China's fixed asset investment grew strongly in the first two months of this year in the face of a concerted campaign by the central government to ease spending in a number of fast-growing sectors of the economy.
But the figures released on Wednesday by the National Bureau of Statistics contain a silver lining, as the largest rises in investment were in the energy and power sectors, which have suffered from severe bottlenecks over the past year.
Fixed asset investment grew by 24.5 per cent year-on-year in January and February, an outcome “very much on the high side” of expectations, according to Jonathan Anderson, of UBS in Hong Kong.
Investment in the so-called bottleneck sectors of coal, power and agriculture, however, grew much faster by 149, 60 and 70 per cent respectively on the same period last year.
Large numbers of cities in China have suffered power shortages since 2003, while overstretched railways and ports have struggled to meet rapidly rising demand for raw materials needed by the energy and steel industries.
“The rises mostly seem to be government-driven ‘de-bottlenecking' investment,” said Hong Liang, of Goldman Sachs in Hong Kong.
By contrast, investment in basic materials, such as steel and ferrous metals, was down 9 per cent compared to 2004.
The overall rise of 25 per cent is well ahead of the government's target of 16 per cent for the whole year increase for fixed asset investment.
However January and February are not usually reliable indicators for the whole year, as many projects in China are not started until after the Chinese new year, in March.
Fixed asset investment figures also include land transfers, which can also distort their accuracy.
While it has strived to prick an investment bubble in some sectors, notably construction and related industries, the Chinese government does not want the economy to grow at much less than 8-9 per cent.
Wen Jiabao, China's premier, said this week the macro-economic controls introduced last April after a surge in investment in late 2003 and early 2004 would still be deployed by the government when appropriate.
But Mr Wen also said the controls had been very “successful”, an indication that government fears of a dangerous overheating in the economy have substantially eased.
Mr Anderson of UBS said the numbers showed that the governments tightening was “clearly working in overheated sectors, and thus the risks of an economy-wide capacity ‘blowout' are falling”.
“However, the investment figure is relatively high even by the benchmark of our GDP forecast, which means that growth risks could still be skewed to the upside,” he said in a research report on Wednesday.