digit increase in military spending, which analysts say represents only a portion of the total defense budget, would go to increased salaries throughout the ranks, he said.

The $17 billion military budget also was needed "to adapt to drastic changes in the military situation of the world and prepare for defense and combat given the conditions of modern technology, especially high technology," Mr. Xiang told delegates to the national legislature.

The 11-day meeting of the Communist Party-controlled legislature is a highlight of China's political calendar. Although carefully scripted, it serves as a communication channel for Chinese leaders, allowing them to hear voices from outside Beijing and taking back word of their policies to the nation.

Yesterday, Prime Minister Zhu Rongji said the country will expand private enterprise, allow foreigners to buy shares in local companies and eventually let citizens own all but "strategic" companies.

The government will also work to raise incomes for its hundreds of millions of farmers, Mr. Zhu said at the start of the annual legislative session, which is expected to set the stage for major leadership changes next year.

Mr. Zhu's comments underscored concern that low and falling incomes could trigger unrest in the countryside, where most Chinese live.

He said economic plans call for annual growth of about 7 percent over the next five years, down from an average of 8.3 percent over the past five years. He said the government hopes to double its year-2000 annual economic output of just over $1 trillion by 2010.

Beijing also plans to step up efforts to conserve water, combat corruption and prepare for entry into the World Trade Organization, Mr. Zhu said in his speech to lawmakers at the vast Great Hall of the People.

But he gave no indication that the government would ease its often brutal 19-month-old crackdown against the meditation group Falun Gong. He called Falun Gong an "anti-human" cult used by "domestic and overseas forces hostile to our socialist government."

The program laid out by Mr. Zhu appeared to have been prepared with an eye to next year's pivotal 16th Communist Party congress, when five of the seven members of the all-powerful Politburo are set to step down.

President Jiang Zemin is thought likely to give way at that time to Vice President Hu Jintao, a 58-year-old party insider little known in the West.

"In the lead-up to next year's party congress, the idea is, 'Let's maintain unity, otherwise we could lose the plot,' " a Western diplomat told Reuters news agency. "It's about not rocking the boat this time," he said.

Said a second foreign diplomat: "If they come up with anything too adventurous now, they'll need to show concrete results before the congress."

Mr. Zhu spoke for 90 minutes in a hall resplendent with the garb of China's more than 50 ethnic minorities, including Tibetans in brightly colored robes, delegates from Inner Mongolia in fur-lined jackets and Manchu women in elaborate headdresses.

In his speech, the prime minister acknowledged the limits of state planning in a society that has changed radically since it began market economic reforms 20 years ago.

He said the government would encourage more state industries to become corporations with shares owned by the public. More would be encouraged to sell shares on foreign stock exchanges, he said.

That would bring China into line with its WTO commitments, which include allowing wholly foreign-owned competitors in industries that previously had been state-controlled.

Despite sweeping reforms, China's biggest companies are state-owned, and the law forbids private ownership in many sectors.

For the short term, China will continue heavy state infrastructure spending and try to spur consumption, Mr. Zhu said.

In the countryside, farmers will be encouraged to work with companies and produce crops on contract, the prime minister said. He said the government will try to spread biotechnology, better seeds and other advanced technologies.

"Areas where conditions permit should be encouraged to explore a land operation rights-transfer system," Mr. Zhu said.

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