FAST TRACK: Even though China has already employed a tightening policy, the economic train is still running at fast speed Spurred by a 31.3 percent rise in urban fixed assets investment, Chinese economic growth in the first half of the year rose 10.9 percent year-on-year, according to the National Bureau of Statistics, with the second quarter recording 11.3 percent―a 20-year high. Despite these figures, a number of foreign economists believe that the economy is not overheated. Bert Hofman, Chief of the Economics Unit at the World Bank Beijing Office, suggested that the macroeconomy was in a sound position, with evidence of recently implemented measures, including tightening interest rates and required reserve ratios of commercial banks at the central bank, already taking effect, which were expected to lead to slower export growth in the second half of the year. Similarly, Laurence Klein, a recipient of the Nobel Memorial Prize in Economics, said he believed the Chinese economy was not overheated at all but rather that production capacity and consumer deposits had fallen. However, not everyone is as optimistic, with some Chinese economists feeling that the government should introduce further measures to control the pace of growth. Yi Xianrong, an economist with the Institute of Finance and Banking of the Chinese Academy of Social Sciences (CASS), considers that if the government does not introduce further macroeconomic controls, the economy could face huge risks in the future.Lin Yifu, an economist from Peking University, agrees, saying that overcapacity is worsening. There has been too much investment, and too much credit and trade surpluses, he says.
　　He believes the government should continue restructuring its industry, and stick firmly to and improve its policy of macro-control. Similarly, Xie Fuzhan, Vice Director of the Development Research Center of the State Council, says economic growth, employment, inflation, and fiscal and corporate performance figures conceal the real extent of long-term weakness. The main macro-control to date has been the raising of interest rates, but, with large levels of currency liquidity, banks’ actual loan rates have not risen significantly. In fact, the demand for loans has risen. Four trump cards?Specific measures to implement macro-control policy include adjusting fixed assets investments, slowing down the investment of the real estate sector and addressing overcapacity. Restricting the liquidity of currency and curbing the demand for credit is the main goal of monetary policy. The following are recent initiatives, but to what extent will they be effective?Interest rates On August 18, the central bank, People’s Bank of China, announced a 0.27-percentage-point hike in interest rates.
　　Xie Guozhong, Chief Economist of Morgan Stanley Asia Pacific, believes that China will continue to raise interest rates. “The rise of 0.27 percentage points in August was just an alert, with no root effect on the market due to its small scope,” he said. This was unlikely to curb recent inflation or pierce through the real estate bubble. 　　Exchange rates Sun Mingchun, an economic analyst with Lehman Brothers, believes a series of recent restrictive measures will only serve to ease surplus liquidity in the short run and the fundamental issue is renminbi (RMB) appreciation. Although the exchange rate of RMB against the U.S. dollar broke the “eight” mark, the pressure of RMB appreciation still exists.
　　Newly launched projects On August 1, five ministries including the National Development and Reform Commission issued the Instructions for Clearing Up Newly Launched Projects, requiring all regions to take measures within one month to clear up construction projects listed in the first half of the year with a total investment of and above 100 million yuan.The iron and steel, electrolytic aluminum, calcium carbide, ferroalloy, coke, automotive, cement, electricity and textile industries are required to clear projects with a total investment of 30 million yuan. In the coal industry, projects with productivity of 30,000 tons per year will be cleared. Yuan Gangming, a senior macroeconomic researcher with the CASS, believes that these controls will be effective in curbing excessive fixed assets investment. With implementation in every region of China, the effect is set to carry through to the stock market.Real Estate In July, the pace of urban investment fell substantially.
　　The prices of newly built commercial residential buildings fell in 14 cities, including Shenzhen, with its rapid rises dropping sharply. The price falls indicate that macro-control measures are already taking effect. The need for ongoing restrictive policies will depend on third quarter data.Qiu Hong, Chairman of the Beijing Jinchengxin Real Estate Agency, believes that restrictive policies for foreign investment in real estate are ineffective on the market. The scale of foreign investment is relatively small with no more than 10 percent of the total investment in Beijing, Shanghai and southeastern coastal cities, he says. He predicts investment will show an upward development trend.Niu Li of the State Information Center suggested that tightening new project approval was needed, in addition to controlling credit and land use. Implementing future controls over the real estate market was difficult, with the leading shares of real estate stocks probably set to bounce to new highs.

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