china's fixed assets rose 28.5% pa

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    Friday, September 16, 2005

    China's fixed asset investment in August grew 28.5 percent from a year earlier, official data showed, reflecting an economy running full steam ahead despite efforts to cool it down.

    In the first eight months of the year, urban fixed asset investment was up by 27.4 percent from the same period in 2004 to 4.115 trillion yuan (HK$3.95 trillion), the National Bureau of Statistics reported Thursday. "It is very clear that China's economy is very hard to slow down," said DBS economist Chris Leung. "China's economy will continue to be strong this year."

    The investment figures were released after China saw industrial output for the first eight months grow 16.3 percent, while exports soared 32 percent over the same period last year.

    Investment figures for the energy sector further revealed China's efforts to maintain supplies to fuel its booming economy, with money plowed into the coal industry up nearly 82 percent in the eight months to 54.6 billion yuan, the NBS said. China also pumped 77 billion yuan into oil and gas extraction, up 25.6 percent over the first eight months of 2004, it said.

    Investment in electrical power, natural gas and water production and transmission during the eight months was up 35 percent to 399 billion yuan.

    Facing a transport bottleneck exacerbated by growing coal production, China put 50.4 billion yuan into the railway sector, up 39 percent.

    Lehman Brothers economist Rob Subbaraman said that although the August numbers were higher than expected, it would be important to study their composition in detail.

    "It will be interesting to see how much is being driven by investment in areas where there are bottlenecks and how much [is] driven by areas where there's already overcapacity," he said.

    "If we are seeing a rebound in areas such as steel, aluminum, cement, real estate and motor vehicles, then it is a cause for concern as there's an oversupply problem in those industries. But if it's in power, transport, water, utilities, it is less of a concern."

    In the heated property sector, investment so far this year was up 22.3 percent over the first eight months of 2004 to 892 billion yuan, the NBS said.

    In the steel sector investment rose 25 percent during the period to 149 billion yuan, while the nonferrous metals sector rose nearly 38 percent to 52 billion yuan.

    Subbaraman said attention also needs to be paid to the recent pick-up in the country's money supply, which in August rose 17.3 percent, the fastest rate for more than a year, as it may lead to greater liquidity in the banking system. This would probably encourage banks to lend to investment projects which could worsen the country's oversupply problem, he said.

    Fixed-asset investment has been one of the fastest growing components in the economy and one the government has found particularly hard to rein in.

    Early this year, the government targeted 16 percent growth for the year but admitted difficulties controlling an appetite for growth in its localities.

    Many observers have seen a conflict between a central government wishing to curb growth for the sake of overall macroeconomic stability and local governments hoping to speed things up to create more employment.

    Fixed asset investment financed out of central government coffers rose 12.3 percent during the period, compared with 29.5 percent growth funded by local governments.


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