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Fixed-asset outlays rise in China
(bloomberg.com)
Updated: 2005-11-16 01:54

Investment in China's factories, roads and other fixed assets grew 27.6 percent in the first 10 months of the year, the government said Wednesday.

Fixed-asset investment in towns and cities climbed to 5.58 trillion yuan, or $690 billion, the National Bureau of Statistics said on its Web site. For October alone, investment rose 27.2 percent.

More money is flowing into transport networks and energy, areas in which Prime Minister Wen Jiabao is encouraging investment to help alleviate shortages and to sustain economic growth amid a clampdown on real estate and steel projects.

The government has warned that excessive industrial expansion could lead to gluts, hurting corporate profits and the wider economy.

"If you look at the allocation of investment, there was definitely an improvement, so that's a big positive step," said Huang Yiping, a Hong Kong-based economist at Citigroup Capital Markets.

"But if you look at the aggregate level, it is still a problem," Huang said.

Overall investment growth was slower than the 29.5 percent pace recorded in the year-earlier period.

Still, expansion has picked up from the 24.5 percent pace posted in February, and is almost triple the 9.5 percent growth in China's gross domestic product last year.

Investment in coal mines jumped 76 percent to 76.8 billion yuan in the first 10 months of the year and that in railways surged 44 percent to 72.2 billion, the report Wednesday showed.

In electricity and thermal power production, investment rose 33.2 percent.

Real estate investment increased 22 percent to 1.18 trillion yuan and the amount of money spent on iron and steel projects climbed 26 percent to 195.4 billion yuan.

China has been hobbled by transport bottlenecks and cuts in power, areas where infrastructure has not kept pace with economic growth.

The nation's power producers may spend 2.26 trillion yuan by 2020 to install new capacity to meet demand, according to a report released Saturday by the State Information Center, a government research agency.

The chief executive of China Ocean Shipping (Group), Wei Jiafu, said this month that 400 billion yuan would be spent to expand China's ports over the next year to help reduce delays.

The company, which is the nation's biggest shipping company and is also called Cosco, plans to more than double its capacity to carry containers by 2010.

Investment may account for 45 percent of China's gross domestic product this year, up from 43 percent in 2004, Huang at Citigroup said. The $680 billion invested in fixed assets in China so far this year is equivalent to the gross domestic product of South Korea, Asia's next biggest economy.

The National Development and Reform Commission, China's top planning agency, on Saturday signaled concern about excessive growth in some industries. Deputy Director General Zhu Zhixin cautioned against "blind" investment that is creating excess capacity, threatening corporate profitability.

Competition resulting from excessive fixed-asset investment may saddle banks with more bad loans, lead to an increase in unemployment and fuel trade tensions as domestic gluts prompt companies to export more of their output, Zhu said.

Two surveys of purchasing managers in China released this month showed that manufacturing activity cooled in October as competition drove prices of finished goods lower, eroding profit margins amid rising costs for raw materials.

"We hope investment will slow down because eventually, that growth won't be profitable," said Kent Yau, an economist at Core-Pacific Yamaichi in Hong Kong.

Overall fixed-asset investment may expand as little as 15.5 percent next year, after projected growth of 25.3 percent in 2005, according to a forecast on Friday by the State Information Center.

That may cause economic growth to slow to as little as 8.3 percent from a forecast of 9.4 percent, the agency said.



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