Figures indicate risk of overheated economy

By Shangguan Zhoudong (
Updated: 2007-06-18 13:33

China's fixed-assets investment in urban areas rose 25.9 percent in the first five months of 2007 to 3.2 trillion yuan (US$418 billion) from a year earlier, according to statistics from the National Bureau of Statistics (NBS).

It was one of several figures released last week by the NBS indicating the economy's risk of overheating, including the 3.4 percent consumer price index (CPI) growth and 18.1 percent industrial production expansion.

"The 25.9 percent growth in fixed-assets investment is acceptable," said Zhu Jianfang, chief economist with China Securities in Beijing.

China's fixed-assets investment reached a record high in the second quarter last year. At the higher starting point, China also recorded such a high increase that the growth rate in the third and fourth quarters of this year would increase by 30 percent if no control measures are implemented, Zhu said.

The producer prices index (PPI) in China grew 2.8 percent year on year in May, mainly propped up by a 3.6 percent rise in procurement prices of raw materials and energy, according to statistics from the NBS.

China's retail sales in May rose 15.9 percent from a year earlier to 715.8 billion yuan after gaining 15.5 percent in April, the NBS said.

Chen Jijun, an analyst from CITIC Securities, said that all key economic figures are on the high side, so the risk of economic overheating would be heightened.

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He also predicted that the central bank would raise the interest rate again soon as the monetary policy can prevent long-term inflation, stabilize deposits and control credit loans and investment.

According to Ha Jiming, chief economist of China International Capital Corporation, there is no need to control the CPI hike boosted by increasing food prices through another interest rate hike.

Ha also said China should consider abolishing the interest tax to tackle the "negative interest rate" problems.

"The more important thing now is the exemption from interest tax. If it is impossible to implement, the central bank may raise interest rates this month, if the interest tax can be abolished this month, China may consider another interest rate hike between July and August this year when negative interest rate occurs," Ha said.

As for fiscal policies, Fan Jianping, a director with the State Information Center, said the government would enhance the adjustment of tax rebate policies, raise resource taxes, and increase fees connected with garbage and sewage disposal, in an effort to encourage energy efficiency.

Fan said China may strengthen control of fixed-assets investments but may not issue new policies, as the government will focus on implementing policies it has already released.

Zhu predicted the government would tighten control of new investment, especially in energy-guzzling and high-pollution sectors.

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