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Sat, Nov 17, 2007 - Page 10 News List

China's fixed asset investment surges 26.9%, fuels interest hike speculation


Chinese urban fixed asset investment gained pace in the first 10 months of the year, official data showed yesterday, capping a week of strong data that has raised expectations of an interest rate hike.

Fixed asset investment -- a key measure of spending on infrastructure, plants and other major projects -- rose 26.9 percent to 8.9 trillion yuan (US$1.2 trillion), the National Bureau of Statistics said.

The data marked an uptick from a growth rate of 26.4 percent in the first nine months of the year, and follows Tuesday's announcement of a 6.5 percent spike in inflation that matched a decade high set in August.

"We think the government will hike interest rates ... to curb inflation," Li Huiyong (李慧勇), an economist with Shenyin Wanguo Securities (申銀萬國證券) based in Shanghai, said, adding that the hike could occur as early as last night or the weekend.

Other bullish data this week included a record-high trade surplus of US$27.1 billion. But the inflation figures, which included a 17.6 percent jump in food prices last month, are causing the most official concern.

Chinese leaders have become increasingly alarmed in recent months as prices for foods and other staple goods have spiked, raising fears of social unrest in a booming economy where hundreds of millions still subsist on meager incomes.

The government has already raised interest rates five times this year to prevent overheating, but the economy has continued to surge, expanding by 11.5 percent in the third quarter.

"It seems previous interest rate hikes have not had any major impact on money supply. Macroeconomic policies so far have not been very effective," said Qiu Qingdong, a Beijing-based analyst with Guodu Securities (國都證券).

Overall fixed asset investment, as opposed to urban investment, grew 25.7 percent over the first three quarters. The bureau provided no overall 10-month figure.

It also gave no urban fixed asset investment figure for last month alone, but investment bank JP Morgan Chase Bank said data showed it rose 30.7 percent from a year earlier, the sharpest monthly increase since June last year.

"Solid growth momentum in the real economy has shown limited slowing amid excess liquidity conditions in the financial system," the company said in a note to clients.

It added that it expected further rate hikes, as well as increases in the bank reserve ratio requirement, or the amount of money banks are required to set aside with the central bank.

Last week, the ratio was raised a half percentage point to 13.5 percent, the ninth such move this year.

Chinese stocks retreated yesterday as the investment data added to fears of a looming rate hike, with the benchmark Shanghai index closing 0.91 percent lower.

The real estate sector, a key focus of official concern due to fears a property bubble may be forming, led the way on fixed asset investment in the 10 months, rising 31.4 percent to 1.92 trillion yuan.

Local-level investments surged 28.6 percent to 8 trillion yuan while overall central government investments grew just 13.8 percent to 883 billion yuan, the figures showed.

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