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State Council Think Tank: Cooling Investment Spree on Real Estate, Steel and Autos

The State Council, China's cabinet, will hammer out stringent measures to cool over-heated investment on real estate, automobile and steel sectors, said Cong Ming, vice-director-general of the Macro Economy Department under the State Council Research Office, at a seminar in Jinan University.


According to Cong, the State Council will hammer out relevant measures to increase investment on public facility constructions while structurally adjusting capital-flow towards real estate, automobile and steel sectors. Investment projects of high-class residential and office buildings will be carefully reviewed and leveraged. Moreover, the State Council will strengthen works on tax rebate in exporting business and increase refunding indexes. By the end of last year, the government had owed 240 billion yuan (US$28.99 billion) tax rebate fund that should be returned to enterprises.


Now the central government is studying the feasibility to let local financial departments share the burden of tax refunding.


Cong Ming, who participated in the State Council's economic policy-making, thinks that the real estate, automobile and steel sectors have seen some structural investment problems and shown signals of potential bubbles. He warns that some messing-up may even lead to financial risks. According to statistics, the national average investment rate between January and May reached 39.4 percent while residents' consumption remained stable. In the SARS period, residents' consumption even decreased by a big margin.


The real estate sector now enjoys the highest investment growth, as the business regards it an investment bonanza with continuous price hike and substantial profit. But while high-class resident houses and office buildings flooding the market with slowing down sales, economic houses and those best needed by common residents fall short of demand. Meanwhile, the over-numbered new automobile projects mushrooming nationwide will cause redundant construction instead of scale-up operation. In steel production, there is a lack of high value, high quality and high technological products, while the numerous small steel factories, who produce low-quality steel and enjoy high profit return, further exert the nation's stringent resources of water, power and transportation.


(China.org.cn by Alex Xu, July 24, 2003)


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