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China to curb surging investment
Updated: 2005-03-31 14:04

China's top leaders have pledged more curbs on surging investment, warning that excess spending on steel factories and surging prices for iron ore threaten the economy.

The moves, announced by the government following a meeting of the State Council, China's cabinet, caused share prices on domestic bourses to slip early Thursday.

China has been imposing curbs on bank lending and restricting investment in some sectors it says have been expanding at an unsustainable pace, risking financial problems, straining energy and transport networks and pushing prices dangerously higher.

Investment in construction, factories and other "fixed assets," China's benchmark measure of capital spending, rose 24.5 percent in January-February compared with the same period a year earlier.

Although the pace of growth has been cut about in half from its peak a year ago, it was above the 21.3 percent on-year increase for December and far exceeded the government's target of 16 percent growth in such investments for all of 2005.

Officials have repeatedly said they fear a rebound.

The State Council said it would further tighten controls on steel investment and strictly control steel exports by eliminating tax rebates for exporters, the Xinhua News Agency reported.

The government also plans steps to deal with a surge in iron ore prices on the international market by strengthening coordination of imports and iron ore operations, it said.

Chinese steel makers are among many in the industry facing a 71.5 percent price increase for low-grade iron ore from Brazil-based Companhia Vale do Rio Doce SA, the world's largest ore producer.

The leaders agreed that China's economic situation is "good in general, but there exists quite a number of problems," the Xinhua report said.

Share prices slipped Thursday on the news of further curbs on investment.

In early trading the Shanghai Composite Index lost 9.68 points, or 0.5 percent, to 1,166.89. The Shenzhen Composite Index fell 1.77 points, or 0.6 percent, to 292.49.

"Although the report is in line with previous government comments, it's still psychologically negative for the market," said Shen Zhengming, an analyst at Orient Securities in Shanghai.

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