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China to Put Brakes on Real Estate Projects
2006-04-25 16:31:39      AFP
China has announced plans to curb new real estate projects and other overheated sectors.

China has announced plans to curb new real estate projects and other overheated sectors by cutting credit in an effort to cool an economy that boomed at 10.2 percent in the first quarter.

"First we must strengthen adjustments in fixed assets investments and tighten the throttle on land and credit," the National Developmental Reform Commission said in a policy paper on its website.

"New projects must conform with state industrial policies and market standards and we must prevent excessive investment in some industries and regions."

In the first quarter, fixed assets investments rose by 27.7 percent over the same period last year, remaining the main driver of economic growth along with foreign trade.

Urban fixed asset investment rose by 29.8 percent, 4.5 percentage points higher than a year earlier.

In 16 of China's provinces fixed assets investment growth exceeded 35 percent, while in 16 out of 30 major production industries investment growth exceeded 40 percent, the paper said.

"Too many local areas are continuing the trend of mainly relying on investment to increase economic growth, while as the price for primary resources and goods rises unneeded projects are being revived," it said.

From January to March this year, property developers invested 279.3 billion yuan (34.8 billion dollars) in construction projects, up 20 percent, the National Bureau of Statistics reported on the weekend.

During the first quarter of 2006, the amount of unsold real estate in China rose 23.8 percent over the same period last year to 123 million square meters, it added.

Bad loans in the real estate market rose to 109.3 billion yuan, or about 12 percent of all property loans, Sheng Xiaoming, a senior official at the China Banking Regulatory Commission told the Shanghai Daily last week.

About 50 percent of all real estate investments came from loans, he said.

With property construction in overdrive, the planning commission's policy paper also warned of dangerous signs of overcapacity and overproduction in some industries such as steel, cement, glass and other building materials.

So far this year, steel production remained near record highs, but sales during the first quarter were only up by 6.3 percent while profits in the industry fell by 57 percent over the same period last year, it said.

During the first quarter, the price of glass fell by 17.5 percent, incurring net losses of 620 million yuan, it said.

New investments in the glass industry doubled from the same period last year, it added.

The National Development and Reform Commission has already issued guidelines to accelerate structural adjustment or consolidation in the coal, cement, aluminum, ferroalloy, and coke industries.

It said it would shortly issue similar guidelines for other sectors.

The planning commission also urged energy conservation measures be taken throughout the nation as rising energy prices and economic reforms would increase inflationary pressures.

"As we move forward with price reforms on natural resources and continue to push forward price reforms in electricity, water, oil, natural gas and other areas this year, the price rises will bring cost pressures on downstream industries," the paper said.

The NDRC's policy paper came after official statistics last week showed the economy grew at 10.2 percent in the first three months of this year following an expansion of 9.9 percent in 2005.

Premier Wen Jiabao had forecast early last month that the economy would grow by around eight percent this year.

China's economy was now expected to grow at 9.6 percent this year, with the consumer price index rising by 1.5 percent, the China Academy of Social Sciences forecast in a report issued this week, Xinhua news agency said.

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