Growth of fixed asset investment slows down
By Xu Dashan (China Daily)
Updated: 2004-05-19 08:35

China's fixed asset investment growth slowed down in April compared with the previous month, due to the central government's efforts to cool down the economy.

Fixed asset investment stood at 398.9 billion yuan (US$48.1 billion) for the month, a year-on-year increase of 34.7 per cent, the National Bureau of Statistics revealed yesterday.

The growth rate was 8.8 percentage points down compared with March, it said.

During the first four months, fixed asset investment rose a year-on-year 42.8 per cent. But the figure was 47.8 per cent during the first three months of 2004, the bureau said.

Fan Gang, director of the National Economic Research Institute, said the fall in the growth rate suggests the central government's macro economic measures have started to kick in.

China has taken a raft of measures since last year in a bid to pour cold water on the economy, including raising bank reserve requirements three times and curbing unwanted fixed asset investment projects.

Recent moves to slow down growth have included the issuing of tighter restrictions on new projects in "overinvested" industries like property and steel, and ordering banks to keep more money in reserve instead of lending it.

However, Fan said fixed asset investment was occurring too quickly and there were still too many new projects.

Excessive growth in some sectors and areas was putting a strain on transport and power suppliers and driving up the prices of raw materials, he said.

The overheating of some industries, such as steel, aluminium, cement and automobiles, could have a serious impact on the economy.

"If it is not cooled, the investment fever in some industries will have a big impact on China's robust economic growth," Fan said.

Many of the latest projects rely on outdated technology and equipment, affecting their ability to control pollution, he said. They also have a tendency to consume a lot of energy.

Lin Yueqin, an economist with the Chinese Academy of Social Sciences, says the automobile sector is a typical example of a troubled industry, as existing producers compete with each other to expand their production capacities.

Small and weak independent development capabilities are causing some of the problems. There are about 120 plants that are only capable of producing less than 10,000 vehicles per year.

Yet all local governments are eager to launch new auto-related projects, Lin said.

Small iron and steel works, which were previously closed by local governments because of pollution and inefficiency, have resumed production.

Fan said the central government could use administrative measures to rein in the fast growth of fixed asset investment, because some projects are being funded by local government.

The central government could also use both monetary and fiscal policies to cool down investment, he said.

China Securities economist Zhu Jianfang said the nation's fixed asset investment rate was expected to slow in the second quarter.

For 2004, the rate was likely to rise about 20 per cent, he said, compared with 26.7 per cent last year.

Zhang Liqun, a senior researcher with the State Council's Development Research Centre, said there was nothing to suggest that the country's fixed asset investment would speed up this year, although it grew by 53 per cent during the first two months.