Time to put brakes on the economy, says senior official

PUBLISHED : Monday, 13 September, 2004, 12:00am
UPDATED : Monday, 13 September, 2004, 12:00am

But it is not overheating, he insists, and claims that growth is still on target

Fixed-asset investment remains too high and the government must put the brakes on the economy to avoid it overheating, a senior official says.

But Cheng Siwei , vice-chairman of the National People's Congress Standing Committee, was quick to stress growth was on target and Beijing did not want the economy to grind to a halt.

'There is overheating of investment,' Mr Cheng told a meeting of finance and policy officials at the World Economic Forum China Business Summit yesterday. 'That means we will tap on the brakes, but we don't want to make the economy come to a full stop.'

Mr Cheng pointed to a 43 per cent rise in fixed-asset investment in the first quarter compared with a 26.3 per cent increase in all of last year. However, he denied that the economy was overheating. 'Last year growth was 9.1 per cent,' he said. 'In the past 10 years, the growth rate has been between 7.1 per cent and 14 per cent. I don't think the Chinese economy is overheating.'

Mr Cheng's comments come as the mainland's top leaders prepare to gather for the fourth plenum of the party's Central Committee on Thursday. The debate on how and where to slow the economy is expected to be high on the agenda along with the question of whether to raise interest rates.

China's central bank governor, Zhou Xiaochuan , said last week the decision to raise interest rates would be made after reviewing August's economic data.

Mr Cheng agreed the need to raise rates was still being debated.

'People say that if the inflation rate is higher than interest rates you have negative interest rates, and we need to increase interest rates,' he said. But doing so increases the 'burden on borrowers, especially private entrepreneurs.'

Because of mainlanders' propensity to plough money into savings, providing capital for the banking system, 'the change in interest rates cannot change people's behaviour', he said.

Meanwhile, People's Bank of China deputy governor Li Ruogu said last night that China should increase the pace of economic reform to promote faster growth, a senior central bank official said.

Both interest rate and exchange rate policy would eventually be liberalised, but no timetable for the changes was given.

'We need to develop the capital markets,' he said. 'Interest rates and exchange rates will fully reflect market supply and demand.'

He also pointed to five other areas needing improvement.

These include better control over the money supply; strengthening the mechanisms for the supply of credit to companies; improving regulatory control over financial institutions; giving more power to commercial banks over their state-owned counterparts; and supporting smaller banking institutions such as rural credit co-operatives.