Beijing tightens reins on economy
Policies to curb overinvestment are announced as fears of overheating grow
The central government announced a new round of macroeconomic control policies yesterday to curb overinvestment in basic industries from aluminium to cement, and promised tighter reins on land and lending.
The mainland's economy grew by 10.2 per cent year on year in the first quarter - much higher than expected and fuelling renewed fears of overheating. The growth prompted mounting calls for monetary tightening in recent weeks.
Concerns over the new control measures sent the Hang Seng Index tumbling and the H-share index, which tracks Hong Kong-listed mainland companies, fell 2.78 per cent to close at 6,856.09.
'(We) must strengthen adjustments in fixed-asset investment and tighten the controls over land and credit,' the National Developmental and Reform Commission said in a policy paper posted on its website. 'New projects must conform to state industrial policies and market standards and we must prevent excessive investment in some industries and regions.'
The commission, the mainland's top economic planner, also posted detailed guidelines designed to curb overinvestment in the cement and aluminium sectors, citing over-capacity and over-supply and also blaming speculation by futures traders for driving up the demand for aluminium.
China Securities News yesterday quoted a senior NDRC official, Zhu Hongren , as saying that guidelines on restructuring and curbing the coke, coal, ferroalloy and other basic raw materials industries would be released soon.
Earlier this month, Premier Wen Jiabao expressed serious concern about the overly fast growth in fixed-asset investment, money supply and bank lending.
In the first quarter, fixed-asset investment rose 27.7 per cent over the same period last year, while new bank lending was 1.26 trillion yuan, more than half of the 2.5 trillion yuan target set for this year.
Economists said the sharp rebound in investment and overheating industries was similar to conditions that led to the previous round of macroeconomic control policies in late 2003 and 2004. The effects of the administrative measures imposed were shortlived, however, as growth picked up again last year.
Ha Jiming, chief economist with China International Capital Corp, blamed the rebound in investment on local authorities' blind pursuit of gross domestic product growth.
But Mr Ha said he did not expect the central government to resort to administrative measures again, partly because the scale of the current surge in investment was smaller and the strain it placed on electricity, oil and transport less severe.
Liang Hong, chief China economist with Goldman Sachs, said she expected the policy tightening to be more market friendly this time.
But mainland officials seem to be sending out confusing signals about the health of the economy.
While vowing to curb investment, Mr Zhu played down the threat of economic overheating. 'We have yet to reach a conclusion that the economy is overheating,' he told China Securities News.
Despite promises of tighter policies, a leading government think-tank yesterday predicted that fixed-asset investment would hit a record 10 trillion yuan this year.