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China's long-time reliance on investment growth to propel the economy has shown its negative impact as pressures of inflation, environmental pollution and resources shortage worsened in the first quarter of the year.
Cao Yushu, spokesman for China's macro-economic management hub State Development and Reform Commission (SDRC), told a press conference Friday that the excessive speed and scale of investment growth have run contradictory to the government's original aim of propping up economic growth.
In the first quarter, some sectors that are already overheated had seen faster growth of capital investment. The new investment in the steel and cement industries doubled over a year earlier.
Cao said such a rapid growth of investment has put strain on the supply of energy, raw materials and transportation of the country. Despite a record growth of power production in the first quarter, 23 provinces in the country suffered shortages of electricity supply, with the gap especially big in 17 of them. Some areas had to cut off electricity for three days a week.
The railway system has been running at full capacity in the first quarter as daily loading of carriages reached an all-time high at the end of March. However, railway transportation could meet only 35 percent of the total demand, compared with 60 percent in the same period of last year.
Cao said experiences proved that all major fluctuations of the Chinese economy were closely linked to excessive investment.
Cao said the over-investment resulted in expanding of capital credit and rising of capital goods price. In the first quarter of 2004, the average price of capital goods increased by 14.8 percent, Cao said.
He said, the conditions for a new round of run-away inflation are not there at present. However, the price for capital goods and foodstuff which play a leading role in the price for industrial products and consumables, has obviously increased. It will lay distinct impact on the inflation, he noted.
How to make full use of the limited resources to achieve maximum returns of investment has become a major challenge for China's economy.
In recent days, the Chinese government attached high priority to the construction of a resources-saving society and decided to take about three years to fulfill the task.
Although China has laid strict limitations on land provision, credit, power and transportation for the over-investment of some industries or regions, some regions still conduct low-level competitive construction. This poses higher demand for the government to take more effective measures for coordination and control.
Some economic experts held that overlapped construction is a form of market competition. Private enterprises and state-owned enterprises should be on an equal footing to compete for survival.
Statistics from the State Development and Reform Commission shows the oversupply and the financial burden of the industrial enterprises maintain increasing momentum, and the money-losing amount of the money-losing enterprises climbs up instead of going down.
Cao said the Chinese government will mainly use economic and legal measures, along with some administrative measures, to guide the economy so as to maintain a rational increase rate of fixed-assets investment and secure stable economic development.
(Xinhua News Agency April 17, 2004)
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