Economists warn of economic overheating in China
A group of leading Chinese economists have lined up to warn the government of imminent overheating of the economy and to call for further measures to slow growth.
The group used as a platform for their call on a seminar organized by the State Council Development and Research Center, an official think-tank, on China's economy and industrial development.
The argued for a raft of macro-economic and monetary measures, including greater flexibility in the currency exchange rate, in order to rein in the rapidly rising growth of investment and borrowing.
Xie Fuzhan, deputy director of the center, said the risk of economic overheating had been exacerbated by the excessive growth of fixed asset investment, loose monetary supply and an imbalance in international payments.
The major macro-economic regulatory measure had been the central bank's raising of the reserve requirement ratio to reduce excessive liquidity, or capital available for investment, said Xie.
The monetary authorities should continue to raise interest rates on both savings and loans, and increase the flexibility of its currency exchange rate.
He also called for further reform of resources taxation and distribution of land-use transaction revenues, urban property taxes on developers, and reform of the pricing of energy and natural resources.
Lu Zhongyuan, chief of the center's macroeconomic department, urged the central authorities to refrain from intervening in the market to prevent economic overheating.
Macro-economic regulation should rely on economic and legal measures, while avoiding administrative intervention, such as with the distribution of resources, he said.
Liu Shijin, deputy director of the center, singled out the real estate market and urban infrastructure sectors as overheating with too much investment.
These sectors, with their influence over other industries, were a priority of economic regulation and investment needed to be slowed.
China's macro-economy presented "obvious overheating of investment" in the first half, said Wang Xiaoguang, a macro-economics professor at the Economic Research Institute of the National Development and Reform Commission, one of the key government departments for economic affairs.
"The overheating is all-round, in nearly all industries and all regions of the country," Wang warned.
Wu Jinglian, a professor at the center, said China's dependency on investment for economic growth resulted in a macro-economic imbalance with a rapid growth in investment and slower growth in consumption.
China's economy grew a higher-than-expected 10.9 percent in the first half compared to the same period last year despite a slew of government measures to ease the growth of investment.
Total investment in roads, factory equipment and other fixed assets soared 29.8 percent, an increase of 4.4 percentage points, according to figures last week from the National Bureau of Statistics (NBS).
The People's Bank of China - China's central bank - announced last week a rise in the reserve requirement ratio of banks, excluding rural cooperative banks and credit cooperatives, by 0.5 of a percentage point from Aug. 15 to reduce the amount of money available for investment.
The last time the central bank adjusted interest rates was on April 27, when it raised the benchmark one-year loan interest rate from 5.58 percent to 5.85 percent, but did not change the rate for savings.
Analysts said a higher interest rate on deposits could help curb excessive investment, but would also discourage consumption and investment in stock markets, which the government has been working hard to encourage for sustainable economic development.
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