China's Economy In Danger Of Flaming Out

Simply raising rates hasn't cooled economy yet, and stricter controls may be necessary.

BEIJING (AP) - Officials are examining new steps to cool off China's sizzling economy as its top planning agency called for tighter bank credit and curbs on construction, state media reported.

The reports Wednesday suggested Beijing believes earlier measures, including an interest rate rise in April, are failing to contain runaway growth in spending on factories and other assets that Chinese leaders worry could ignite a financial crisis.

More than 100 economic officials were at the five-day meeting that began Tuesday in the seaside resort of Beidaihe, the Xinhua News Agency and newspapers reported.

The officials were looking at ''how to slow down economic growth when some economists say it is already overheating,'' improve energy efficiency and narrow a growing gap between rich and poor, the reports said. They didn't identify any of the participants or say what possible measures they were considering.

A report by the Cabinet's National Development and Reform Commission called for ''stricter controls on the number of new projects, more stringent land management (and) tighter bank lending,'' according to Xinhua.

China's economic growth surged to 11.3 percent in the second quarter, driven by fixed-asset investment that rose by 29.8 percent during the first six months, according to the government.

Investment in some industries grew even faster, reaching 44.5 percent in auto manufacturing and 40.6 percent in textiles, according to the NDRC report issued Tuesday.

It blamed ''local governments' blind pursuit of rapid economic development, excessively driven by growth in fixed assets investment,'' the China Daily newspaper said. ''Rampant illegal land use exacerbated the problem.''

President Hu Jintao's government wants rapid growth to spread prosperity to the hundreds of millions of people who have been left behind by China's economic boom.

But Chinese leaders worry that runaway spending on factories, luxury apartments and other unneeded new assets could ignite inflation or leave companies and banks with dangerously high debt.

The government has tried to rein in credit by raising interest rates and ordering banks to set aside more reserves, reducing the amount of money available for lending.

Economists say another rise in interest rates is possible, as is a rise in the value of China's currency, the yuan, which might restrain exports by making its goods more expensive.

Beijing also has raised taxes on real estate sales to discourage speculation, imposed limits on foreign investment in property and banned some projects such as luxury villas outright.

But despite increasingly urgent statements from the central government, lower-level officials often are reluctant to enforce controls that might hurt local economies.

''We have already introduced several batches of measures in economic control since 2003,'' the China Daily quoted an unidentified NDRC official as saying. ''But more often than not, they got ignored or became distorted at the local level.''

The NDRC said last week it expects growth to slow only slightly to 10.8 percent in the July-September quarter.

Even as it tries to rein in investment, the ruling Communist Party is trying to spur growth in the countryside and is promising billions of dollars in new spending there on roads, schools and other projects.

The party says the annual meeting of its Central Committee in October will focus on building a ''harmonious country'' - a reference to efforts to ease politically explosive tensions over the wealth gap.

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