Places curbs on investment and lending amid fears of an overheating economy.
HONG KONG: When it comes to gross domestic product (GDP) growth, there is such a thing as "too much of a good thing", as the current preoccupations of the Chinese government will testify.
The government on Tuesday announced a fresh macroeconomic policy initiative in order to keep the economy, which grew at a scorching 10.2% in the first quarter of this year, from overheating. As part of these efforts, the government will curb excessive investment in basic industries and keep lending on a tight leash.
The National Developmental Reform Commission (NDRC), which drives the central planning process, has, in a policy paper, laid out the priorities in this area. "First, we must strengthen adjustments in fixed-asset investments and tighten the throttle on land and credit," the paper noted.
The NDRC paper isn’t a call for a drastic slowdown of the economy, but a call for its management in such a manner that growth is stimulated in areas that still need investments. It comes in the wake of expressions of concern over the rapid rise in fixed-asset investment over the last year: indicatively, in the first quarter, fixed-asset investments rose 27.7% over the last year.
The policy paper also warned of signs of overcapacity and overproduction in the steel, cement, glass and other building material industries.
Also on Tuesday, the Chinese Academy of Social Sciences noted that the government needed to prevent investment growth from accelerating, given the risk of overcapacity, which would further drive down prices. Nothing brings out the risks posed by overcapacity as the steel industry’s plight in China today: steel production is close to record highs, but sales in the first quarter were up only 6.3%, and profits, in fact, fell 57% over last year.
The NDRC policy paper noted that the situation in the glass industry was much the same: new investments in the industry doubled since last year, but in the first quarter, the price of glass fell by 17.5%, and the industry incurred net losses of 620 million yuan.
Faced with such problems of plenty, the NDRC policy paper issued guidelines to accelerate consolidation in the coal, cement, aluminium, ferro-alloy and coke industries.
Another area of concern relates to bank lending. On Tuesday, the People’s Bank of China (the central bank) announced that commercial bank lendings in the first quarter were 1.26 trillion yuan, which is more than 50% of the bank’s target of 2.5 trillion for the entire year.
A top central bank official sounded a note of caution about real estate financing, saying it was absorbing too much of capital, and posing a risk to financial stability.
Deputy governor Wu Xiaoling said in Beijing that real estate financing was making up "a bigger and bigger share of the country’s financial sector", and given the well-established linkages between real estate financing and the overall health of the financial sector, "we must pay close attention to developments in both the real estate industry and home financing sectors."
