By Wang Xu (China Daily)
Updated: 2008-01-02 09:17

A local government reshuffle in the first quarter could spark a fresh investment surge in new projects, officials and analysts said.

The central government has appointed a slew of top officials in Beijing, Shanghai, Chongqing and Tianjin over the past months, a prelude to the local government reshuffle this quarter. Fresh faces are expected to take new posts in provincial and low-level governments.

"Newly appointed local officials may embark on a slew of projects to spur growth," said Zhu Jianfang, chief economist of Beijing-based CITIC Securities. "This may counteract the central government's efforts to cool the economy."

The central government has already warned of a potential spending spree. Zhou Xiaochuan, governor of the People's Bank of China, said at a financial forum last month the central bank is looking at ways to curb investment after the reshuffle.

According to Zhou, outstanding loans more than doubled year-on-year to 1.6 trillion yuan ($218.88 billion) after the last local government reshuffle in the first half of 2003.

Local governments are a major force driving China's sizzling growth in fixed assets such as roads, office buildings and bridges.

In the first nine months of 2007, total investment in new projects supported by local governments grew 27.8 percent, compared with a decline of 0.9 percent for those supported by the central government, according to the National Bureau of Statistics. The bureau said local officials were embarking on large-scale investments to realize development strategies.

"The central government has already introduced a series of preventive measures to curb investment," said Zhu.

The central bank may adopt stricter window guidance to banks to limit lending and review monthly loan volumes, according to industry insiders. The central government also said it would tighten approvals for new projects.

The State Council is set to issue a directive for new projects in industries such as copper and coke production, the Economic Observer reported. The new directive may mean investments in these areas will need central rather than local government approval.