When Zhu Rongji, then vice-premier, wanted to show his determination in the early 1990s to cool the overheating economy, he declared, so the story goes, that he would need 11 coffins: 10 for the 'dogs' - the big investment projects - he would kill, and one for himself, as the person so unpopular for killing them. Ten years on, a new government is trying to do the same thing, but without the threat of the coffins - and with companies and local governments bolder in their defiance of orders from the north. Official figures published last weekend show that after a sharp fall from March to June, fixed-asset investment in many sectors went up in July, confounding the mainland's efforts to cool the economy. The figures, released by the National Information Centre, compared growth in the first six months with that in the first seven months. They showed that after a short-lived slowdown, growth was accelerating again. In July, completed fixed-asset investment in the mainland was 527.2 billion yuan, yielding a year-on-year rise of 31.4 per cent for the first seven months, against 22.7 per cent for the first six months. In eastern China, home to most of the excesses, January-July growth in fixed assets was an annual 29.5 per cent, compared with 28.7 per cent in the first six months. The fastest growth, above or below 30 per cent, was in Shandong, Zhejiang, Jiangsu, Guangdong and Shanghai. This higher growth is a strong signal from the provinces that they see the resolve of the central government weakening. But the battle is far from over. Last Sunday, the Economic Observer commented that the pick-up in investment from the start of July was the inevitable result of a cat-and-mouse game that local governments and companies play with the central government. 'The human factor plays a key role in the success and failure of administrative measures. This depends on the willingness of officials and local governments to implement them, in light of their own interests. 'These governments continually provide cheap land, tax breaks and other incentives to encourage investment. The prices of coal, oil and power are kept artificially low, which help to keep down inflation but which send the wrong signals to companies and encourage them to invest.' As a result, growth is rising again, after a slight retreat in the first half. Investment in construction, non-metallic mineral products and electrical machinery rose 43 to 55.9 per cent in the first seven months - 1 to 2 per cent higher for each sector than growth in the first six months. Growth of investment in the property sector, one of the government's priority targets for cooling, slowed only marginally. In the January-July period, it was 605.5 billion yuan, an annual increase of 28.6 per cent and down from 28.7 per cent in the first six months. Even foreign firms are not listening to the government. Their investment was 188.6 billion yuan in the first seven months, a rise of 58.3 per cent, compared with 52.9 per cent in the first six months. In March, the mainland announced a series of measures to cool the economy, including the sending of inspectors across the country to see if projects under way had received the proper approvals. But they found that only 4 to 5 per cent of the projects were illegal. Of this small proportion, less than 20 per cent were cancelled and the rest have resumed or will resume after the necessary procedures. The convergence of interest between firms, local governments and state banks is too powerful. The mainland's measures reduced short-term lending but did little to influence medium and long-term loans, which means firms have sufficient capital. One example of the ingenuity of local governments to avoid the restrictions is the establishment of 'university cities', the development of new land for expansion of university campuses, which began in Langfang, Hebei, in August 1999. The largest involves investment of five billion yuan in a 70-square-kilometre site in Nanjing. Since the central government designates education as a priority sector, approval for such 'cities' is easier than for other projects. But, in May, inspectors from Beijing ruled that construction of a university city in Xian, on a 400-hectare site, was illegal. In July, the auditor-general ruled that the 'cities' in Hangzhou and Zhuhai, as well as Langfang and Nanjing, involved illegal use of land. The most egregious example was in Langfang, outside Beijing. Former president Jiang Zemin visited the site in November 2001 and praised it as a 'creative' project. The auditor-general said 30.42 million square feet, or 39 per cent of the area of 78.93 million sqft, was farmland it had illegally occupied, with 47.36 million sqft used to build six golf courses. The developers have built on the site 1.6 million square metres of space, including upmarket villas aimed at the rich. Only a small proportion of the buildings were allocated to education. Students and professors complained that construction quality was poor and the site was run as a business, not a university. Construction of these cities involved billions of yuan in loans from state banks and large areas of land. 'We never advocated such an idea,' vice-minister of education Wu Qidi said last month. 'My ministry is doing all it can to stop some universities expanding in this way.' The government of Wen Jiabao is weaker than that of a decade ago, with about 40 per cent of investment undertaken by the private sector, double that of 10 years ago. It is harder for the government to control private companies. Mr Wen also does not want to push the brakes too hard and lower the gross domestic product growth rate too quickly. He is trying to walk a fine line between lowering the temperature of the stove and keeping the stew cooking. In a bid to introduce a more rational system, the State Council on July 25 published its decision 'On the Reform of the Investment System'. It seeks to reduce the government's role in deciding how money will be spent in investment and put more power into the hands of companies, banks and consultants, so that the market, and not bureaucrats, will decide how money and resources are allocated. 'Government investment will mainly be used in economic and social areas connected to national security and where the market cannot effectively allocate resources,' the National Development and Reform Commission said. This is sound reasoning but it seems the reform is too late and too little to stop the latest cycle of excessive investment.