Investment by Chinese businesses surged in the first five months of the year according to new official figures - by thirty per cent compared with the same period in 2005. The figure is further evidence that China's economy might be growing too fast, and a central bank official has expressed some concerns. This report from Andrew Walker:
China's rapid economic growth in recent years has to a large extent been fuelled by business investment in new factories and other commercial premises, many of them producing low-cost manufactured goods. The new figures underline the extent to which that process is continuing.
The worry is that it might just be happening too fast. With very high levels of investment there is more risk that some projects might turn out to be unprofitable and lead to business failures, job losses and perhaps serious problems for the banks which have lent money to finance the investment.
A senior official in the Chinese central bank said they will, as he put it, "remove fuel from the fire", to reduce the risk. The idea is to constrain commercial banks' lending. Banks that lend too much may be required to buy low interest financial assets, reducing the amount they have available to lend to business.
The central bank has already raised interest rates, in April, in an effort to slow the investment boom. Many economists expect further increases. And over the last year or so, the Central Bank has allowed the Chinese currency the Yuan to rise. That makes Chinese exporters less competitive and so could help reduce business enthusiasm for new investment. So far however, there is little evidence of an impact.
extent
the limits of something, scope
fuelled
caused
commercial premises
buildings or sites where goods are made
turn out to be unprofitable
result in not bringing money
lent
given for a period of time and expected to be paid back
to constrain
to limit
assets
property or business possessions that have value
boom
a period of sudden activity in commerce
competitive
offering low enough prices to compare well with rival traders
there is little evidence of an impact
no strong effect has been shown
