China’s economy grew 9.7 percent during the first quarter, fueled largely by fixed asset investment.

National Bureau of Statistics spokesman Zheng Jingping said the country’s first quarter gross domestic product jumped to 2.7 trillion yuan (US$326.6 billion), an increase of 9.7 percent compared with a year ago.

The year-on-year growth rate was 9.9 percent in the first and last quarters of 2003.

Fixed asset investment leapt 43 percent year-on-year to 879.9 billion yuan (US$106 billion).

“The overall economic situation is good,” Zheng said. “There are no obvious fluctuations in economic growth.”

The efficiency of the economy was also good, with companies earning more profits, residents earning more money and fiscal revenues growing rapidly.

Retail sales were relatively stable, while exports rose rapidly, Zheng said.

The rise in the consumer price index, 2.8 percent during the first quarter, was still mild, he said.

Foreign companies, which invested US$14.1 billion in China during the first quarter, are still confident in the country’s investment climate.

However, fast-rising fixed asset investment has become a prominent problem for the current economic development picture, he said.

“Blind investment and redundant construction at lower levels have not been controlled effectively,” he said.

Excessive growth in some sectors and areas put strain on transportation and power suppliers and drove up the prices of raw materials, Zheng said.

Fan Gang, director of the National Economic Research Institute, said overheating in some industries, including the steel, aluminum, cement and automobile sectors, could have a serious impact on the economy.

“If it is not cooled, the investment fever in some industries will heavily affect China’s robust economic growth,” Fan said.

Many of the newest projects rely on outdated technology and equipment, affecting their ability to control pollution, he said. They also have a tendency to consume large quantities of energy.

Lin Yueqin, an economist with the Chinese Academy of Social Sciences, said the automobile sector is a typical example of the unpredictable situation, with existing producers competing with each other to expand their production capacity.

Small and weak independent development capabilities were some of the problems faced in the first quarter.

There were between 70 to 123 plants capable of producing fewer than 10,000 vehicles per year.

Meanwhile, local governments remain eager to launch new auto-related projects, Lin said.

Small iron and steel works, which were previously closed by local governments because of pollution and inefficiency, resumed production.

The central government has given close attention to these issues, Zheng said.

Since the second half of last year, it has put in place a series of measures to prevent fixed asset investment from growing too much.

These measures include raising bank reserve requirements, tightening loans to the steel, aluminum and cement industries, and beefing up management of development zones.

The measures will have a strong impact on fixed asset investment this year, said Zhang Liqun, a senior researcher with the State Council’s Development Research Center.

“The country’s fixed asset investment will slow in the rest of this year,” he said. The slowdown in fixed asset investment should retard the nation’s economic growth.

Zhang predicts China’s GDP will expand 9 percent this year.

That approaches the rate of 9.1 percent in 2003. The State Council has set a GDP growth target of around 7% this year.

Zheng Jingping agreed that GDP growth will slow, but declined to give further details.

(China Daily April 16, 2004)