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Economy soars 9.7% amid overheating signs
China's economy grew 9.7 per cent during the first quarter, fueled largely by fast fixed asset investment. Zheng Jingping, a spokesman for the National Bureau of Statistics, said the country's first quarter gross domestic product stood at 2,710.6 billion yuan (US$326.6 billion), an increase of 9.7 per cent compared with a year ago. The growth rate was 9.9 per cent in the first quarter of 2003 compared with a year before and also in the last quarter of 2003. Fixed asset investment was up 43 per cent year-on-year to 879.9 billion (US$106 billion). "The overall economic situation is good," Zheng said. "There are no obvious ups and downs in the 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 relative stable, while exports rose rapidly, Zheng said. The rise in the consumer price index, 2.8 per cent 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 investment has become a prominent problem for current economic development picture, he said. "Blind investment and low level repeated construction have not been put under effective control," he said. Excessive growth in some sectors and areas put strain on transportation and power suppliers and driving up the prices of raw materials, Zheng said. Fan Gang, director of the National Economic Research Institute, said an overheating of some industries including cars, 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 Many of the newest projects rely on outdated technology and equipment, affecting their ability to control pollution, he said.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 high levels 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 scale 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 less than 10,000 vehicles per year. Meanwhile, local governments are 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 key attention to these issues, Zheng said. Since the second half of last year, the central government has taken a series of measures to prevent fixed asset investment from growing too much. These measures include raising bank reserve requirements, tightening loans to the industries of steel, aluminum and cement, and beefing up management over development zones. The measures would have a great impact on the fixed asset investment this year, said Zhang Liqun, a senior researcher with the State Council's Development Research Centre. "The country's fast fixed asset investment will come down in the rest of this year," he said. Due to the slowdown in fixed asset investment, the country's economic growth will slow down this year, he said. The country's gross domestic product is likely to grow 9 per cent this year, he said. The rate was 9.1 per cent in 2003 and the State Council has set a GDP target of around 7% this year. Zheng agreed the GDP growth will slow down, but declined to give further details. |
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