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Fri, Aug 15, 2003 - Page 12 News List

China investment fever too high, official warns

THE GUARDIAN , LONDON

A senior Chinese minister warned Wednesday that the world's fastest growing economy is in danger of overheating as expansion outstrips power supplies, threatens production quality and raises the risk of oversupply.

In the first six months of the year, China sprinted forward at a blistering pace of 8.2 percent, but then concerns about the risks were tempered by the SARS epidemic, which was seen as a coolant for such high octane growth. With the SARS outbreak under control, officials have started to speak about the rise in economic temperature, pushed up by the growth of small, low quality and poorly regulated steel, cement and car firms.

"If it is not cooled, the investment fever in some industries will heavily affect China's robust economic growth," said National Development and Reform Commission Minister Ma Kai (馬凱) in a China Daily interview.

China's belated but passionate embrace of capitalism has produced enviable statistics, and because of its cheap labor it has become the workshop of the world. China was shocked by the scenes last week at French retail group Carrefour's new store in Hangzhou, where sales assistants had to hold back shoppers.

In the first half of the year, investment in the steel industry more than doubled. In June, car production surged 82 percent year on year, bank loans rose by 26 percent and fixed capital expenditure by 31 percent.

But the authorities are concerned that much of the new money is being thrown at inefficient firms and redundant capacity. This is worryingly reminiscent of the "Great Leap Forward," when even remote villages established steel mills, raising national production, although quality was often poor.

Ma pointed out that many new steel and car firms use old equipment that worsens pollution and wastes energy. The power industry is stretched to the limit, as blackouts this summer have proved.

Financial authorities have also warned of a real estate bubble as investment in new housing out-strips demand. One result of this has been deflation, now at about 0.2 percent. Investment in excess buildings and factories is being fuelled by a sharp growth in the money supply, with cash in circulation 20 percent up in June.

Last year, lending for property rose by more than 50 percent. The government has frozen land leases and warned local authorities to be cautious in infrastructure projects.

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