Industries cool down growth
By Xu Dashan (China Daily)
Updated: 2004-06-10 22:09

China's industrial output slowed down in May, due to the central government's efforts to cool down the economy.

Industrial output rose 17.5 per cent in May in comparison to the same month of last year, the National Bureau of Statistics said Thursday.

The growth rate was 1.6 percentage points lower than the previous month.

Zhang Liqun, a senior researcher with the State Council Development Research Centre, said the slower growth suggests the central government's macro-control measures have taken effect.

China took a raft of measures beginning last year to try to cool down the economy, including raising bank reserve requirements three times and curbing unwanted fixed asset investment projects.

The latest moves to cool growth have included the issue of tighter restrictions on new projects in "overinvested" industries like property and steel and ordering banks to keep more money in reserves instead of lending it out.

"Due to those efforts, the country's economy won't become overheated," Zhang said.

But Zhang Xueying, a senior economist with the State Information Centre, said the industrial growth in May was still at a higher level.

"If the country wants to maintain a gross domestic product growth of about 8 per cent, industrial growth should be at about 14 per cent," Zhang said.

Zhu Jianfang, an economist at China Securities, said the country's industrial growth will continue to be at a higher rate until the third quarter, when it is expected to drop to about 15 per cent.

According to the statistics bureau, output of energy products and raw materials as well as some hot consumer products maintained high growth, but output of most other products showed a significant slowdown compared to May of last year.

Output of crude oil, natural gas and electricity generation grew 1 per cent, 17.3 per cent and 16.6 per cent, respectively, compared with a year ago.

Steel production, a sector targeted by the government in its drive to reduce investment, rose 14 per cent in May, 9.4 percentage points lower than the previous month.

Industrial output is an important contributor to gross domestic product. China's industrial output grew 17 per cent last year, and its gross domestic product grew 9.1 per cent.

The feverish industrial output since last year increases worries for economists and policy-makers, who believe sectors such as steel and cement are drawing too much investment, which could lead to overcapacity, hit corporate profits and trigger deflation.

Fan Gang, director of the National Economic Research Institute, said an overheating of some industries including steel, aluminum, cement and the automobile sector, could have a serious impact on the economy.

Excessive growth in some sectors is putting a strain on transportation and power suppliers, driving up the prices of raw materials and damaging industries across the country, Fan said.

"If things don't cool off, the investment fever in some industries will heavily affect China's robust economic growth," he concluded.