Vice premier: Economic curbs are working
(Bloomberg)
Updated: 2004-09-19 16:28

China's efforts to slow the economy by reining in investment in industries such as steel and cement are working, Vice Premier Huang Ju said.

``The measures have initially paid off and eased the pronounced contradictions in the economy,'' Huang said in a speech to a conference in Beijing. The policies are showing ``incremental success,'' he said.

China has clamped down on lending and project approvals to cool an industrial investment boom that the government blames for causing power shortages, clogging transport links and driving up raw materials prices. The government may not need to raise interest rates to slow the economy because the loan curbs are starting to bite, ABN Amro Asia Ltd. said in a report last week.

Investment in China's factories, roads and other fixed assets grew 26 percent in August, slowing from a 31.1 percent pace for the first seven months of the year, the government said last week. Other economic data has been mixed: industrial production, exports and imports all picked up in August, while inflation held at a seven-year high of 5.3 percent.

Central bank Governor Zhou Xiaochuan said this month that policy makers will decide whether to raise interest rates after reviewing August economic reports. Seven out of 11 economists surveyed by Bloomberg News this week forecast the People's Bank of China would raise the lending rate by at least half a percentage point this year.

Growth Target

Huang's comments echo those of other government leaders. Vice Premier Zeng Peiyan said last year that the macro-controls have been effective, though the results are ``initial'' and the campaign can't be relaxed.

China has relied on lending curbs rather than interest rates to slow growth in the world's seventh-largest economy. The central bank has kept its key one-year lending rate at 5.31 percent since February 2002. The rate was last raised in 1995.

China's economy is still growing at a ``steady and fast'' pace and should continue to expand at an annual 7 percent rate for the next few years, Huang said. Growth was 9.6 percent in the second quarter, from 9.8 percent in the first three months.

China may not raise rates because the government is more concerned about the possibility of a ``drastic economic slowdown'' than it is about excessive investment growth, Michele Mak, head of China research at ABN Amro, wrote in a report on Thursday.

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