(Bloomberg.com)
Updated: 2007-04-17 11:42

Investment 'Curse'

Excessive investment may cause manufacturing overcapacity and deflation, turning a source of growth into a "curse," the Asian Development Bank said last month.

China began to shut inefficient plants and curb investment last year in 11 industries including steel, coal, cement and aluminum, the government says. About 70 percent of 600 consumer goods were in oversupply, a Ministry of Commerce report said.

"The government needs to take proactive tightening measures before bubbles are formed," said Ha Jiming, chief economist at China International Capital Corp. in Hong Kong. "Also, inflation is creeping higher on food, which is a major cost for the poor, and this could cause social unrest."

Consumer prices probably jumped 2.7 percent in March from a year earlier, compared with the central bank's target of 3 percent for 2007, according to the Bloomberg News survey. That is close to the benchmark one-year lending rate of 2.79 percent, encouraging households to move more money from bank deposits to the stock market.

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