China's Growth Is Unstable, Unsustainable, Wen Says (Update1) By Josephine Lau and Yanping Li
March 16 (Bloomberg) -- China's economic expansion, the source of about a 10th of global growth last year, is unstable and environmentally unsustainable, Premier Wen Jiabao said. ``China's investment growth is too high, lending growth too fast, liquidity excessive and trade and international payments very imbalanced,'' Wen said at a press conference in Beijing today. Energy efficiency and environmental protection issues haven't been ``properly resolved,'' he said. Wen's comments underscore government concern that too many factories are being built in China, worsening pollution and leaving the world's fastest-growing major economy vulnerable to a slowdown in demand. A record $177.5 billion trade surplus has flooded the economy with cash, making it harder for the government to cool investment by reining in bank lending. Data this week showed accelerating inflation, money supply and industrial production growth, while the February trade surplus was close to a monthly record. Central bank governor Zhou Xiaochuan said today he's watching inflation closely and Trade Minister Bo Xilai said he's ``very concerned'' about the surplus, suggesting the government may raise interest rates or further tighten lending. ``The odds of an interest rate hike are growing,'' Ben Simpfendorfer, an economist at Royal Bank of Scotland Plc in Hong Kong, said. ``The Chinese government wants to reduce liquidity in the economy and to discourage a reacceleration in credit growth.'' Investment Agency The benchmark Shanghai and Shenzhen 300 Index fell 1.6 percent to close at 2604.23 after Wen's comments, having earlier gained as much as 0.8 percent. The index has increased 153 percent in the past year. Wen said the formation of a new investment agency to help manage China's $1.07 trillion of foreign-exchange reserves won't cause a slump in U.S. securities. China's purchases of U.S. dollar assets are ``mutually beneficial,'' he said. The planned agency, announced by Finance Minister Jin Renqing on March 9, has prompted speculation that China's sales of dollar assets would push down prices. China is the world's second-biggest holder of U.S. Treasuries after Japan, with $353.6 billion in January. The foreign-exchange reserves rose by more than $200 billion last year to become the world's largest, driven by the ballooning trade surplus. The surge has prompted criticism from U.S. and European lawmakers and manufacturers, who accuse China of keeping the yuan artificially weak to spur exports. Surging Exports The yuan rose 0.02 percent to 7.7386 to the dollar as of 5:05 p.m., according to data compiled by Bloomberg. The currency has gained about 7 percent since China ended a decade-old peg to the U.S. dollar in 2005. China's economy grew 10.7 percent last year, the fastest pace since 1995, driven by surging exports and investment. The economy expanded by at least 10 percent for the past four years. ``China has maintained relatively steady and fast growth over the past few years, but this is not a time for complacency,'' Wen told reporters at the National People's Congress meeting. ``The biggest problem in China's economy is that the growth is unstable, imbalanced, uncoordinated and unsustainable.'' China's spending on factories, real estate and other fixed assets grew 23.4 percent in the first two months from a year earlier, the statistics bureau said today, slowing from a 24.5 percent pace in 2006 as government curbs took effect. China's `Key Risk' The People's Bank of China has raised interest rates twice since April and has ordered banks to set aside more money as reserves five times in the past nine months to help cool lending. The benchmark one-year lending rate is 6.12 percent after being last raised by 0.27 percentage point in August. ``The key risk in the Chinese economy remains a re- acceleration, not a significant slowing,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. ``The central bank will tighten soon.'' Money supply grew 17.8 percent in February, the most in six months. Inflation accelerated to 2.7 percent from 2.2 percent in January. Industrial production jumped 18.5 percent in January and February combined, the most in eight months. Leaders at this year's meeting of China's legislature have repeatedly highlighted the need to tackle the environmental costs of a coal-powered economic boom, lagging rural incomes, and an excessive reliance on investment and exports for growth. Balancing Growth ``China's growth is imbalanced between urban and rural areas, different regions and eastern and western regions,'' said Wen. Growth is uncoordinated between agriculture, industry and services, he said. ``Those are all pressing issues that need to be addressed as soon as possible, or they will threaten China's economic growth,'' Wen said. The government must boost domestic demand, open markets and promote technological innovation, he said. Investment accounted for 52 percent of China's gross domestic product in 2005, the most recent figure available. That compared with 33 percent in India, the world's second fastest- growing major economy, in 2005-06. The February trade surplus widened to $23.76 billion, close to October's record $23.82 billion. To contact the reporter on this story: Josephine Lau in Beijing at [EMAIL PROTECTED] Last Updated: March 16, 2007 06:42 EDT Ratman Now Everyone Can Trade Believe The Unbelievable,Dream The Impossible, Don't Take No for An Answer http://www.j-club.biz
