Investment shows signs of recovery

Investment shows signs of recovery
(China Daily)
Updated: 2007-03-23 14:36

Has investment rebounded as some policy-makers fear?

Investment in fixed assets has continued at a strong pace this year despite the tightening measures the authorities have adopted.

Urban fixed-asset investment amounted to 653.5 billion yuan ($84 billion) in the first two months of this year, up 23.4 percent compared to the same period last year, according to the National Bureau of Statistics (NBS).

The growth rate was 0.6 percentage points less than that for all of last year and 3.2 percentage points less than the rate in the first two months of last year.

However, the growth rate in the two months preceding that period was only 18 percent, suggesting that investment growth has been gaining momentum.

"Although the rebound in urban fixed-asset investment growth is not as serious as the one a year ago, the current rebound, when combined with the signs of an acceleration in credit growth, industrial output and exports, is still likely to trigger new tightening measures in the coming weeks," noted Qu Hongbin, an economist at HSBC.

Banks extended 982 billion yuan ($126.7 billion) worth of new loans in the first two months of this year, representing a year-on-year increase of 37 percent. Meanwhile, industrial output surged 18.5 percent, and exports grew 41.5 percent compared with a year earlier.

In response, the People's Bank of China, the country's central bank, raised interest rates by 27 basis points last weekend.

This preemptive rate-hike sends out a clear signal that the central bank is concerned that fixed-asset investment could once again pick up pace.

Investment in projects authorized by the central government increased by 21.7 percent, while local government-approved projects grew by 23.6 percent year-on-year, according to the NBS.

Investment in railways and real estate saw the biggest year-on-year increases, climbing 97.2 percent and 24.3 percent respectively. Meanwhile, the growth of investment in coal mining slowed from a year-on-year rate of 27.2 percent last December to 2.3 percent in the first two months this year.

"More needs to be done to bring credit growth under better control," said Qu. "These measures should help stop credit and investment from accelerating further."