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Investment Growth to Slow down

Although China's fixed asset investment will continue to play a leading role this year in the nation's economic development, the contribution of investment to overall gross domestic product will fall compared with last year, according to economists and officials.

 

Asian Development Bank Senior Economist Zhuang Jian said China's fixed asset investment, which grew 25.8 per cent year-on-year in 2004, remained at a high level.

 

He said this indicated that the nation's economy was "far from achieving a soft landing."

 

The government will continue to strengthen its macro-control measures to slow growth this year, Zhuang added.

 

Fixed asset investment grew as high as 43 per cent during the first quarter of last year, sparking concerns among economists and officials that the country's economy might overheat.

 

The government has taken a series of measures to deal with this situation, including raising the interest rate for the first time in nearly a decade to try to cool the economy.

 

Fixed asset investment growth fell to 18.3 per cent in May 2004, but has began to bounce back since then.

 

Li Deshui, director of the National Bureau of Statistics, said the government will take measures to prevent fixed asset investment from rebounding this year. He insisted that there must be no relaxation in the tight management of land supply and credit.

 

The government will also use more economic and legal methods to adjust and optimize the economic structure, he said.

 

Echoing Li's remarks, a report by the National Development and Reform Commission said the government will continue to rein in over-investment.

 

The government is targeting a fixed asset growth of 16 per cent this year, said the report submitted to the ongoing third session of the 10th National People's Congress (NPC).

 

The government will further improve co-ordination between industrial policies, credit policies and land policies.

 

The macro-control measures mapped out last year will be implemented this year to prevent fixed asset investment in sectors such as steel, cement and aluminum from rebounding, the report said.

 

Illegal construction and over-investment in coal-fired power stations will be brought under control, it said.

 

Chen Dongqi, vice-president of the commission's Academy of Macro-Economic Research, said earlier that China's fixed asset investment growth will drop to less than 20 per cent this year.

 

However, fixed asset investment will be a major driver of this year's economic growth, he said.

 

Yao Jingyuan, chief analyst of the National Bureau of Statistics, agreed that fixed asset investment will be a strong engine for the economy before 2007.

 

"The Chinese economy has entered a new period of development," he said.

 

A prominent feature of this round of economic development is that heavy industry contributes a great deal to the manufacturing sector, he said.

 

The strong demand for energy, electricity, raw materials and other products fuels a large amount of investment.

 

China's consumption structure is shifting from small items such as TVs and bicycles to large ones such as housing and cars.

 

"The upgrading of the consumption structure will also lead to industrial structural adjustment and new investment demand," he said.

 

Meanwhile, foreign companies' increasing enthusiasm for the Chinese market and the country's accelerated rate of urbanization will create a large investment demand, he said.

 

However, the government will have to keep a clear mind to prevent investment from overheating, he said.

 

Officials and economists have already agreed that the government should focus on consumption demand while not on investment in order to maintain sustainable economic development in the future.

 

Long-term reliance on investment to fuel the country's economy might be dangerous, said Zhuang.

 

Rapid growth in fixed investment but weak demand would result in a production oversupply, which would have negative economic consequences, he said.

 

Zhou Jingtong, a senior economist at the State Information Centre, said 17 per cent would be a healthy growth rate for China's fixed asset investment.

 

"Fixed asset investment will grow at that rate this year," he said.

 

Enterprises' economic efficiency will continue to improve, he said.

 

This will increase companies' investment capacity and willingness, which have an active impact on investment.

 

Figures from the National Bureau of Statistics indicate that the profit growth of the country's industrial enterprises was 38.8 per cent year-on-year in the first 11 months of last year, fueled by high prices and the country's fast economic growth.

 

Li from the National Bureau of Statistics said China is capable of maintaining fast and stable economic growth this year.

 

Premier Wen Jiabao said in his work report to the NPC on Saturday that China is targeting an economic growth of 8 per cent for this year.

 

This growth rate is 1 percentage point higher than last year's target, but was 1.5 percentage points lower than the year's actual growth.

 

Ma Kai, minister of the National Development and Reform Commission, said the government will also try to keep consumer price growth under 4 per cent.

 

Sound economic growth and higher prices will be beneficial for companies to increase their efficiency and profits, as well as boost their enthusiasm for further investment, Zhou said.

 

However, there are also a number of unfavourable factors confronting fixed asset investment this year, he pointed out.

 

Apart from the government's tightening measures, investment backed by external demand will drop, Zhou said.

 

China's fast fixed asset investment during the past year was partly a result of increasing exports due to improving global economic fortunes.

 

But exports will face a number of uncertainties, because of increasing trade protectionism, the relatively higher base figure for last year, and lower world economic growth predicted for 2005, Zhou said.

 

"When taking these favourable and unfavourable factors into consideration, the nation's fixed asset investment will continue to fall this year, to about 17 per cent," he said.

 

The key role of fixed asset investment in economic growth will also weaken slightly, he said.

 

But fixed asset investment will not experience any major fluctuations this year.

 

According to Zhou, the growth of fixed asset investment in the country's western regions was faster last year than in central and eastern areas.

 

But it will become difficult to maintain this growth in western regions, because the country's fiscal policy has shifted from a pro-active to a prudent one.

 

The government's support for investment in these areas will decrease to a certain extent.

 

Meanwhile, the relatively lower economic development level in western regions is unable to support faster fixed asset investment, he said.

 

Zhou said the country is expected to witness a fast rise in fixed asset investment in the service sector and agriculture this year.

 

Chinese residents' fast income growth last year will help stimulate consumption demand. This will lay solid foundations for this year's investment growth in the service sector.

 

The opening of more sectors to foreign and private companies will also help the sector usher in more investment.

 

China's service industry is expected to grow 8.4 per cent this year from last year's 8.3 per cent, Zhou said.

 

Fixed asset investment in the service sector will grow 18 per cent, he said.

 

As the government has decided to continue to strengthen support for agriculture and rural areas and increase farmers' income, fixed asset investment in agriculture will increase.

 

(China Daily March 8, 2005)

 

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