Boost for economy as mainland fixed-asset investment grows 27pc

PUBLISHED : Saturday, 16 August, 2008, 12:00am
UPDATED : Saturday, 16 August, 2008, 12:00am

Capital spending on the mainland quickened last month, providing evidence that strong domestic demand is likely to help offset softening exports for the steady economic growth that policymakers seek to achieve.

Fixed-asset investment in urban areas rose 27.3 per cent in the first seven months from a year earlier, compared with 26.8 per cent growth in the first half, the National Bureau of Statistics said yesterday.

Meanwhile, the central bank said the economy was on a solid footing, despite weakening global demand, thanks to longstanding growth drivers such as urbanisation.

The country, the world's fourth-largest economy, was likely to retain its growth momentum in the second half of the year after growing 10.4 per cent in the first six months, the People's Bank of China said in its second-quarter monetary report.

Investors cheered the better than expected investment figures. The Shanghai Composite Index gained 0.56 per cent, snapping the five-day losing streak since the start of the Beijing Olympics on August 8.

The fixed-asset investment figures capped a week of economic data that confirms the mainland's export-oriented economy is facing a challenge of weakening global demand although mitigated by strong domestic consumption.

'The slight increase in fixed-asset investment will help alleviate concerns about the magnitude of China's economic slowdown,' said Jing Ulrich, the chairman of China equities at JP Morgan Securities.

Mrs Ulrich said the investment pick-up reflected reconstruction in regions hit by the Sichuan earthquake in May. She added Beijing could boost public spending in the rest of the year to maintain growth.

However, Mrs Ulrich said high prices might have exaggerated the headline figures as producer price inflation was not factored in. The producer price index jumped to a 12-year high of 10 per cent in the year to July.

The statistics bureau did not provide a monthly fixed-asset investment growth figure for last month, but Wang Tongsan, an economist at the Chinese Academy of Social Sciences, said it accelerated from June, when it was up 29.5 per cent from a year earlier.

'We need to actively boost domestic demand to keep stable economic growth,' Mr Wang said.

The mainland's economy expanded 10.1 per cent in the second quarter, slower than the 11.4 per cent for the whole year of last year.

However, some economists said that faster growth in fixed-asset investment suggested the government would not substantially loosen its grip on monetary policy.

'The strong fixed-asset investment reading in July makes any bold policy easing in the near term seem unlikely,' Goldman Sachs economists Hong Liang and Yu Song said in a note.

Investment in the real estate sector grew 30.9 per cent to 1.58 trillion yuan (HK$1.8 trillion) in the first seven months, 2.6 percentage points lower than that of the first half.

Capital spending by the central government accelerated to 25.3 per cent from 18.9 per cent in the first half, while investments by state-owned companies increased to 20.9 per cent from 19.3 per cent.

Investments grew at the fastest pace of 61.9 per cent in the agricultural sector, and at 27.9 per cent for manufacturing and 26 per cent for the services sector.