Report alarms over-heated investment by local governments

BEIJING -- China should guard against impulsive investment by newly elected local governments and overinvestment in the name of urbanization, warned a report by the strategic planning department of the Agricultural Bank of China.

The report said that in 2012 most provincial regions saw their GDP growth declining, but those in central and western regions enjoyed higher growth than those in coastal areas, and this trend is expected to continue.

Ten provincial regions in central and western parts of the country, including Chongqing, Yunnan, Gansu, Tibet and Xinjiang, experienced GDP growth of 12 percent and above, while in the east only Tianjin led the country by a growth of 13.8 percent.

The report held that the major reason for this growth situation is that the central and western regions are still in the development stage of being driven by investment, while the coastal areas are paying more attention to industrial upgrading and restructuring.

"In 2013, local governments in central and western regions are more likely inclined to impulsive investment, and large infrastructure projects will be the key area of investment," the report analyzed.

The report especially warned that, with the completion of new government elections, new leaders usually have the impulse to make administrative achievements by increasing investment; and also, some local governments may overinvest in the process of urbanization drive.

Local government debt has long been considered a time bomb for Chinese economy, it was reported that the outstanding amount should be close to 10 trillion yuan ($1.6 trillion).