needs more than just speed-breakers
useless to argue whether the mainland economy is once again growing
too fast, or overheating.
investment in fixed assets grew (our sources in Beijing didn't
cite the specific amount), 53 per cent in the January-February
period compared with the same period last year and hit a peak
since 1994; and when the supply of energy and raw materials are
under their worst strains, hardly anyone can have the confidence
not to say the economy is overheating.
is overheating. There is no question about it. And the central
government has been trying various tactics to cool it down beginning
with the corporate finance regulations for real estate developers
issued by the People's Bank of China last year. But apparently,
just a few attempts at intervention didn't suffice.
industries, which may have only short-term profits and are not
encouraged by national development planners, consumed more capital
than others. Investment in new steel works, for example, surged
more than 170 per cent from a year ago.
dangerous signs (not just high investment, but also inflation)
were popping up here and there, Beijing was forced to take even
stronger measures. Many big-tick investment projects, started
without going through proper approval procedures, were suspended
on the direct orders of central government officials.
the first quarter, fixed asset investment amounted to 879.9 billion
yuan (US$106 billion), an annualized growth of 43 per cent. April's
fixed asset investment was 399 billion yuan, with annualized growth
brought down to 35 per cent, almost 20 percentage points lower
than the first two months.
with more encouraging macro-economic reports at hand, we have
confidence to say that the central government tactics are at last
proving effective. These are important to help maintain the state
of health of one of the world's largest powerhouses of economic
can we be confident enough to claim that the economy is being
sufficiently cooled down, and there is a guarantee of a "soft
landing," or its return to growth at a normal speed? No.
It looks that China still has to do a lot more work to reach that
mainland economy is different from the past in that many of the
big investors are from the private sector whether in public infrastructure
or in such capital-intensive industries as steel works and cement
mills. This is why some analysts say the economy's overheating
this time may be a good sign, or at least have a good side that
the private sector is for the first time in China's history becoming
the main investor in society.
no matter the investors are from the private sector or from government
institutions, they all rely on the same banking services. There's
only one financial system in the nation. Squandering by investors,
no matter who they are, would inevitably affect the financial
system, already notorious for its chronic inefficiency and bad
if the banks' big lending projects are all wasteful projects,
which are later suspended by the central government, how can they
avoid incurring new bad loans?
emergency measures of economic intervention have so far only helped
the economy cool down. They are still far from enough to help
the investors choose more sensible projects. A lot more work is
to be done to prevent the economy from overheating time and again.
careful look into wasteful investment projects reveals the fact
that many of them are, directly or indirectly, endorsed by the
local governments. Private-sectors investors would hardly be able
to embark on bold projects without support from their friends
in the government.
can be done to prevent this from happening. It is because, by
definition, local officials' portfolio would include creating
new jobs, building new industries and new cities, and generating
greater incomes for their constituencies.
only realistic option for China, therefore, is to make the local
officials plan viable and worthy investment projects rather than
wasteful ones. That would call for a series of actions other than
simply interfering with the speed of the economy, most importantly
a reform of the regional public finance system, or how a local
government sponsors and finances regional development projects.
ensure regional public finance reforms are carried out, a number
of decision-making standards and best practices should be recommended
by the central government. This is the only way to eradicate the
cause of the economy's cyclic overheating processes.