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China Warns Against 'Blind Investment'SHANGHAI, China (sept.2004)-China warned Wednesday against a "relapse" in excessive investment that could undo efforts to cool its booming economy, but said no decision had been made yet on whether to raise interest rates.
Noting an increase in new projects and rising output of iron and steel, the Communist Party newspaper People's Daily cited officials at the National Development and Reform Commission, the government's main economic policymaking body, as saying the economy is at a "crucial stage."
China's leaders have been trying to rein in economic growth that topped 9 percent for the first half of this year, worrying that it could ignite inflation and other financial problems.
Most of those efforts have been focused on curbing bank lending for construction projects and other investments viewed as speculative or redundant and likely to push prices for key commodities higher.
"There has been a relapse in fixed assets investment after several months of decline," the People's Daily said. "We must not feel blindly confident with the present economic situation and must pay earnest attention to guarding against the relapse of some unhealthy and unstable factors."
Growth in fixed assets investment, or spending on construction and factory equipment, hit a peak of 53 percent early this year.
The rate of increase in such investments fell to 31.1 percent in the January to July period over a year earlier, but there were "small-scale" signs of a resurgence of spending on iron and steel projects – industries that authorities are trying to cool, the report said.
"Blind investment will entail great misery in the future," it said. It pointed to rising inventories for some goods and increasing levels of corporate debt as worrying signs.
Banks should provide loans only for projects that have government approval, the report said.
Meanwhile, state media cited the central bank governor, Zhou Xiaochuan, as saying the People's Bank of China will not make a decision on raising interest rates until after the release of economic data for August, expected in the next week.
Speculation that regulators will raise interest rates on Oct. 1, China's National Day holiday, "does not represent the viewpoint of the central bank," the state-run newspaper China Daily cited Zhou as saying.
In August, after the government reported the biggest jump in inflation in seven years, the central bank said it had "no concrete stance" on a rate hike.
Consumer prices in July were 5.3 percent above the same month last year. Central bank officials had said earlier that a 5 percent rise might trigger consideration of China's first rate rise in nine years.
The report said that August economic data would be released beginning Friday, with inflation figures due to be issued on Monday.
Economic growth slowed to 9.6 percent in the second quarter of this year, compared with a roaring 9.8 percent in the first quarter.
* Post was edited: 2004-09-09 10:51:00
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