New central bank adviser calls for investment boost

PUBLISHED : Friday, 08 September, 2006, 12:00am
UPDATED : Friday, 08 September, 2006, 12:00am

Rapid growth in capital investment remains essential to boost the economy because the government's push to raise consumption has yet to yield results, a new adviser to the central bank said.

The remarks by Fan Gang, the sole non-government member of the monetary policy committee under the People's Bank of China, came as Vice-Premier Wu Yi said the economy was not overheating and too-rapid growth in investment could not derail the economy.

'We still need to maintain a certain level of growth in investment. An annual rate of about 20 per cent is desirable,' Dr Fan said in an article published yesterday in the official China Securities Journal.

Urban fixed-asset investment rose 30.5 per cent year on year in the first seven months, and in July it was up 27.4 per cent - higher than the government's 18-per-cent target for fixed-asset investment growth this year. In response, the government has stepped up a slew of tightening measures to cool the economy.

The government wants to boost private consumption and avoid relying too much on capital investment and exports. But Dr Fan said consumption remained limited by the growing income gap.

With 80 per cent of the labour force falling into the low-income bracket, raising consumption levels was unlikely to have much impact, he said. 'The effect of the policies designed to boost consumption and lower savings in order to correct the economic imbalances will be very limited,' Dr Fan said.

He said income disparities were inevitable at this stage and predicted the gap would continue to grow for at least five to 10 years.

Last year, the per capita net annual income of farmers on the mainland was 3,255 yuan, compared to the 10,493 yuan per capita annual disposable income of urban residents.

Last week Dr Fan told a forum the government should not place its hopes on the so-called 'rural market'.

'Given the income disparity and the low incomes in rural areas, the centrepiece of encouraging effective consumption is improving incomes of Chinese families,' he said.

Dr Fan, who replaced Yu Yongding last month on the central bank's advisory board, said infrastructure investment took up about 30 per cent of total fixed-asset investment.

He said much investment, including that made in the property sector, was laying the foundation for more consumption down the road.

During a speech at an investment fair that opened in Xiamen yesterday, Ms Wu said problems such as overly fast growth in investment and credit, as well as an imbalance of international payments, still existed in the mainland economy.

'However, these problems are not big enough to affect the overall performance of the economy,' Xinhua quoted her as saying.

Ms Wu said the central government's economic tightening measures introduced since the second quarter of this year would continue to exert an influence on the economy during the second half of the year.




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