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China's FAI slows as measures take bite

(Shanghai Daily)
Updated: 2007-03-18 11:30

Related readings:  Urban fixed asset investment up  Investment cools slightly in 2006  China posts double-digit growth in returns for telecom services  State-owned enterprises invest US$131b in fixed assets

China's fixed-asset investment (FAI) in the first two months of the year rose 23.4 percent, slower than last year's average clip, in a sign that government austerity measures helped curb unwanted capacity, according to government data released yesterday.

The country's expenditure on urban roads, factories and otherfixed assets totaled 653.5 billion yuan (US$84 billion) in January and February, the National Bureau of Statistics said.

The growth in the first two months was slower than the 24.5 percent climb in 2006 because the central government took measures, including raising banks' reserves to curb lending and damp over-investment.

The January-February figure also slowed from a 26.6 percent increase in the first two months of last year.

A slew of economic figures released this month showed that China's economy is still on a fast growth path and there is abundant liquidity. The country's trade surplus hit US$23.76 billion last month, the second-highest monthly figure. Money supply added 17.8 percent in February, the fastest in six months.

Consumer prices rose 2.7 percent last month, picking up from a 2.2 percent rise in January while industrial production soared 18.5 percent in January and February combined.

"Based on the macroeconomic figures for the first two months, we believe the possibility of monetary tightening is increasing but the timing may be not ripe," said Chen Wenzhao, a Changjiang Securities Co analyst.

"As supply gradually catches up with demand, we think growth in fixed-asset investment will gradually slow this year."

Investment in the coal sector gained 2.3 percent to four billion yuan in the first two months while it added 3.3 percent in the oil and natural gas industry to 11.2 billion yuan, the bureau said.

In the power and heating production and supply sectors, investment jumped 11.7 percent to 54.3 billion yuan last month.

Chinese Premier Wen Jiabao told reporters?on?Friday?that the country's economic growth is still dependent too largely on investment and exports.

Wen said the economy faces instability including rapid increases in investments and bank lending, excessive monetary liquidity as well as imbalances in trade and international payments.