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Western regions call for investment

China Business Weekly

While there is increasing concern that overall investment in China has been growing at a breakneck pace, some local governments are worried that the investment in their regions is far from enough.

Signs abound in the eastern region that the economy is already running too hot, but calls for money are also loud in the western part of the country.

Local government officials in the western region see the danger that if investment slows too much, profound consequences will drag down their local economy, which is already below the nation's average level.

"A simple cut in any investments would not be applicable in western regions," said Xuekelaiti Zhaker, mayor of Urumqi, capital city of Northwest China's Xinjiang Uygur Autonomous Region.

"We do not agree with over-investment. But the fact in Urumqi is that economic growth is mainly led by investment as consumption power there is too weak to drive the local economy," said the mayor, who pledged not to initiate any copycat constructions or image-building projects in his city.

According to him, investment should stand at 65 to 70 per cent of the total demand in Urumqi, a level which would safeguard the sound development of the local economy.

Xiong Guanglin, mayor of Bazhong City in Southwest China's Sichuan Province, voiced a similar view.

He said investment in the health and medicare sectors in western rural areas is particularly low.

While more than 90 per cent of women in cities give birth in hospital, about 90 per cent of babies are born at home in the countryside.

Seventy per cent of the nation's population living in rural areas enjoy merely 30 per cent of the nation's resources in the health and medicare sectors.

"A plain comparison can tell it all," Xiong said. "When putting an end to hasty investments, the fact that some rural regions are in dire need of investment should not be overlooked."

Experts said a comprehensive strategy has to be worked out to avoid a dilemma in putting a brake on overinvestment.

While the government needs to heed warnings that overinvestment will derail the sound development of the economy, high attention should also be paid to the regional imbalance in receiving investment.

With investment gushing into the country, a long list of industries -- from steel to mobile phones to automobiles -- are seeing their production capacity grow at a breakneck pace.

Over the first two months of this year, China's fixed-asset investment in urban areas hit a record, increasing 53 per cent over the same period of last year.

And this result comes after the Chinese Government has already tried many possible measures to cool down the economy.

To further rein in the unfettered rise in investment in some profitable areas, and curb possible inflation, the People's Bank of China announced its latest move is to increase the reserve requirements for all financial institutions by a 0.5 percentage point. The rule took effect on April 25.

The hike is expected to freeze an estimated 110 billion yuan (US$13.25 billion) in commercial banks' reserves.

However, despite the move, according to some experts, immediate effects may not be seen anytime soon.

That's because local governments initiate most of the investment, and some local officials tend to go their own way.

Figures from the National Development and Reform Commission show that the total investment by the central government rose only 12.1 per cent over the first two months of this year, but local investment shot up 64.9 per cent during the same period.

The monetary policies of the central bank may not be the only panacea to the problem. More measures to dilute local governments' investment enthusiasm would help solve the dilemma, according to Yi Xianrong, a senior researcher with the Chinese Academy of Social Sciences.

Yi said the real estate sector needs to take the blame. The fast increase in real estate investment has driven the hasty growth of all related sectors, including steel, cement and aluminum.

Although the government has announced policies to curb the rapid growth in real estate, few signs of cooling have been detected across the country.

By comparison, some sectors such as agriculture have for many years experienced a shortage of funding and few great changes are on the horizon.

The government has set a goal this year to achieve sustainable economic growth of around 7 per cent. To solve the imbalance across the regions and industries is one of the key issues, experts said.


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