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Central government to rein in investment

(China Daily/chinadaily.com.cn)
Updated: 2007-04-20 07:08

Blue chips continued the downward trend. China Life, the country's biggest life insurer, lost 3.06 per cent to 35.46 yuan following a fall of 3.48 per cent the previous day, while its rival Ping An Insurance slid 3.58 per cent to 51.98 yuan, when it slid down 2.25 per cent on Wednesday.

China Petroleum and Chemical Corporation (Sinopec), Asia's largest refiner, dipped 5.44 per cent to 10.78 yuan, and China United Telecom was also down 5.37 percent to 5.29 yuan.

The declines far outnumbered the advances by a ratio of 15 to 2 in the Shanghai Stock Exchange and by 10 to 1 in Shenzhen.

A risk of an overheated economy

China's GDP totaled 5.03 trillion yuan (US$653 billion) in the first quarter of this year, an increase of 11.1 per cent from the same period last year.

The secondary sector, including manufacturing, mining and construction, posted the fastest year-on-year growth of 13.2 per cent in the January-March period, according to Li.

Fixed-assets investment amounted to 1.75 trillion yuan (US$227.6 billion), up 23.7 per cent. The growth was four percentage points lower than the same period last year.

Retail sales rose 15.3 per cent in the first quarter from 2006, according to Li.

He cited the rapid economic growth was driven by investment, consumption and import and export.

When asked if the Chinese economy is overheated, Li replied it was a comprehensive problem, as the GDP growth indicator alone was not enough to tell if an economy was overheated or not.

But Li warned there is a risk for Chinese economy to evolve from fast growth to overheating.

Inflation accelerating

CPI growth in March is the highest in 25 months after it hit 3.9 per cent in February 2005.

For the first quarter, CPI climbed 2.7 per cent, 1.5 percentage points higher compared with the same period last year, said Li, adding that CPI in March was 0.3 per cent lower compared with February this year.

The Producer Price Index, another indicator of inflation, rose 2.7 per cent in March from the same period in 2006 while the year-on-year growth for the first quarter was 2.7 per cent.

The figures were close to the economists' estimates which have fuelled speculation the central bank might be forced to raise the interest rate as early as May.

Several days after the inflation data was released last month, the central bank raised the benchmark one-year deposit interest rate by 27 basis points to 2.79 per cent.

Besides the anticipated interest rate increase, the People's Bank of China has raised the amount of money lenders must set aside as reserves six times in 10 months and sold bills to reduce cash lending. However, that hasn't cooled lending growth. Banks made 1.4 trillion yuan in new loans in the first quarter of this year, nearly half the total for 2006.