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Too fast a rise in investment and money supply could lead to overheating in some sectors and harm the entire economy, Chinese officials and economic researchers have warned.
Gao Huiqing, a researcher with the Department of Economic Forecast at the State Information Center, said there have been growing signs of so-called atypical overheating.
"Judged by the current trend of economic development, we need to guard against overheating caused by excess investment," he said.
The researcher explained that investment-driven overheating is mainly characterized by overcapacity, some red-hot industries and soaring prices of producers' goods.
The inflation-free atypical overheating goes against the classic economic theory, which only defines consumption-driven overheating exemplified by runaway inflation, rocketing consumer demand, short supply of most consumption goods as well as raw material and energy bottlenecks.
Economist Zhang Shugang said the current Chinese economic performance does not fall into the category of a traditional overheating.
Rather, the Chinese economic expansion is suffering from excess investment and local government-dominated investment duplication, which will result in ruinous overproduction, he said.
The macro-economic data released recently by the National Bureau of Statistics gave a clear picture of the problems.
In the first three quarters of this year, fixed-asset investment jumped by 30.5 percent year on year, the highest real growth since 1993.
Between January and September, the investment mania, which swept through sectors such as iron and steel, real estate and alumina, led to soaring prices for all investment goods.
Meanwhile, the rapid investment growth was accompanied by fast increases in both money supply and bank lending.
In the first nine months, M2 - a key measure of money supply including cash in circulation and deposits - posted a year-on-year jump of 20.7 percent to reach 21.36 trillion yuan (US$2.58 trillion), up 4.2 percentage points over the previous year.
At the end of September, new loans by all financial institutions totaled up to 2.7 trillion yuan (US$326.4 billion), 745.9 billion yuan (US$90.19 billion) more than all they lent for the full of last year.
The People's Bank of China (PBOC), the country's central bank, admitted that the growth in money supply and credit was high despite its precautionary measures.
What's more worrisome is that investment growth has failed to push up the consumer price index (CPI) by a big margin. The CPI reported a year-on-year increase of 1.1 percent in September and an average gain of 0.7 percent year on year in the first nine months.
The mixed message has spurred economic researchers to warn that the economy, shadowed by both inflation and deflation factors, and is locked at the crossroads.
"A step ahead may push the economy into real overheating but a step backward may send it back into deflation," said Wang Zhao, a researcher with the Development Research Center of the State Council.
The central bank, however, appeared more straightforward in forecasting grave consequences of investment-driven overheating.
"Currently, production and investment costs as well as property prices have seen a quick rebound and we should prevent too fast a rise in capital prices and the danger of capital bubbles," it said in a recent report.
(China Daily November 6, 2003)
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