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The heated investment wave showed signs of slowing down in the first four months of the year, but analysts warn the situation should be monitored and the government must be careful about loosening credit loans.

The National Bureau of Statistics said yesterday that the total fixed-assets investment in the January-April period was 1.8 trillion yuan (US$225 billion), growing by 29.6 percent on the same period last year.

The growth was slightly lower than 29.8 percent in the first three months, which may be a positive sign that investment growth has been curbed.

The growth rate in April was 29.3 percent, lower than 32.7 percent in March, but still higher than 26.6 percent in January and February.

US investment bank Goldman Sachs' Asia Economics Research Group said yesterday that it believed the slight slowdown in fixed-assets investment in April is a positive development.

To cool down the rapid growth of investment and bank loans, the People's Bank of China, the central bank, raised the interest rate on lending by 27 base points to 5.85 percent in late April. Other regulators urged a tightening of control on credits and called for a stop on approvals of new factories in some overheating sectors.

The State Council was also reported yesterday to be ready to take a series of measures to cool down housing prices in the country.

The real estate industry, a large spender on fixed-assets investment, got 413 billion yuan (US$52 billion) of investment in the first four months, with a year-on-year increase of 21 percent, compared to 20.2 percent in the first quarter.

Investment in railway transportation had the highest growth rate of 85.7 percent, followed by 58 percent in coal mining and 37.2 percent in non-metal mining and production.

"It is a very delicate situation," said Qin Jun, an analyst with Shanghai-based Guotai Jun'an Securities.

In the first four months of the year, 49,562 new projects were started, 24 percent more than the same period last year, and as these projects carry on, more money will be injected into them, so the investment will continue to grow at a high speed.

Goldman Sachs warned that there is still a significant degree of risk with existing loose financial conditions.

In April, Chinese banks gave out 317 billion yuan (US$40 billion) of loans, 175 billion yuan (US$22 billion) higher than the same period last year, and a record high.

In the first four months of the year, banks had already loaned out 60 percent of their annual target loans, as governments and enterprises tend to spend more at the beginning of a Five-Year Plan the 11th began this year and banks tried to get more interest from a faster lending speed.

With some constraints on investment growth already taking effect or about to, the Chinese Government faces a difficult decision to take tougher measures.

Both the trend of further appreciation of the renminbi and the lending rate hike in April will suppress the growth of investment, but it may take two to three months for the real effects to be seen.

"It may be better for the government to wait a little longer and then decide whether to launch more measures to cool down investments," said Qin.

(China Daily May 19, 2006)