A report from China's economic watchdog has warned that fixed assets continue
to lead galloping investment growth into overheating.
The National Development and Reform Commission (NDRC) said overall fixed
assets investment during the first half grew 29.8 precent to 4.24 trillion yuan
(530 billion US dollars), 4.4 percentage points higher than the same period last
Meanwhile, nearly 100,000 new construction projects were launched, 18,000
more than the first half of last year.
Some industries showed signs of overheating. Investment in textiles surged by
40.6 percent and automobiles by 44.5 percent in the first half, accelerating
from the first quarter.
Some projects deviated from the state's industry plan, and repeated
construction remained serious, the report said.
The problems were attributed to local governments' blind pursuit of rapid
economic development, excessively driven by growth in fixed assets investment,
the report said.
Rampant illegal land use exacerbated the problem.
The report suggested efforts to curb the soaring fixed assets investment,
including stricter controls on the number of new projects, more stringent land
management, tighter bank lending, and a more efficient investment structure.
Officials meet to 'unify thinking'
More than 100 top Chinese reform officials met yesterday in the summer resort
of Beidaihe, 250 kilometres northeast of Beijing.
The meeting was planned to be a series of closed-door brainstorm sessions on
challenging issues in the nation's social and economic reform, and most
importantly to draw up the development roadmap for the next half of this year,
according to officials from the National Development and Reform Commission
(NDRC), which organized the event.
Participants included officials in charge of reform, commerce and monitoring
of market prices from the provincial level.
The five-day brainstorm series is "an annual event for mid-year stock
taking," said commission press officer Zhou Qing. But the meeting is expected to
take three more days this year than in the past, due to the particularly long
agenda, she said.
The usual mid-year stock-taking conference would take only two days, she
said, with all the discussions held in Beijing.
The 2006 agenda for the Beidaihe meeting, according to the officer, covers
several aspects of reform, including how to slow down economic growth when some
economists say it is already over-heating, how to curb the land and credit
supplies that have been fuelling a nearly unbridled rise in property investment
and related prices, how to raise energy efficiency, how to balance income
distribution, and how to reform the government system.
However, the tough part of this year's meeting is not to design solutions,
but to "unify thinking," according to another NDRC official who does not wish to
have his name disclosed.
Provincial officials are expected to seek an agreement with the central
government on the evaluation of the economic situation, particularly on the
general line to be taken to deal with the nearly frenzied investment growth.
"We have already introduced several batches of measures in economic control
since 2003," said the NDRC official, a specialist in the monitoring of fixed
asset investment. "But more often than not, they got ignored or became distorted
at the local level."
During the first half of this year, the rate of growth for China's gross
domestic product (GDP) was 10.9 per cent, the highest since 1995, with
economists forecasting even higher growth in the months to come.
In the mean time, although the government planned to cut energy use per unit
of GDP by 4 per cent from that of 2005, the actual figure gained 0.8 per cent in
the first half of the year, in year-on-year terms.
Stephen Roach, chief economist of Morgan Stanley, recently said China is a
special case where economic development is dominated by such capital-intensive
activities as urbanization, infrastructure, and industrialization. As a result,
the investment share in China's GDP growth would naturally expand more quickly,
as internal consumption lacks support and the impetus to export remains strong.
"But this unbalanced growth model has now gone to excess," Roach declared in
a recent writing.
In their heydays, investment shares in Japan and Korea never went above 40
per cent of GDP. Now, in Roach's forecast, China's investment is likely to hit
50 per cent of GDP in 2006 underscoring the looming risk of excess supply in
credit and land.
The central government has been seeking to curb this trend since 2003, with
NDRC having issued directives nationwide, constraining project approvals in
over-heated industries like aluminium, cement, ferrous alloys, coal,
carbide-based PVC, and real estate development.
However, the growth momentum has remained stronger than officials would like
Wu Jinglian, an economist with the State Council Development Research Centre,
a central government think-tank, said recently that such galloping growth is
mainly a result of the local governments' investment urge, and of their meddling
with the land rights and the prices of resources.
"Government offices all need to learn to redefine their roles in the market
economy," the veteran economist said.