As
China's economy develops at high speed, investment also increases rapidly. From Jan. to Jul. 2006,
China's fixed assets investment in towns increased by 30.5 percent, with an average growth rate of 3.3 percent year on year.
According to the official data, the total number of new projects under
construction is about 120,000, increased by 21 percent over the last year. In fact, many projects have not been included in this figure for certain reasons. Therefore, the actual total figure for new projects is bigger than the above. The worst thing is that many of these new projects are illegal - namely, established without any approval from the authorities.
Over-rapid increase of investment will inevitably bring harm to the national economy's healthy development. Illegal investment will cause most damage. As an example, according to approximate analysis, nearly about 80 percent of new projects with
steelmaking connections have not been approved from 2004 onwards. Generally speaking, overheated investment, especially fixed assets investment, mainly results from two causes - the investment impulse of local governments and the market investment impulse, sometimes from both of them. To resolve the current problems, administrative and economic measures should be implemented in tandem. In fact, the Chinese central government is aware of the causes of the problem, and detailed measures are being gradually issued in the 2nd half of 2006. These measures can be summarized under three headings:
Strict control of lands
Measures in this category mainly include: strict approval process, strict protection of farm lands, increasing cost of land use, strict management of lands for industrial purposes, severe punishment for officials abusing their authority.
Careful control of bank loans
This category includes two parts: first, increasing bank loan interests in order to cool investment; second, directing bank loans to the industries encouraged by the state. Any loan for high pollution and high energy-consuming projects or industries involved in oversupply will be cancelled.
Thorough investigation into all new big projects with investment over RMB 100 million
The central government has become aware of the fact that, for their own interests, many local governments did not perform their duties and did not report new projects to the authorities on purpose. If these illegal projects are not fingerpointed and stopped, the result will be serious. Another goal of this measure is to serve as a warning to officials who are ready to act in the same illegal fashion.
Of course, all these measures together can be considered a good start. It will be worthwhile waiting for the results.