China's fixed asset investment growth slowed in April compared with the previous month, according to a report released by the National Bureau of Statistics on Tuesday. Fixed asset investment stood at 398.9 billion yuan (US$48.1 billion) for the month, a year-on-year increase of 34.7 percent, but the growth rate dropped 8.8 percentage points from that of March.

During the first four months of the year, fixed asset investment rose 42.8 percent year-on-year. But the figure was 47.8 percent during the first quarter.

Fan Gang, director of the National Economic Research Institute, said the decline in the growth rate suggests the central government's macro economic measures have started to kick in.

China has taken a series of steps since last year to cool the overheated economy, including raising bank reserve requirements three times and curbing undesirable fixed asset investment projects.

Recent moves to slow growth include issuing tighter restrictions on new projects in "overinvested" industries like property and steel, and ordering banks to increase reserves.

However, there were still too many new projects, said Fan. Excessive growth in some sectors and regions is putting a strain on transport and power suppliers and driving up the prices of raw materials.

The overheating of industries such as steel, aluminum, cement and automobiles could have a serious impact on the economy.

"If it is not cooled, the investment fever in some industries will have a big impact on China's robust economic growth," Fan said.

Many of the latest projects rely on outdated technology and equipment, affecting their ability to control pollution. They also have a tendency to consume a lot of energy.

Lin Yueqin, an economist with the Chinese Academy of Social Sciences, says the automobile sector is a typical example of a troubled industry, as existing producers compete with each other to expand their production capacities.

Small and weak independent development capabilities are causing some of the problems. There are about 120 plants that produce fewer than 10,000 vehicles per year. Yet all local governments are eager to launch new auto-related projects, Lin said.

Small iron and steel works, which were previously closed by local governments because of pollution and inefficiency, have resumed production.

Fan said the central government could use administrative measures to rein in growth of fixed asset investment because some projects are funded by local governments, as well as both monetary and fiscal policies.

China Securities economist Zhu Jianfang said the nation's fixed asset investment rate is expected to slow further in the second quarter.

For 2004, the rate is likely to increase by about 20 percent, he said, compared with 26.7 percent last year.

Zhang Liqun, a senior researcher with the State Council's Development Research Center, said there is nothing to suggest that the country’s fixed asset investment will speed up again this year, although it soared 53 percent during the first two months.

(China Daily May 19, 2004)