THE government would clamp down on illegal projects to cool “excessive” growth in fixed-asset investment that threatens the stability of the world’s fourth-biggest economy, State Cabinet said yesterday.

Investment was “too rapid” and had “become a prominent problem,” the State Council said in a statement on the government’s Web site.

Investment in urban factories and property climbed 26.9 percent in the first 10 months to 8.9 trillion yuan (US$1.2 trillion) — more than the annual gross domestic product of Russia. Instead of raising interest rates for a sixth time this year, the government has put pressure on banks to curb lending as it tries to prevent cash from record trade surpluses from overheating the economy.

“The government is using more administrative measures in an attempt to curb rebounding investment growth,’’ said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. Higher interest rates would attract more money from abroad, fueling the liquidity problem, Wang said.

Excessive factory spending poses an environmental threat and raises the risk of overcapacity and bad loans if the economy slows. The government has tightened project approvals since late 2004 and is trying to restrain the expansion of factories that are heavy polluters and energy consumers.

More than two-thirds of Chinese enterprises believed their industries had overcapacity, Xinhua News Agency reported recently, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.

“As the United States cuts rates, it becomes more difficult for China to raise rates on concern that more hot money may flow into the country to seek higher returns,’’ Wang said.

Urban fixed-asset investment has quadrupled since 1996 when the data was first released and accounted for 42.5 percent of China’s gross domestic product last year.

“Some projects were started without following legal procedures over the past few years and the enforcement of investment controls has been lax,” the State Council said. And developers had faked documents to secure approvals and violated land and environmental rules, it said.

The government said last week that it would delay the approval of some projects in the fastest-growing regions.

The State Council yesterday told local governments to make inspections, close illegal projects and supply information on new approvals to higher State bodies. (SD-Agencies)