"It shows that government bonds still have a good reputation with millions of Chinese grassroots investors and that they have faith in the bonds," Wang Mingshan, a lawmaker with the Ninth National People's Congress (NPC), was quoted as saying.

"But on the other hand, the move also shows that investors still lack better investment alternatives for stable returns," said Wang, who raised a proposal for the development of State bonds law to streamline bond concerns.

Bonds have been China's economic growth lifeboat for the past several years. On the central government's agenda is the issuance of 592.9 billion yuan (71.58 billion U.S. dollars) in State bonds to finance its economy including servicing standing debts this year.

However, experts warn that boosting an economic upswing through heavy government spending could be hazardous if there are not enough back-up measures to encourage private funding.

Private spending is still weak compared with the enormous long-term 510 billion yuan (61.66 billion U.S. dollars) in State bonds issued in the past four years to help build infrastructure in the country.

Statistics show that individual savings deposits have reached a historical high of 7.8 trillion yuan (942 billion U.S. dollars) as of February, but most of the money has lain idle for years in banks.

"Government spending must run parallel with increasing private investment, without which the repayment of the funds could lead to possible financial risks in the future," warned economist Dong Fureng.

"The government should work out a package with matching policies, such as tax cuts and easier investment access, to stimulate private investment," said Zhao Yu, an NPC member from South China's Yunnan Province.

The social welfare system should be strengthened to better shelter investors and to spark confidence in consumption, said Dong.

China's financial deficit will hit a record 300 billion yuan (37.46 billion U.S. dollars) this year, including the issuance of 150 billion yuan (18.13 billion U.S. dollars) in special State bonds to stimulate economic growth, sparking rising fear of possible financial problems in the coming years.

Reacting to the panic, Dai Xianglong, governor of China's central bank, said the deficit is still far from the internationally accepted limit even when taking into account other hidden debts, including the mammoth non-performing assets accumulated in past decades by State-owned commercial banks, debts from local governments, and depleted social welfare accounts.

However, Wang still believes there should be stronger governance of bond issues in the areas of planning, issuing, management supervision and auditing.

The State bonds should also be flooded more to poor provinces and rural areas, said Wang, who served as the director of the Jiangxi provincial development commission for ten years. He also called for a strict auditing system to ensure public access to information and to stop corruption.

(Xinhua News Agency March 14, 2002)