Move to cool down overheated investment
By Xu Dashan (China Daily)
Updated: 2004-05-14 08:40

An official revealed yesterday that the central government will improve co-ordination between industrial and credit policies in order to avoid economic overheating.

The government will adjust industry and credit policies on a "timely and proper" basis and in accordance with the industrial development situation and macro-control requirements, a National Development and Reform Commission spokesman said yesterday.

One of these steps will be to cease credit support for projects either restricted or prohibited by industrial policies, the spokesman said.

Some projects in industries such as steel, non-ferrous metals, building materials and textiles either suffer from overcapacity or are technically backward, he said.

The National Development and Reform Commission, the People's Bank of China and the China Banking Regulatory Commission will establish a close co-ordination and information exchange system to ensure smooth co-ordination between industrial and credit policies, the official said.

The latest move is an important measure by the central government to cool down the fast growth in fixed asset investment and avoid an overheating economy, said economists.

Fan Gang, director of the National Economic Research Institute, said an overheating in some industries including steel, aluminium, cement and automobile sectors could have a serious economic impact.

"The investment fever in some industries will heavily affect China's robust economic growth unless it is cooled down," Fan said.

Excessive growth in some sectors is putting a strain on transportation and power suppliers, driving up the prices of raw materials and damaging industries across the country, he said.

China's industrial output rose by a year-on-year 18.2 per cent to 1,570 billion yuan (US$189.2 billion) during the first four months of this year, according to figures from the National Bureau of Statistics.

Industrial output grew 19.1 per cent to 437.1 billion yuan (US$53.7 billion) in April, the bureau said.

Heavy industry's growth was faster than that of light industry, the bureau said.

Economists said this suggests that fixed asset investment continued to develop at a speedy rate.

The statistics bureau is scheduled to release fixed asset investment figures next week for the first four months of this year.

Fixed asset investment grew by a year-on-year 43 per cent to 879.9 billion (US$106 billion) during the first three months.

The growth of broad money supply, or M2, which has been fuelling fixed assets investment, eased only slightly in April.

M2 grew by 19.1 per cent during the first four months, while outstanding loans rose by 20.4 per cent, People's Bank of China figures indicate.

The situation increased the likelihood that the government would take other measures including raising the interest rate to slow down fixed asset investment growth, economists said.

The central government has so far taken measures including raising the bank reserve requirement and improving management over development zones to cool down the fast growth of fixed asset investment.

Zhang Liqun, a researcher at the State Council's Development Research Centre, said the measures would have a great impact on this year's fixed asset investment.

"The country's fast fixed asset investment will decline in the rest of this year," he said.

The country's economic growth will also slow down this year due to the slowdown in fixed asset investment, he said.

The country's gross domestic product is likely to grow at about 9 per cent this year, he said.

National Bureau of Statistics spokesman Zheng Jingping earlier said the country's overall economic situation was good.

"There are no obvious ups and downs in economic growth."

Economic efficiency was also good, as companies earned more profits, people earned more money and fiscal revenue grew rapidly.

Retail sales were relatively stable, while exports rose fast, Zheng said.

The consumer price index, which rose 2.8 per cent during the first quarter, was still mild, he said.

But he admitted that the fast growth in fixed asset investment has become a prominent problem for the current economic development.

Blind investment and low level repeated construction have not been effectively controlled, he said.