China takes measures to curb excessive investment in certain fields

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Last updated at: (Beijing Time) Monday, March 08, 2004

China takes measures to curb excessive investment in certain fields

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Though most economists do not agree to the opinion that the Chinese economy is overheating, the Chinese government nevertheless decided to take precautions against the excessive investment trend in some industries.

The worry about the overheating Chinese economy is not totally baseless. Last year domestic consumer price level, after eight months' low-level increase, began to assume fast growth in September. The year-on-year growth of last December and this January reached 3.2 percent respectively - the highest in the last six years.

In 2003 China's total investment approached half of the GDP. Investment in fixed assets grew 26.7 percent year on year, among which investment in real estate grew 29.7 percent and investment in iron and steel, cement and electrolytic aluminum industries nearly doubled. More than half of the investment in fixed assets came from bank loans, which have assumed an accelerated trend of growth since August 2002. Last August witnessed the record monthly increase of 24 percent. Chinese Premier Wen Jiaobao has warned more than once against some new problems that emerged in the accelerated economic development such as blind investments and redundant low-level construction in certain industries and regions. Last month the State Council held a televised conference on the control of excessive investment in certain industries and called for a halt to the inordinated investment trend in iron and steel, electrolytic aluminum and cement industries.

Industrial and Commercial Bank of China (ICBC), as the biggest wholly State-owned commercial bank in China, announced that loans would be reduced by 40 billion yuan to 310 billion and that it would rigorously restrict loans to overheated industries. Days ago China Banking Regulatory Commission (CBRC) issued regulations requiring that bank loans to realty industries should not exceed 30 percent of total bank loans and personal residential mortgage loans should be put under strict examination.

In fact, early last September People's Bank of China (PBC) already raised savings reserve ratio from 6 percent to 7 percent and reduced the capital that commercial banks use for loaning. These have had preliminary effect on curbing the growth credit loans. In the third quarter RMB loans of all financial institutions increased 230 billion yuan per month and in the fourth the increase slowed down to 97.9 billion yuan. PBC announced recently that the growth objective of total financial institutions loans would be 16 percent this year, lower than last year's 21 percent. While expressing great concern about the overheating trend in some industries and fields, the Chinese government nevertheless stresses that the countermeasures should be more of "regulation" than of "a brake". Vice-Premier Zeng Peiyan recently said that in regulating excessive investment we should "guard against administrative interference in the main body of investment", and that the enterprises should be guided to avoid investment risks by showing them the anticipated industrial prospect and corporate investment acts should be regulated by employing laws on the environment and industrial structure.

PBC requests that on the one hand we should pay great attention to preventing inflation and financial risks, on the other we should avoid taking uniform action for credit squeeze. On the basis of continuing the prudent monetary policy this year, "advance and slight regulation" will be made to the new changes happened in the operation of the macro-economy such as price hikes.

The growth rate of the overall domestic consumer price level in January was equal to that of last December. Yao Jingyuan, chief economist with the National Bureau of Statistics of China, analyzed that as the Spring Festival holiday is considered to be the boom season of domestic consumption, the real inflation trend is subsiding. Outlook Weekly quoted a report by the Price Monitoring Center of the National Development and Reform Commission as saying, the overall price level in January continued to be influenced by the upward trend late last year, domestic consumer price is expected to rise moderately - with the growth rate not exceeding 3 percent.

By People's Daily Online

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