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China to Hold Down Industrial Investment

Monday March 7, 9:57 am ET

By Elaine Kurtenbach, AP Business Writer

China to Hold Down Industrial Investment, Keep Currency Steady, As It Tries to Control Inflation

BEIJING (AP) -- China said Monday it will keep controversial exchange-rate controls and hold down industrial investment this year as it tries to rein in surging growth and restrain inflation.

On Monday, officials said they would tighten controls on land use, both to conserve scarce farmland and to defuse public anger over seizures of land and housing, and warned that wasteful spending and inflation could endanger China's economic boom.

The comments came during the annual session of the country's legislature, when the government lays out its economic roadmap for the year.

Premier Wen Jiabao has announced an official target of 8 percent economic growth for 2005, marking a renewed effort to cool off an expansion that last year soared to 9.5 percent, sparking fears of rising prices and financial problems.

The country's foreign exchange regulator defended Beijing's fixed exchange rate, which ties the yuan's value to the U.S. dollar, rejecting charges that the controls give Chinese exporters an unfair price advantage.

Accusations that China is manipulating the exchange rate to help its exporters are "completely a rumor," the official Xinhua News Agency quoted Guo Shuqing, director of the State Administration of Foreign Exchange, as saying.

China's trading partners, especially the United States, have pushed Beijing to let the yuan trade freely, arguing that its value is up to 40 percent too low and hurts foreign competitors.

Chinese leaders say they plan eventually to relax foreign exchange controls, but say that doing so now would cause financial turmoil and hurt the country's banks.

Also Monday, an official in charge of economic reform warned of dangers from excess industrial investment and complained that the power-generation industry in particular suffers from severe problems.

Ma Kai, director of the National Development and Reform Commission, said at a news conference that China's power-generation industry suffered from poor planning and mismanagement. A lack of generating capacity has caused months of shortages in areas across the country.

"There is low efficiency and high waste," Ma said. "If this is allowed to continue, the power shortages will just continue. And rapid economic growth will not be sustainable."

Authorities worry that surging growth is driving unneeded investment in factories, shopping malls and other projects that could set off inflation and leave banks burdened with unpaid debts.

Ma noted that excess investment in construction and factory projects remained a risk, noting that 150,000 building projects were started in 2004, with 20,000 of them launched in December alone.

Along with credit controls, the government will limit approvals for land use, said Li Yuan, deputy minister of China's Land and Resources Ministry, who appeared at the news conference with Ma.

Last year authorities slashed the number of planned economic development zones by 70 percent and cut the size of those still allowed to go ahead by 65 percent, Li said, adding that enforcement of restrictions will be tightened.

"Land administration bears on food security, smooth economic development, social harmony and environmental security," Li said.

Ma and the other officials didn't announce any major new economic initiatives, though Wen said Saturday that the government would push ahead with capitalist-style reforms.

Wen said the government aims to create 9 million new jobs while holding inflation to 4 percent.