BEIJING, Aug. 14 (Xinhua)-- An overproduction crisis may occur in China if
investment runs out of control, Economist Wang Xiaoguang with the National
Development and Reform Commission (NDRC) told Xinhua on Monday.
Rising fixed-assets investment has sustained demand in sectors like iron
and steel, concrete, electricity, coke, textile and automobiles over the first
half of the year, but continuous large-scale investment could trigger a crisis
of overproduction, said the director of the Economic Research Institute of NDRC.
Wang said that more than half of the investment in cities and townships had
been made by state-owned companies in line with a call by local governments.
Driven by an administrative agenda, this investment had little impact on
job opportunities or workers' income. Much domestic production would simply
generate tax revenue for the government and yield profits for a few asset
owners, he said.
In the long term, an imbalance between investment and consumption would be
difficult to resolve, Wang said, adding that excessive investment along with
weak consumption was a "fundamental cause" of overproduction.
He said that China must abandon incentives for the already overheated real
estate sector. "Excessive growth in real estate investment not only harms the
upgrading of relevant heavy industries but also puts pressure on energy
consumption and environmental protection."
Official data reveals that urban residents enjoy about 26 square meters per
capita housing, much higher than in developed countries such as Japan and the
Republic of Korea.
Over the past six years, the real estate market absorbed nearly60 percent
of iron and steel products. China's iron and steel output for the 2006-2010
period is expected to reach 250 million tons, which would translate into an
oversupply of more than 80 million tons, he said.
To remedy the situation, Wang said, China must adopt a stringent monetary
policy and open new construction projects cautiously. "Raising interest rates
regularly and moderately is a good option," he said.
Wang also urged local governments to make better use of industrial policies
to encourage the production of new high-tech, energy-conservation and
China's economy grew at 10.9 percent in the first half of the year, 2.9
percentage points higher than the projected 8 percent for the whole year.