Investment controls slow down Chinese economic expansion

NEW YORK: China’s economic expansion slowed for the first time in a year as Premier Wen Jiabao curbed investment to keep the world’s fastest-growing major economy from overheating. Gross domestic product in the third quarter rose 10.4% from a year earlier after gaining 11.3% in the prior three months, the statistics bureau said in Beijing on Thursday.

Second-quarter growth was the fastest in more than a decade. China restricted bank lending and approvals for new plants to gradually slow an economy that accounts for about a tenth of global growth. Wen still faces a record trade surplus that has fuelled spending and triggered calls by trading partners for the country to allow its currency to appreciate.

“The near-term data is headed in the right direction, but the medium-and long-term problems haven’t been resolved,” said Daniel Hui, an economist at JPMorgan Chase in Hong Kong. “We will continue to have large trade surpluses and foreign exchange accumulation.” The yuan slid 0.04% to 7.9105 against the dollar in Shanghai. Third-quarter economic growth matched the median forecast in a Bloomberg News survey of 27 economists.

A four-year investment boom has powered annual economic expansion of 10%, double the global average, and last year vaulted China past the UK as the world’s fourth-largest economy. It’s also created overcapacity that may drive prices lower, hurting profits and companies’ ability to repay loans.

“Overinvestment and overcapacity in manufacturing have had a negative impact on China’s banks,” said Guo Shuqing, chairman of China Construction Bank, the nation’s fourth-biggest lender. The $30-m-an-hour pace of growth in China’s foreign exchange reserves took them to $988bn at the end of last month. The trade surplus reached $110bn through September, already exceeding last year’s total, and economists forecast the gap will widen to more than $150bn this year.

Fixed-asset investment in towns and cities rose 28.2% from a year earlier in the first nine months, easing from 29.1% growth through August, reflecting investment curbs and higher interest rates. The rate has been falling since June.

The government must maintain controls over medium and long-term lending and investment, Wen said on Wednesday. He also vowed to tighten rules on land sales, cut pollution, improve public finances and cap surging real estate in all major Chinese cities.

China had 118m tonne of excess steel production capacity last year, more than the entire 112m-tonne output of Japan, the world’s second-largest steelmaker. There is also surplus capacity in areas including autos, cement and coking coal.

Premier Wen is encouraging China’s 1.3bn people to increase spending to sustain demand and underpin employment as the government attempts to rebalance the economy away from investment and exports. Since April, Wen imposed curbs on land use and new project approvals, shuttered investments that flout government guidelines and ordered banks to slow lending.