Subscribe Now to Our Free Email Newsletter

DaVinci Coders
September 8th, 2006 at 6:21 am

Oversupply of Loan Money Results in Runaway Investment Growth

China:  China’s fast investment growth, which many worry could spark economic overheating and financial problems, is a result of excessive money and credit supplies, said a senior economic official in Xiamen Friday.

Government spending on roads, factory equipment and other fixed-asset investment (FAI) is growing too quickly, said Qiu Xiaohua, director of the National Bureau of Statistics at the 2006 International Investment Forum held in Xiamen, a coastal city in east China’s Fujian Province.

"There is an oversupply of money and credit," he said.

China’s FAI grew 31.3 percent in the first half year. Domestic commercial banks, meanwhile, meted out 2.34 trillion yuan (around 294 billion US dollars) in loans in the first seven months, using up nearly all — 94 percent — of the country’s lending target for the full year.

A "liquidity surplus" is the major factor behind the soaring figures, said Qiu.

With residents worried about the climbing cost of health, housing and education, consumer spending remain slow, said Qiu. He said limited investment channels also force Chinese residents to shift big portions of their income towards savings.

Internationally, as exports continue to outpace imports and as expectations of an RMB appreciation remain, foreign capital is flooding into China, sometimes in hidden ways, boosting China’s foreign exchange reserves, said Qiu.

The fallout is that a big pool of "idle money" has been created to make more investment possible, the official said.

Qiu stressed efforts should be made to strengthen and improve macro-economic control, and that the fundamental step is to "accelerate the reform of the government administrative system and pace of restructuring."

China’s liquidity surplus must also be solved from a global perspective as many of the problems in the Chinese economy can be traced to connections with other countries, the official said.

Government statistics show that since the beginning of reform and opening up in 1979, China has soaked in 622.4 billion US dollars of materialized foreign investment, but its own non-financial investment abroad added up to only 57.2 billion US dollars.

"If investment abroad was to match the level of the foreign capital we consume, China would face slighter pressure for an RMB appreciation and smaller liquidity surpluses," said Qiu.

IL-Header-Communicating-with-the-Future

IL-Header-Communicating-with-the-Future

You must be logged in to post a comment.

DaVinci Coders