One of the biggest challenges the government now faces is how to cool investment, the major engine in the fast-growing economy for over a decade.

Behind the 10.9 per cent economic growth in the first six months of this year, concerns over overheating are mounting.

Fixed asset investment growth further accelerated, to 29.8 per cent during the period  4.4 percentage points higher than that of the same period last year, the National Bureau of Statistics said yesterday.

That compares to a 27.7 per cent growth rate in the first quarter and 25.7 per cent in 2005.

It is hoped that investment growth can be reined in the second half of the year, as macro control measures gradually take effect.

However, economists are not optimistic.

Many new construction projects are still to break ground, and with 2006 being the first year of the latest Five-Year-Plan another round of mass building is expected across the country.

Local governments don't want to see a slow-down in investment, which could weaken their local economic growth rates.

And it isn't easy for banks to adjust to the tight credit environment and curb lending to big projects when their capital adequacy and liquidity are at their strongest ever.

Even with credit curbs, investment enthusiasm is unlikely to fall, said Yi Xianrong, a financial researcher with the Chinese Academy of Social Sciences.

Many projects will be able to find alternative funding sources to bank loans, he said.

As Yi sees it, the best way to cool down the growth in investment is interest rate hikes. And they should go into effect as soon as possible.

"It is unlikely we'll see a substantial slow-down in investment growth in the second half of the year if the central bank does not order an interest rate hike," he said.

There was wide speculation of an imminent interest rate hike even before the second-quarter figures came out yesterday, but the government has not yet announced one.

(For more biz stories, please visit Industry Updates)