JPMorgan Chase

Fixed-asset figures signals case for rates rise

PUBLISHED : Saturday, 16 June, 2007, 12:00am
UPDATED : Saturday, 16 June, 2007, 12:00am

Investment in fixed assets such as infrastructure, roads and factories raced ahead on the mainland in the first five months of the year, strengthening the case for the introduction of more economic tightening measures. It was another sign the economy was roaring ahead, analysts said.

Fixed-asset investment in urban areas between January and May rose 25.9 per cent year on year to 3.2 trillion yuan, the National Bureau of Statistics said yesterday. It rose 25.5 per cent in the first four months of the year and 24.5 per cent over the whole of last year.

The release of the data capped a strong set of figures released this week, with industrial output up 18.1 per cent year on year last month, the consumer price index rising 3.4 per cent and the trade surplus continuing to widen.

Frank Gong, chief economist with JPMorgan Securities Asia-Pacific, said fixed-asset investment had been stronger than expected. Mr Gong said the 26.9 per cent year-on-year growth recorded last month was the highest since July. The bureau did not provide monthly data.

'The full set of China's May activity indicators, including retail sales, fixed investment, exports and industrial production, portrays an economy that is firing on all cylinders.'

Timothy Condon, of ING in Singapore, said data this week showed the economy was overheating and supported Premier Wen Jiabao's midweek comment that monetary policy needed 'moderate tightening' - a phrase taken to signal an imminent interest-rate rise.

Prices on the mainland's two stock exchanges fell in the morning session but closed higher.

'While the domestic equity market has quickly recovered from the trough last week, the renewed strength of fixed-asset-investment spending is again causing concerns of overheating, said Mr Gong.




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