Accelerated investment growth is what Chinese policymakers least
want now. As the government tries very hard to prevent the national
economy from overheating, such a pick-up in investment will only
complicate the task of macroeconomic control.
If growth of capital spending is to be effectively slowed,
policymakers should not only raise the cost of borrowing but also
implement stringent environmental and energy efficiency
standards.
Latest statistics show that China's investment in construction,
factory and other urban fixed assets rose 26.9 percent to 8.9
trillion yuan (US$1.2 trillion) in the first 10 months. The
increase was 0.1 percent higher than the growth rate in the same
period last year and 0.5 percent higher than the January-September
figure.
At a time when the country is in dire need of an economic
slowdown to avoid overheating, a runway investment boom in itself
makes great cause for concern.
Worse, the pick-up in investment follows earlier figures showing
a record trade surplus in October; the sharpest rise in retail
sales since 1999; faster money and credit growth; and a rebound in
consumer price inflation to a decade-high of 6.5 per cent.
It seems that the Chinese economy is still firing on all
cylinders to achieve its fifth year in a row of double-digit growth
this year. This might help cushion the world against a looming
slowdown of the US economy. But it will do little to help reduce
China's long-term and heavy dependence on investment and export for
economic growth, a prerequisite for the country's pursuit of
sustainable development.
Admittedly, Chinese policymakers are keenly aware of the
necessity to check investment growth, especially those
energy-consuming and polluting ones.
The central bank has already raised interest rates five times so
far this year and ordered banks on nine occasions to hold more of
their deposits in reserve to raise the bar in obtaining loans from
banks.
Nevertheless, as the country's consumer price inflation has
hovered above 6 percent in recent months, the one-year lending rate
of 7.29 percent still makes it attractive to investors who need to
borrow funds given the overall fast rising profits of Chinese
enterprises.
Hence, if the authorities are to bring investment growth down,
at least, the cost of borrowing for investors should be further
hiked.
Besides, the government can enforce all the energy-saving and
environmental protection measures in a more aggressive way.
(China Daily November 19, 2007)