MARKET WATCH

MARKET WATCH

OPINION

Bew a re o f Investm en t Bubb lesChina’s econom ic grow th has slowed over the past six quarters. This has made “sustaining grow th” top priority in the government’s macro-control efforts.

In the short run, China’s domestic consumption lags far behind expectations.A ffected by the euro zone’s debt crisis,China’s exports have contributed little to econom ic grow th. The Central Government has to pin its hopes on investment to maintain grow th. This kind of macro-control mindset has ended up w ith the rebound of housing prices and soaring investment from local governments.

Some local governments have handed in their investment plans. The Changsha Municipal Government has formulated an investment plan worth 829.2 billion yuan ($130 billion), consisting of 195 projects. While the total fiscal revenue in the capital city of Hunan Province was only 66.81 billion yuan($10.48 billion), which means the investment plan w ill cost 10 years’ fiscal revenue for the city. Guizhou Province has stipulated a development plan for its tourism industry. Covering 2,382 projects by May, the plan needs 3.25 trillion yuan ($509.6 billion) in investment while its fiscal revenue in 2011 was only 133 billion yuan ($20.85 billion).

Right now, excess investment has caused imbalanced econom ic development. More investment can only bring about better econom ic statistics in the short run, but is not helpful for solving problems in the real economy and the long-term development of small and m icro-companies. Worse still, more investment will reduce the number of policies designed to solve those problems.

It has been well demonstrated in the past four years that loosening monetary polices,launching government-driven investment and simplifying approval procedures for major projects w ill accumulate risks instead of sustaining grow th in the long run. It w ill trap China in a vicious circle of excess capacity.Except for the impact of the euro zone’s debt crisis, econom ic slow down in 2012 is the result of stimulus policies during the past two years, which postponed China’s restructuring efforts and caused irrational boom of industries w ith excess capacity, such as cement and iron and steel sectors.

Econom ic slowdown for six consecutive quarters is definitely not a short-term phenomenon. It also wasn’t caused by external factors, such as the debt crisis. The fundamental reason is a real turning point after three decades of economic grow th, marking an end to the grow th pattern depending on investment, exports, low-end manufacturing and real estate.

Real problems in the Chinese economy,such as overcapacity, the survival of small and m icro-companies, monopoly and industrial upgrade, cannot be solved by another round of government-driven investment. They can’t be solved by loosening monetary policies,either.

For the Chinese economy, what’s more dangerous than a slowdown is local governments’ exorbitant investment with the excuse of“sustaining grow th.” They w ill leave political performance to themselves and leave debts to banks and their successors. If we don’t muster enough courage to tackle this, it w ill become a ticking time bomb threatening to destroy the Chinese economy.

THE MARKETS

New Sub-b ranch

Bank of East Asia (China) Ltd., a fully owned subsidiary of Hong Kong-based Bank of East Asia (BEA), has opened a new sub-branch in Zhanjiang, Guangdong Province. The new outlet provides comprehensive yuan and foreign currency banking services.

It marks an im portant addition to the bank’s branch network in south China, since the city of Zhanjiang, located in the southwestern part of the province, is a major port and trade center in south China.

The branch is also the eighth “cross-location” sub-branch established by BEA China in Guangdong under the liberalization measures of the Supplement VI to the Mainland and Hong Kong Closer Economic Partnership Arrangement.

BEA China operates 31 ou tlets in Guangdong.

Elec tron ic In fo Boom

Chinese electronic information enterprises on this year’s top 100 list totaled 1.76 trillion yuan ($275.1 billion) in main business revenues. The figure, which accounts for 24 percent of the sector’s total, showed an increase of 14.7 percent from that of the enterprises on the top 100 list last year, said Gao Sumei, an official of the M inistry of Industry and Information Technology (M IIT).

Among them, 34 enterprises saw their main business revenues exceed 10 billion yuan ($1.57 billion), up by seven from that of last year’s top 100. Chinese electronics giant Huawei ranked fi rst in terms of main business revenue, followed by Lenovo and Haier.

Total profi ts of these enterprises reached 88.4 billion yuan ($13.88 billion), taking up 27 percent of the sector’s total. And 23 companies reported more than 1 billion yuan($156.8 million) in profi ts.

This is an edited excerpt of an article by Ma Guangyuan,a renowned business commentator, published inNa

tional Business Daily.