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Govt set to boost investment

By Liang Fei (Global Times)

08:10, April 24, 2012

The central government is set to speed up its infrastructure investment to avoid further cooling of the Chinese economy, and experts said yesterday this may be the best way to boost growth amid shrinking overseas demand.

China Securities Journal reported yesterday that the government is planning to boost infrastructure investment and that the National Development and Reform Commission has already approved a number of infrastructure projects this year, most of which are located in central and western areas.

"Investment in fixed-assets should be boosted in order to avert the risks brought by a slowdown in export growth," Lu Zhengwei, chief economist at the Industrial Bank, told the Global Times yesterday.

In the first quarter of this year, China's export volume only grew by some 7.6 percent, figures from the National Bureau of Statistics showed.

Dariusz Kowalczyk, a senior economist at Credit Agricole CIB in Hong Kong, told the Global Times yesterday that currently the best way to boost growth is via infrastructure spending, given that "household consumption is still not strong enough, growth in trade is slowing, and the residential real estate market contains downside risk."

"Fixed-asset investment will be focused in the country's central and western areas, where investment growth will remain at a high level in the second quarter," Lian Ping, chief economist at Bank of Communications, said yesterday.

In the first quarter, growth of fixed-asset investment in central and western China was around 27 percent year-on-year, compared with 18.9 percent in eastern China.

The Ministry of Finance has accelerated fiscal spending in order to boost growth. In March alone, fiscal expenditure jumped 34.7 percent from a year ago to 1.02 trillion yuan ($161 billion), exceeding the month's revenues of 905.8 billion yuan.

Experts said that policy "fine-tuning" such as further easing to allow greater liquidity are needed to boost the economy, as the country's GDP growth has cooled to 8.1 percent in the first quarter.

"China does not need a massive stimulus, since its growth target is lower now and modest stimulus will be enough to achieve it. Large stimulus has too many negative consequences, such as asset price bubbles and low quality investment," said Kowalczyk.

The country's new lending reached a 14-month high of 1 trillion yuan in March, a signal that liquidity pressure will be eased slightly in the next quarter. And Lu from Industrial Bank said that the central government is expected to reduce banks' reserve requirement ratio.

But Kowalczyk noted that the government should avoid over reliance on investment for growth.

"China should focus more on boosting consumption. The government needs to be aware of the risks of large-scale public infrastructure projects. It is important not to rush them," Kowalczyk noted.

Zhou Xiaochuan, governor of People's Bank of China, said over the weekend that China would try to maintain "robust, sustainable and balanced growth."

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