Investment in China's real
estate, factories and railways jumped 29.6 percent in the first four months,
fueled by rising bank lending.
Fixed-asset investment in towns and cities climbed to 1.8 trillion yuan ($224
billion) through April, the National Bureau of Statistics said in a statement
today. The increase compares with 29.8 percent in the first quarter and 25.7
percent in the same period last year.
China, which raised lending rates three weeks ago, may take more steps to
cool a lending-driven investment boom that the World Bank says could cause the
world's fastest-growing major economy to slow abruptly. The government says
manufacturing capacity is growing too quickly in some industries, leading to
sliding prices and corporate profits.
"The recent interest rate hike is not enough to cool down investment," said
Shuji Tonouchi, an economist at Mitsubishi UFJ Securities in Tokyo. "The
government also needs to more closely regulate overheated sectors and provide
window guidance to banks about lending."
The gain in investment compares with the 29.1 percent median forecast in a
Bloomberg News survey of 20 economists. The central bank on April 28 raised its
one-year lending rate by 27 basis points to 5.85 percent, the first increase in
19 months.
Economists including Tai Hui at Standard Chartered Bank and Paul Cavey at
Macquarie Securities expect the People's Bank of China to raise the percentage
of deposits banks must set aside as reserves, known as the required deposit
reserve ratio. Such a move would help push market interest rates higher, making
it more expensive to borrow, they said.
Credit Curbs Loosened
China's economy expanded by about 10 percent annually over the past three
years and maintained that pace in the first quarter, powered by investment and a
widening trade surplus. Investment growth has accelerated even as the government
sought to limit expansion in industries such as steel, real estate and cement.
Credit curbs imposed in 2003 and 2004 were loosened last year to prevent
companies in the industries targeted from running out of cash and to cushion the
economy from the impact of the July 21 revaluation of China's currency, the
yuan.
The rebound in investment has been driven by surging bank lending. Money
supply jumped 18.9 percent in April and lending more than doubled as a swelling
trade surplus and rising investment from overseas boosted currency inflows, the
central bank said May 15.
New yuan lending in the first four months amounted to almost two-thirds of
the bank's target for the full year.
Real Estate, Telecommunications
Investment in real estate development, which accounts for almost a quarter of
total investment, rose 21.3 percent to 413.1 billion yuan in the first four
months from a year earlier. The gain compares with 20.2 percent in the first
quarter and 25.9 percent growth year-earlier period.
Manufacturing investment rose 32.3 percent in the first four months to 781
billion yuan, matching first quarter gains while slowing from 38 percent for all
of 2005. Investment in services including telecommunications and education
jumped 27.8 percent to 1 trillion yuan, the statement said.
A financial system flush with money has helped keep market interest rates at
near record lows, encouraging companies to borrow by issuing commercial bills.
Banks ramped up lending in the year's first months to reap early profits, the
central bank said in a separate report this week.
The interest rate that banks charge each other for seven-day loans using
bonds as collateral closed at 1.6 percent yesterday, the lowest in a month. The
rate stood at 2.85 percent on January 25.
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