China Acts to Curb Investment Boom

China has ordered some industries to rely less on bank financing as it seeks to stem an investment boom that it says is straining the economy.

Meanwhile, the Asian Development Bank warned that the government may need to curb its own spending to help cool the economy. In a report issued Wednesday, it forecast that China’s economic growth would slow to 8.3% this year -- down from 9.1% in 2003 but well above China’s official 7% target.

Late Tuesday, the State Council, which is China’s cabinet, ordered aluminum, cement and real estate companies to put up a minimum of 35% of the investment required for any new projects, up from the current 20% capital requirement, the official Xinhua News Agency reported.

The minimum capital requirement for steel investments was raised to 40%, it said.

The aim is to limit the amount of funding that can come from bank lending to “help curb excessive fixed-asset investment and over-expansion of credit,” Xinhua said.

Investment in fixed assets, such as factories and property, soared 43% during the first quarter of 2004 from a year earlier, helping the economy expand at an annual rate of 9.7%.

The fear is that the economy is expanding at an unsustainable pace and that the investment boom is causing price hikes and straining a fragile financial system already overloaded with bad debt.

China must stabilize consumer prices, ease energy shortages and boost food production, state media quoted Ma Kai, minister of the State Development and Reform Commission, as saying.

Although China’s inflation was a moderate 2.8% annual rate in the first quarter, prices for some commodities have risen much faster. Overall food prices jumped 30% in March from those a year earlier, the Commerce Ministry reported.

Chinese regulators have already sought to tighten credit by requiring banks to increase the amount of capital they keep as a percentage of lending.