Fast pace of investment to slow down
By Xu Dashan (China Daily)
Updated: 2004-04-09 08:33

China's fast fixed asset investment is expected to slow down from the second quarter of this year, economists say.

Zhu Jianfang, an economist at China Securities, says the fast investment during the first two months of this year could not be maintained throughout the year.

Since the second half of last year, the central government has taken a series of measures to prevent the fixed asset investment from growing too much.

These measures include raising the bank reserve requirement, tightening loans to the steel, aluminum and cement industries, and beefing up management over development zones.

"The measures will have a great impact on the fixed asset investment this year," he said.

However, strong momentum in fixed asset investment will continue, because of the increasing role of private investment, he said.

The country's fixed asset investment is likely to rise about 20 per cent this year compared with the 26.7 per cent growth of last year, he said.

Zhang Liqun, a senior researcher with the State Council's Development Research Centre, said there was no reason to say the country's fixed asset investment would speed up this year, although it grew 53 per cent during the first two months.

"We can not judge the whole year's fixed asset investment situation, based on the figures for the first two months," he said.

The fixed asset investment during the two months accounted for less than 10 per cent of the year's total, he said.

Any special events in the two months could mean big changes to the figures, he said.

For example, the first two months of this year was one day longer than the same period last year.

Rural workers returned to work earlier this year, because Spring Festival was in January while last year's festival was in February.

Some companies who believe prices of raw material would rise further, speeded up the completion of their projects.

But Qi Jingmei, an economist with the State Information Centre, said the growth during the first two months was unexpectedly fast - even given possible inaccuracies due to recent statistical adjustments.

"The situation gives us little reason to be optimistic (about the prospects for inflation)," she added.

The Chinese economy rose 9.1 per cent last year, fuelled largely by the fast fixed asset investment.

But over-investment was found in the sectors of steel, cement, aluminum, as banks lent aggressively to tap the growth momentum.

Fan Gang, director of the National Economic Research Institute, said an overheating of some industries including automobile construction, steel, aluminum and cement, could have a serious impact on the economy.

"If it is not cooled, the investment fever in some industries will heavily affect China's robust economic growth," 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.

Many of the newest projects rely on outdated technology and equipment, affecting their ability to control pollution, he said. The projects also tend to consume high levels of energy.

Lin Yueqin, an economist with the Chinese Academy of Social Sciences, said the automobile sector was a typical example of the unpredictable situation, with existing producers competing with each other to expand their production capacity.

Small scale and weak independent development capabilities were problems. From 70 to 123 plants were capable of producing whole vehicles, but less than 10,000 units each per year.

Meanwhile, local governments are all 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, had resumed production.

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