China's fixed asset investment grew 31.1 percent during the first seven months of the year compared with the same period a year ago, the National Bureau of Statistics reported this week.

The bureau, which did not provide figures for July, said that fixed asset investment was 2.7 trillion yuan (US$326.7 billion) in the January-July period.

Investment bank Goldman Sachs (Asia) estimates that July's growth rate would have been about 31.5 percent.

"China's fixed asset investment showed a stark and stronger improvement in July than we expected," said Liang Hong, Goldman Sachs' China economist.

The statistics bureau reported that the electrical machinery, transport, chemicals and utilities sectors continued to show strong growth. Investment in construction and foreign direct investment also picked up.

Zhu Jianfang, an economist at China Securities, said improvement in fixed asset investment resulted from the government's recent policy changes. "While continuing to curb investment in red-hot sectors such as cement and steel, the government increased the flow into bottlenecked sectors such as energy and transportation."

Zhang Liqun, a senior researcher with the Development Research Center of the State Council, said the figures were encouraging.

"If fixed asset investment grows at about 30 percent this year, the country's economy will grow faster than last year," he said.

However, the figures for the first seven months alone do not indicate whether fixed asset investment has stabilized. Zhang said, "We need to observe the figures for the next few months. I'm still concerned that fixed asset investment growth might decline too much, because this would have a big impact on the economic growth."

The government wants to bring economic growth down from current levels, where many resources such as oil have been constrained, but needs it to stay above 7 percent to generate enough jobs.

Fixed asset investment has grown rapidly since the second half of last year. It rose to around 53 percent in the first two months of 2004.

The government, worried that excessive growth in some sectors and geographical areas could have a negative impact on the economy, has taken a number of steps to cool the economy. These include raising bank reserve requirements three times, putting the brakes on unwanted investment projects and issuing tighter restrictions on new projects in "overinvested" industries such as real estate and steel.

Fixed asset investment slowed to 34.7 percent in April and 18.3 percent in May.

Other major economic indicators also suggest the macro-control measures are working. Industrial output rose 15.5 percent in July compared with the same month last year, with the growth rate down 0.7 percentage point from the previous month.

The year-on-year growth rate in M2, the broad money supply, was 15.3 percent in July, dropping 5.4 percentage points from July of 2003, and 0.9 percentage point from the previous month.

Zhang Liqun said that to avoid an excessively abrupt slowdown, the government should hold steady and not take such steps as a rate hike to cool the economy further.

China's economy expanded 9.6 percent year-on-year during the second quarter of this year, following a 9.8 percent rise in the first quarter. For the first six months, the country's gross domestic product climbed 9.7 percent year-on-year to around 5.9 trillion yuan (US$708.1 billion).

Bureau spokesman Zheng Jingping said the overall performance of the country's economy was good.

(China Daily August 19, 2004)