Since there are multiple factors behind the fast investment growth, we should resort to a package of measures, including administrative, economic and legal actions, to rein investment in.
The fast investment growth is a serious problem, but more serious is the poor efficiency of investment, which leads to waste capital.
The low investment efficiency, coupled with the large scale of investment, has become a potential bottleneck for the long-term development of the Chinese economy. The resource pressure is worsening and will increase the costs of sustainable economic development. Moreover, the quality of investment may not be ensured. The low investment efficiency brews potential economic risks as well, and as the market conditions change, those risks may transform into risks for corporate management, increase bad loans for the banks and affect social stability.
Admittedly, if the efficiency of investment could be improved, a relatively fast investment growth would not become such a serious problem. But the fast growth rate would become dangerous if the efficiency of investment could not be improved, or were to further decline.
Improvement of investment efficiency under the guideline of a scientific development mode, therefore, should be the focus of our macroeconomic regulation.
In the first place, bank credit should be tightened appropriately. Given the correlation between credit and investment growth, it remains important to rein in bank credit in order to prevent investment from re-surging.
The commercial banks, especially, should be made cautious in extending loans to industries that consume large quantities of resources and produce much pollution.
On the other hand, further raising the interest rate can be considered to increase the costs of investment.
Regarding consumption of resources, the costs must be raised so that prices can balance investment and protect the environment.
If an effective pricing mechanism cannot be put in place, the wasteful use of resources would become inevitable, and in turn boost irrational investment.
