China's fast growing fixed asset investment, which contributed to the country's economic growth of 10.2 per cent year-on-year during the first quarter of this year, may create some obstacles.

The National Bureau of Statistics said yesterday that China's fixed asset investment rose 27.7 per cent during the first quarter.

A visitor looks at a miniature of a real estate project at a housing fair in Nanjing, capital of East China's Jiangsu Province yesterday. [newsphoto]

The growth rate was 4.9 percentage points higher than the same period last year. It also exceeded the government's target growth of 18 per cent for 2006.

Niu Li, a senior economist with the State Information Centre, said the first quarter fixed asset investment grew too fast.

"This will put new pressures on sectors such as coal, electricity, oil and transportation," he said.

Zheng Jingping, spokesman for the National Bureau of Statistics, said fast growth of fixed asset investment was one of a few prominent problems that called for the government's "attention."

"This situation (fast fixed asset investment growth) is closely related to fast credit growth," Zheng said.

Earlier figures from the People's Bank of China, the central bank, show that new loans totalled 1.26 trillion yuan (US$157.5 billion) in the first quarter, 70 per cent more than the same period last year.

The new loans account for half of the bank's 2.5 trillion yuan (US$312 billion) loan growth target for this year.

The broad money supply, or the M2, rose 18.8 per cent year-on-year at the end of March, topping the central bank's official target for 10 months.

"The scale of credit growth is a bit fast," Zheng said. "This problem has already attracted the attention of the State Council and the People's Bank of China."

Fast growth in credit and money supply will have an impact on China's economic performance, Zheng said. "Although it will boost economic growth in the initial stage, it will lead to inflationary pressure and structural problems."

Zheng pointed out there are some loans in some commercial bank branches where, in the course of making loans, the banks believe the assurances of local governments.

There are also some projects where private investors make appearances, but behind the scenes there are indirect government guarantees, he said. "The mechanism is not rational enough."

"Because credit growth has been quite fast, we must pay attention to suitable controls on the investment from the credit, and in particular strengthen guidance to commercial banks," he said.

Economist Niu said the government should take monetary measures to curb too fast investment growth.

"The People's Bank of China could raise the percentage of deposits banks must set aside as reserves to stem money supply growth that's encouraging lending for investment projects," he said. It could also impose more administrative controls on lending.

(China Daily 04/21/2006 page9)

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