/ 13 August 2006

China tells growth-obsessed provinces to cool it

China has called on its 31 provinces to rein in their economies, state media said on Sunday, in a sign the central government has yet to persuade local bureaucrats that red-hot growth is bad.

Vice-Premier Zeng Peiyan emphasised that investment in factories, residential buildings and other fixed assets must be cooled down, according to the Xinhua news agency.

“The central government has made explicit requirements on economic work in the second half,” Zeng said during a recent trip to the south-western province of Yunnan.

“Fixed-asset investment should be put under tight control and more efforts made to lower energy consumption and improve environmental protection.”

China’s economy, the world’s fourth largest, expanded by 10,9% year-on-year in the first six months of 2006, boosted by massive investment.

Significantly, Xinhua said 90% of all investment in the first half had been approved by governments at provincial level or below, reflecting different agendas in Beijing and elsewhere in the vast country.

Whereas the central government is concerned about macro-issues such as inflation and other symptoms of overheating, local governments prioritise growth because it means more jobs and less risk of social unrest.

Beijing may have awesome formal powers but its actual clout over decisions made hundreds of kilometres away is limited. In reality local officials are frequently calling the shots, according to observers.

“Local government dominance in Chinas economy appears the most important factor in Chinas macro-behaviour,” Andy Xie, a Hong Kong-based economist at Morgan Stanley, said in a recent research note. — AFP