BIZCHINA / Top Biz News

Fixed-asset investment likely slowed
(Bloomberg)
Updated: 2006-08-15 08:59

Investment in China's factories, real estate and other fixed assets likely grew at a slower pace in July as the government moved to curb expansion.

Fixed-asset investment in towns and cities climbed 30.7 percent in the first seven months from a year earlier, according to the median forecast in a Bloomberg News survey of 20 economists. The gain follows a 31.3 percent increase in the first half. The figures are due at 10 a.m. local time tomorrow.

Premier Wen Jiabao is stepping up efforts to curb spending on factories and real estate to prevent the world's fastest-growing major economy from overheating. Money supply expansion has cooled since May and new lending dropped last month after banks were forced to set aside more money as reserves.

"Investment growth likely eased marginally in July in line with the moderation of money supply and bank loan growth as well as policies such as those targeted at the property market," said Qian Wang, an economist at JPMorgan Chase & Co. in Hong Kong.

Money supply grew 18.4 percent in the year to July after accelerating to 19.1 percent in May, the fastest pace since December 2003. New yuan lending in July totaled 171.8 billion yuan, half the monthly average in the first six months of the year.

In its second-quarter policy report last week, the People's Bank of China said it would use a mix of monetary tools to reduce the amount of cash in the financial system available for investment funding. The central bank raised lending rates in April and has since twice increased the reserve requirement ratio for commercial banks.

Inflation Concerns

China's economy grew 11.3 percent in the second quarter from a year earlier, the fastest expansion in a decade, raising concerns that booming investment may stoke inflation. The last time China expanded that fast, in 1994, inflation was running at more than 20 percent.

The central bank last week said economic growth will slow "slightly" in the second half and warned that inflationary pressure is rising as surging investment boosts prices of raw materials and energy.

Inflation as measured by the consumer price index unexpectedly fell to 1 percent in July as vegetable prices dropped. Excluding food, inflation was 1.2 percent, matching June's pace which was the fastest since November.

"The government is worried about the impact of investment on inflation," said Hong Liang, an economist at Goldman Sachs Group Inc. in Hong Kong. "It will be inflationary, and when you have inflation you have to tighten."

Government Commands

The National Development and Reform Commission, the nation's top economic planning body, on Aug. 1 said it ordered provincial authorities to review new investment projects and cancel those that don't meet the government's industrial, land, credit and environmental regulations.
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