By Xie Fuzhan

Economic security and other elements like economic growth, full employment, economic stability and equal distribution constitute important policy targets of macro-management. The priorities of these targets and the emphasis of the government's macro-management differ at different development stages, in different countries and against different international backgrounds, but economic security is the target of macro-management as well as the most basic premise for realizing other targets. With the progress of economic globalization, each country is gradually expanding its openness and the cross-country flow of capital, information, goods and people is more and more enormous and frequent. This situation resulted in more and more complicated macro-management and more severe challenges facing economic security. It could be said that the economic security of individuals and households is closely related to that of the country. Without the economic security of the country, there is no economic security for individuals and households, especially in China. At the same time, we also need to pay attention to and concern about a number of households and individuals troubled and threatened by economic security problems even when the country is free from economic security concerns and is in prosperity. This international workshop on human economic, social and environmental security hosted by UNDP is of universal and realistic significance.

This paper consists of three parts: first, the influences of macro-management on human economic security; second, the challenges facing China's economic security; third, macro-policy orientation to maintaining economic security.

I. The Influences of Macro-management on Human Economic Security

Economic security of individuals and households involves employment opportunities, income level, wealth appreciation and depreciation, the extent and level of social security and other aspects. The shifts in macroeconomic policy have various influences on individuals and households. Poor individuals and households may benefit from the shifts and be lifted out of poverty gradually while wealthy individuals and households may be trapped in poverty due to the shifts in macroeconomic policy. Influences of macroeconomic policy can be direct or indirect; short-term or long-term and sustained; partial or overall. The major macro-elements influencing human economic security are:

First, economic growth. The sustained, fast and healthy national economic growth is a decisive factor for optimizing and improving human economic security. Everyone benefits from economic growth and a bigger cake, with the economic security improving accordingly. With stagnate economy and decreased individual and household income, the economic security will inevitably decrease. Since the reform and opening-up, China has been sticking to the policy of taking economic construction as the center and development as the priority of macro-policy. For the 21years from 1978 to 1999, the annual GDP growth was 9.5%, and the annual growth of the disposable income per capita for urban and rural households was 6.3%. The net income growth per capita for rural residents was 7.3%. The saving deposits of urban and rural residents had increased from 21.06 billion Yuan to 5962.18 billion Yuan.

Deposits per capita had increased from 21.9 Yuan to 4735.31 Yuan. The poverty population society-wide had been decreasing continuously from 250 million before the reform and opening-up to 34 million by the end of 1999 and the general living standard of urban and rural residents has reached the comfortable level. The comprehensive national strength has been improving fast with the rapid economic development with the national foreign exchange reserve totaling 160 billion USD, annual financial income reaching 1136.8 billion Yuan and annual income per capita reaching 5920 Yuan. These achievements have provided strong safeguard for the economic security of individuals and households.

Second, economic stability. Macroeconomic fluctuation, no matter caused by inflation or deflation, will exert negative influences on the economic security of individuals and households. Inflation has negative impacts to retired workers and people with fixed income, to jobless people and to people and households belonging to the departments, sectors and regions that are unable to transfer the crisis partially or totally. Under the condition of deflation, due to the supply surplus on the market, investment intention and investment return decrease. Some enterprises go bankrupt and some make less profit, which result in unemployment or declined income, threatening the economic security of some households and individuals. From 1989 to 1991, Chinese government had to implement deflation policy against inflation. In 1989, the increase of net income per capita for rural residents slowed down, and in 1990 and 1991, the increase rate was only 2%. Under the condition of deflation in 1997 and 1999, the total agricultural products saw surplus and their prices dropped sharply. Farmers did not have increased income with increase production and the real income for some farmers even reduced. While in the cities, there were increased laid-off workers and decreased new employment and the living security of part of the urban residents were affected. To overcome the negative impacts of deflation, Chinese government increased by a large margin the income of medium and low-income urban residents, and took measures to issue timely the basic living cost allowances to laid-off workers and full payment of old-age pensions to retirees. It also persists in purchasing the surplus food from farmers at protective prices. These measures on one hand created conditions for expanding domestic demand and optimizing the quality of macroeconomic operation, on the other hand, improved the economic security of the residents.

Third, currently in China, some macro-policies have been implemented indirectly in the course of the reform of economic system. So the influences of the system reform on households and individuals could not be underestimated. Firstly, the changes in employment system have broken the "iron bowl" of the planning economic system, which have raised the uncertainty of people’s income expectation and people's awareness to handle crisis in future economic security, especially for less educated people above middle age and SOE workers. Secondly, housing reform and medical care reform have broken the original benefit distribution pattern, and increased the prospect expenditure of low-income households. Thirdly, the reform of higher education system has increased the prospect expenditure on children's education. Due to the changes in people's future income and expenditure balance brought by these reforms, people's consumption psychology and behavior have been affected and their reaction to the macroeconomic policy in turn influenced the effect of the macro-policy. These reforms are necessary from a long-run point of view, but many reform measures are more favorable to people with vested interests and resulted in greater vulnerability of households and individuals with lower economic security guarantee. This is what the government should pay attention to and improve in conducting reform and implementing macro-policies.

Fourth, the influences of external impacts on human economic security. With the economic globalization being pushed forward, external impacts will not only influence national economic security, but will inevitably extend to individuals and households. The Asian financial crisis erupted in July 1997 stunted the economic development of all Southeast Asian countries and shocked East Asian countries. The crisis happened in Thailand, Indonesia and Malaysia are due to the defects existed in their financial systems like high debt level, large proportion of short and mid-term debt, comparatively insufficient foreign exchange reserve, maladjusted macro-policy and lots of economic bubbles. Under the large scale impact of the floating capital on the international capital market, the currencies of these countries depreciated and banks went bankrupt. Monetary crisis then triggered financial crisis and economic crisis. Taking Thailand as an example, the crisis resulted in a sudden increment of external debt. Before the crisis, the total volume of external debt was 83.3 billion USD but due to the sharp depreciation of Thai Baht, the debt redemption burden calculated by home currency nearly doubled and this burden will certainly be transferred to households and individuals. At the same time, the import cost increased and the export proceeds decreased.

With the breaking of the economic bubbles, real estate price dropped 20-30% and the stock price index dropped more than 50% (from 700 point to 300 point). The economic growth declined and even went negative. Inflation aggravated and there was a huge amount of bad loans in the banks. The non-performing loans in the financial system soars to 1 trillion Thai Baht, which accounted for 20% of the GDP of the current year. Financial crisis left about two thirds of the rich being reduced to poverty and in debts over a night. Households of medium and low income were hurt more severely with their living standards falling back for many years. The situations in Korea, Malaysia and Indonesia were similar, just differed in degrees.

There are more aspects of macroeconomic policy elements influencing the economic security, for example, policies for employment, income distribution and social security, which are closely related to social safety. I would not elaborate here on these points.

II. Challenges Facing China’s Economic Security

With the reform and opening-up for over 20 years, China has initially established the market economy with Chinese characteristics. The Policy of in-depth reform and opening-up is being implemented in an all-round way with much wider ranges. National economy has kept a comparative high growth rate. The GDP is going to surpass the margin of 1 trillion USD by the end of this year. The situation of insufficient goods supply has in the main ended and the relationship between supply and demand has changed greatly. People's living has generally reached comfortable level and the poverty population across the country has been declining year by year. People are sharing the benefits brought by reform and opening-up. Proceeding from the conditions and ability of macroeconomic management, China has withstood the test of Asian financial crisis and has overcome its negative impacts with export picking up notably, RMB value remaining stable, state foreign exchange reserve increasing year by year, and with sufficient food reserve. The internal and external debts are both under security lines. The debt structure is reasonable, with only about 10% short-term debt. From the short-term point of view, there is no big risk facing national economic security. However, from the view of longer-term operation, there are hidden troubles for China's economic security. Generally speaking, major factors influencing economic security includes:

First, problems of financial risk. China's financial risk comes firstly from state owned commercial banks and state owned enterprises (SOEs). Due to comparatively delayed progress made in financial system and SOE reforms, non-performing loans in state owned banks increased year by year and some became bad debts. Since the SOEs are loosing profits, it is hard for them to repay the non-performing loans accumulated over the years. The current total capital volume of all financial institutions over China is about 17 trillion Yuan and if calculates the non-performing loans as 8%, the absolute value of them will be about 1360 billion Yuan. This is about the equal of the 1400-billion-Yuan non-performing loans the state owned commercial banks transferred to the four newly found asset management companies. Many people hold the opinion that the rate of 8% can not reflect the true risks of the state owned commercial banks. Some believe that the rate of non-performing loans could be as high as over 25%. If this is true, the absolute value of them will be 4250 billion Yuan, which accounts for over 70% of the total saving deposits of residents. Obviously, residents' deposits will be repaid with interests sooner or later. If the state is credible with stable economic, social and political situation, there is a slim possibility of large scale run but we cannot rule out the risks of regional run. Some non-bank financial institutions and rural credit co-operatives performed against rules and caused irretrievable lost and difficulty in honoring, which increased the possibility of triggering regional financial risks. The potential influences of the risks of financial system on individuals and households could not be underestimated.

The second threat to economic security is from the stock market. Currently, there are over 1000 listed companies with a market value of about 2600 billion Yuan, and there are over 40 million registered stockholders, which involve over 100 million household populations. Potential threat of big stock market fluctuation exists because there is a large portion of individual shareholders and a small number of mature and normative institutional investors. Moreover, the market was established not long ago and the relative legislation is not perfect with the management not always conforming to the standard. These will directly influence the economic security of households and individuals.

What warrants more worries is the destructive effects systematic financial risk could have on economic growth and economic stability, which will not only hurt relative individuals and households but will impact national economy and the economy security of all.

Second, debt risks. In recent years, in order to overcome the impacts of Asian financial crisis and to reverse deflation trend, the government adopted active fiscal policy by increasing national debt and government expenditure. This is undoubtedly necessary and correct but the rapid climbing of financial debt and the trend of demanding its continuous increase deserve our concerns. According to the statistics, by the end of 1999, the financial debt ratio in the broad sense is 65.9% with the balance of national debt totaling 1054.2 billion Yuan RMB. If calculated according to the financial debt ratio of the central government, it is as high as 189%. It should be said that debt burden is quite heavy and if takes the debt of old-age pensions the government owe to SOE workers into account, the debt burden will be heavier. Debt must be paid and national debt must be paid with the wealth created by people. Though it could be transferred to next generations, it is a matter of time. The heavier the debt burdens of the state, the lower the economic security of individuals and households and the higher the risks.

Third, pressures on employment and social security system. Currently, there are many pressures on our country's employment market. Firstly, the rapid growth of the population at laboring ages. The net increase of the population at laboring ages in 1999 was 10.75 million, and the increase of this year is at about the same level as last year. If the participation rate is calculated at 85%, about 9.2 million new entrants to the labor market need to be employed, among which 2.64 million are urban residents. Taking 6 million registered unemployed people in 1999 into account, this figure will reach 8.6 million by the end of this year. Secondly, the problem of the re-employment of SOE laid-off workers is becoming more serious. With the deepening of SOE reform, the redundant staff of the enterprises will be separated gradually. In 1999, there were 11.74 million laid-off workers in China and 5.24 million entered the "re-employment service center". So the laid-off workers by the end of 1999 were 6.5 million. There will be 3 million new laid-off workers this year with the total number reaching 8.5 million. Thirdly, the transfer of surplus labor in agriculture. With the acceleration of the process of industrialization, rural surplus labor will inevitably transfer to cities. This low-price labor force has formed a great pressure on the employment market in cities and towns. In addition, there are people leaving the government departments and public institutions. With all these pressures combined and the population growth, the pressures on employment is and will be a potential threat to economic security for a considerable period of time.

Accompanying pressures on employment are social security problems. China has implemented a system of low salary and high employment rate for many years. The original accumulation was all put into construction without establishing an old-age pension system or preparing sufficient social insurance fund, which is often like what a Chinese proverb says, "eating up the food stored up for the next year". By the end of 1999, there have been 29 million retirees over China and it is predicted that 2 million more will be added this year with the total number reaching 31 million. The short account in the individual old-age pension insurance account is enormous with the regional pooling part solely reaching 100 billion Yuan in 1999. It is estimated that 2 trillion Yuan is needed to compensate for and repay outstanding accounts of social security. The key problem is that without a social security system suitable to our national situation, this shortage will be enlarged, and with the aging trend of the population, there will be greater pressure in the future.

Fourth, the external impacts. Economic globalization has become a global trend. With expanding opening up, China has been gradually involved into this trend. To enter WTO is an important step to adapt to globalization which will definitely extend and deeper our connections with the world economy. While expecting the opportunities coming along with globalization, we have to notice the challenges we are facing, including the potential risks it will bring to the economic security of some individuals and households. With the tariffs on agricultural products and some manufactured goods decreasing year by year, and the gradual elimination of non-tariff protection, the agricultural departments taking rural households as operation unit will be in an disadvantageous position in the competition with the farmers from the United States and European countries. Those highly protected manufacturing industries represented by automobile industry will be under great impact. Moreover, the opening of domestic market will aggravate the competition of state owned monopolizing service sectors like banking, insurance and telecommunication. Within a certain period of time, the benefits of individuals and households in these sectors will possibly be harmed directly. The adjustment of the profit distribution pattern caused by external impacts will lower the economic security of impacted groups and will possibly form overall economic and social risks.

Fifth, the shortage of important strategic goods. Food, oil and water are important strategic goods. People have been worried about China’s food problem for many years and have had the debate on who will feed China. From the short and mid-term points of view, China has ensured food supply, but in a longer-term, with the population growth and the reduction of arable land, the declining of land quality and the degradation of environment occurred with the industrialization, food supply would not be optimistic. Historical experiences show that each increase in China’s food import was accompanied by substantial increase of food price on the international market.

Since 1993, China has turned from a country of net oil export to a country of net oil import. The net importation of oil reached 40 million tons last year, which accounted for 20% of the oil consumption in China. If there were no major founding or technological breakthrough, imported oil will probably reach 40% of our total consumption, which will deepen our dependence on external oil resources. It is estimated that if the world oil price per barrel rises 5 USD, the economic growth rate will drop 0.2%. The shortage of oil supply will evidently influence the economic security.

In addition, in China's northern areas and some cities, the shortage of water resources is very serious. In general, water resource per capita in China is only one fourth of the world average level and the distribution of water resources is rather unbalanced in terms of time and region. There is more water in the south of China and less in the north with the average per capita level even lower in the most areas of the north. In the arid and semi-arid areas of the north, the precipitation is concentrated in July, August and September, which results in greater shortage of usable water. Among 669 cities over china, there are 400 cities of insufficient water supply for the whole year and 110 cities severely short of water with the daily shortage reaching 160 million cubic meters and annual shortage reaching 6 billion cubic meters. The shortage of water supply is closely related to people's life, the economic growth and social stability. This has become a major problem affecting economic security.

III. Macro-policy Orientations to Maintaining Economic Security

In view of factors existed in China's economic life that affects people's economic security, it should become one of the main targets of macro-management to take proper policy measures to eliminate or reduce the risks in economic life.

1. To make great efforts to develop economy to supply essential guarantee for people's economic security.

Development is both the key to solving all the problems in China and the essential guarantee for enhancing people's economic security. It has become Chinese government's guideline for macro-management in the next five to ten years that development is the theme and enhancing people's living level is the essential starting point. The "Tenth Five-year Plan" formulated by the Fifth Plenum of the 15th CPC Central Committee confirms that the GDP of 2010 should double that of the year 2000, which means that the annual growth rate of national economy will be over 7%. With the realization of this target, china's overall economic strength will reach a new level and the government’s ability to resolve the problems of economic security will be further improved and people's living and security guarantee will also be enhanced.

To promote economic development, the key issue is to adjust economic structure and resolve the problems of unreasonable industrial structure, unbalanced regional development and low level of urbanization. The emphasis of adjusting industrial structure is to drive the industrialization through the informationalization of national economy to enhance the overall development level, efficiency and competitiveness of the agricultural, industrial and service sectors. Proceeding from China's comparative advantages and its abundant labor resources, we should attach importance to developing labor-intensive industries and exploring new service sectors during the "Tenth Five-year Plan" in order to strengthen the capacity to absorb labor resources including rural surplus labor force and to alleviate employment pressure.

To carry out and implement the strategy of western development is the only way to narrow the development gap between different regions and is also a valid approach to enhance the