Investment duplication may harm economy ( 2003-08-26 15:38) (China Daily HK Edition)
Local government-dominated investment mania in a wide range of industries is
threatening to undermine China's robust economic growth in the coming years,
economic administrators and researchers have warned.
The problem of duplication is prominent in sectors such as steel, aluminum,
cement, automobile and real-estate industries, according to government data.
Liu Shijin, a researcher with the Development Research Centre of the State
Council, said the excessive growth in these sectors is not a result of rising
consumer demand.
"On the contrary, the blind investment fever is mainly propelled by executive
orders from local officials who count on short-term economic achievements to
seek self promotion," the researcher said.
He categorized the phenomenon as "administrative investment duplication",
with direct or government-supported investment by State-owned enterprises.
As such redundant projects are out of sync with market needs, Liu noted, they
usually lead to a huge waste of money and resources; and have a serious impact
on the entire economy.
Earlier, a spokesman for the State Development and Reform Commission had
warned against potential dangers posed by the ongoing investment fever which is
raging in some industries and regions.
"If not cooled, this cycle of investment duplication is set to aggravate the
already-excessive production capability in some industries and then hinder the
country's economic restructuring and industrial upgrade," the spokesman said.
The official also cautioned that the current investment fever may also
trigger bank risks and even endanger public security by leading to more
non-performing loans for commercial banks and mass lay-offs in enterprises.
"By that time, the overall national economy may fall victim to the problem of
investment duplication," said the official.
In fact, overheated investment in some industries has been blamed for the
worsening imbalance between the country's investment and consumption.
In the seven months of this year, China's fixed-asset investment recorded a
year-on-year jump of 32.7 per cent to 1.875 trillion yuan (US$225.9 billion),
the highest growth since 1994.
But consumption expansion has been sluggish, with retail sales - the main
gauge of private consumption - posting the slowest growth of 6.7 per cent in
three years in the first half of this year.
Meanwhile, the investment rush has been ascribed to a too-fast increase in
the country's money supply and bank lending.
By the end of July, China's M2 - a key measure of money supply including cash
in circulation and deposits - was up 20.7 per cent from the same period last
year, the highest rise since 1998.
In the same period, the country's outstanding banking loans reached 1.89
trillion yuan (US$228.5 billion), an increase of 39.7 billion yuan (US$4.8
billion) over the total for the whole of last year.
As the latest effort to ward off potential risks, China's central bank has
opted for a rare increase of bank reserve requirements to rein in sizzling money
supply and loan growth.
The People's Bank of China on Saturday announced that it would raise the bank
reserve ratio by one percentage point from the current 6 per cent to help reduce
liquidity in commercial banks.
Experts expect the increase, which will become effective on September 21, to
help tighten bank loans to fend off possible bubbles in sectors affected by
investment duplication.
