"The internal and external economic situations in 1999 leave no room for optimism," the Chinese finance ministry said in a statement here.

China's gross domestic product (GDP) growth in 1998 fell to 7.8 per cent from 8.8 per cent in 1997.

"Affected by the Asian financial crisis, the growth rate of China's exports this year is predicted to be low and even negative," the statement released by the Chinese minister of finance Xiang Huaicheng said.

On the domestic front, the statement said, `fundamental solutions are yet to be worked out to such problems as mismatch between supply and demand in domestic and international markets, weakening demand in domestic and international markets, poor performance of state owned enterprises and low quality of growth.

``The negative implications of theseproblems for this year's economic performance should not be underestimated,'' the statement said adding that the Chinese government will continue to pursue pro-active fiscal policies, which would necessarily increase budgetary outlays to a certain extent.

``In the medium to long term, China will maintain a moderately tightened fiscal stance, with a view to achieving a balanced budget over time,'' it said. The finance ministry statement restated the Chinese government's firm belief that economic growth could be achieved mainly from expansion of domestic demand.

This would be achieved in the short run by boosting spending on infrastructure, including building new highways, water conservancy projects and telecommunications.

Addressing a press conference later, finance minister Xiang said China's budget deficit this year would go up to 105.3 billion yuan (US$ 12.69 billion), from 96 billion yuan (US$ 11.57 billion) in 1998.

However, he said actual budget deficit was likely to be higher based on internalcalculations of the finance ministry.

``I personally estimate the figure will be bigger, judging by China's 1999 economic development,'' he said.

Exports, the main engine of China's economic growth, did not rise at all in 1998 at US$ 180 billion. This is considered poor performance when compared with an annual growth of 20.9 per cent registered in 1997.

Xiang said China planned to issue a total of 316.5 billion yuan (US$ 38.13 billion) in financial bonds in 1999.

He said that the government has no plans for issuing special financial bonds in 1999 to replenish the capital funds for China's commercial banks.

"While in short term, it is necesary to stimulatedomestic demand by increasing public expenditure, the Chinese government, in the long run, will need to establish instead a policy framework and institutional set-up to promote enterprise investment and private consumption," he said.