THE country’s spending on factories, real estate and other fixed assets grew at a slower pace in the first two months after the government curbed lending and project approvals in the world’s fourth-largest economy.
Fixed-asset investment in urban areas rose 23.4 percent in January and February combined from a year earlier to 653.5 billion yuan (US$84 billion), the statistics bureau said Friday. Investment gained 24.5 percent in 2006.
China uses curbs on lending and investment to deter the construction of factories that will stand idle if expansion slows in the fastest-growing major economy.
Accelerating inflation, asset bubbles and a flood of cash from a record trade surplus led to central bank Governor Zhou Xiaochuan raising interest rates, further restricting spending in the country.
On Saturday, the People’s Bank of China announced that, effective Sunday, its benchmark one-year yuan lending and deposit rates would rise by 0.27 percentage points each. The rate hike is the latest in a series of measures China’s leaders have taken to slow an economy they fear is running at an unsustainable pace.
The bank has also ordered lenders to hold larger reserves and sold bills to cool growth in the money supply.
“The key risk in the Chinese economy remains a re- acceleration, not a significant slowing,” said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong.
Investment accounted for 52 percent of China’s gross domestic product in 2005, the most recent figure available. That compared with 33 percent in India, the world’s second fastest-growing major economy, in the 2005-2006 period.
The government last year began to shut inefficient plants and curb investment within 11 industries including steel, coal, cement and aluminum, Premier Wen Jiabao said.
Administrative measures are also reining in spending. The China Banking Regulatory Commission last month told lenders to strengthen efforts to rein in property loans to cool prices.
Still, companies can bypass lending curbs by raising money in the capital markets, and planning for the 2008 Olympic Games is stoking spending, as factories are moved out of the capital to clear the air.
The government last week approved Shougang Corp. and Tangshan Iron & Steel Group building a 67.7 billion yuan (US$8.7 billion) steel plant in northern Hebei Province to move production from Beijing.
Industrial production jumped 18.5 percent in January and February combined, the most in eight months, the government said Thursday.
The central bank in February ordered lenders to set aside more money as reserves for the fifth time in eight months. A further increase in the ratio of reserves to deposits from 10 percent is possible, deputy governor Wu Xiaoling said last week.
“China can’t afford to take its hand off curbing investment,” said Liang Hong, an economist at Goldman Sachs Group in Hong Kong. “The central bank should increasingly use monetary measures which are more sustainable than the frequent phone calls.” Liang was referring to the government seeking to implement policies via calls to lenders.
(SD-Agencies)
