It was a very relaxed looking Xiang Huaicheng, China's Minister of Finance, who took the stage at a Chamber Distinguished Speakers' Series luncheon on November 18. Speaking off the cuff to over 500 business executives, the minister reflected on China's two decades of economic development, which have seen their share of ups and downs.

Starting in the early 1990s, China initiated a chain of macro economic policies that have catapulted the country down the road towards a market economy. The result is that China is now the world's fastest growing economy, but the rapid growth has come at a price, Mr Xiang said.

"There is no such thing as a free lunch. We have a fiscal deficit of 300 billion yuan (about US$37.46 billion), which accounts for 2.71 per cent of our gross domestic product," he said. "But if you do not make a decision to endure the pain now for your growth tomorrow, you will never be able to overcome the problems in the future."

The economic policies initiated in the early 1990s caused China's economy to begin overheating and inflation started to put pressure on the yuan. The yuan has been pegged at 8.3 per cent to the U.S. dollar since 1993, and analysts predict the yuan will rise if unpegged.

Mr Xiang said, "I personally feel there is some pressure for the yuan to appreciate, and this is something that the U.S. has been thinking about, but it is a sensitive issue." He said that China resisted devaluing the yuan when the 1997 Asian financial crisis slammed the breaks on China's growth and the slowing economy gave way to deflation in 1998.

"We had a lot of oversupply; shops were full of merchandise but nobody wanted to buy the goods, even though shops were offering "suicidal" discounts," he said. "So Premier Zhu Rongji called the ministers together and said we have to ensure 8 per cent GDP growth annually."

The Minister of Finance was also tasked with reining in China's ballooning fiscal deficit. Officially put at 2.71 per cent of GDP, Mr Xiang said the country's deficit is still within internationally perceived safety limits. But if China's hidden debts are factored in, then the deficit is quite large, he admitted.

With China's economy continuing to slow in 1998, Mr Xiang said the ministry decided to issue national bonds to put its non-performing capital to work. Massive infrastructure projects -- encompassing everything from airports to grain silos to connecting peasant farms to the electricity grid -- were initiated across the country.

"We decided that all our bonds would go into state infrastructure projects. So we built a lot of highways and now China has the second highest number of highways in the world, at 2.2 trillion kilometres. We also needed more domestic airports. In rural areas, people didn't have a reliable supply of electricity, so although they could afford to buy electrical appliances, they didn't want to because they wouldn't work when they got them home," he said.

He joked that on a visit to the countryside he met a peasant who kept a television set under his bed, and a washing machine behind his sofa. Both appliances had never been used, but he was saving them for the day the village gets connected to the electricity and water supply grid and to make him a more eligible bachelor.

To encourage China's peasants to buy the appliances that its urban factories were producing, it was critical that the government provide them with a stable power and water supply at the same price as citizens in urban areas pay.

The government also spent billions in flood prevention measures on its major rivers, he said.