Official report released on July 18 show an overheating economy that gives rise to further macro-control measures, Shanghai Securities Journal reported.
National Bureau of Statistics released fixed asset investment rate that increases investment risk and over-production while repetitive investment on low level creates problems for repayment rate.
Chief of economic department at State Information Centre, Fang Jianping, commented that excessive fixed asset investment creates over-production that is harmful to economic stability. An overheating economy will create bubbles and a runaway economy that go beyond control.
The new report also created expectations on forex rate reform. Associate Chief of financial department at Development Research Centre of State Council, Ba Shusong, pointed out that China’s forex rate reform should not solely concentrate on a floating exchange rate but also the flexibility of the exchange rate system in order to consolidate the possible challenges towards a new floating forex rate. He said that a flexible forex rate system can prevent excessive speculative investment, stabilize yuan appreciation, and relieve the pressure and risk of capital investment.
How the 10.9% GDP growth does not go parallel with the country’s Consumer Price Index (CPI) and Producers Price Index (PPI) catch significant attention. The expected inflation didn’t come in the first half is considered as a sign of imbalance between consumption and economy.
Chief of Institute of Economic at Academy of Social Sciences, Fang Gangming, pointed out that the high investment rate and high saving rate versus low CPI and PPI is created by the imbalance in income distribution across the country. To improve the situation, fundamental reform has to be conducted to the structure of income distribution. The government also has to adjust expenditure system, bridging the gap between high investment and low social security. State enterprises also need to register profit to increase social security and pension expenditure.
Another pressing problem is to slow down bank lending. Fang continued to comment that the current currency policy is a very stable one. However, it is common that a stable currency policy would encounter many obstacles that obstruct its execution efficiency. To solve this problem, Fang emphasized the need to thoroughly execute all the macro control measures and to cure the fundamental setback of the bank loan system practiced since 2004.
Yi Xianrong, Chief of Research Institute of Financial development and Financial System at Chinese Academy of Social Science pointed out that many existing economic problems are resulted from low interest rate policy. The best way to combat the problems is to increase the cost of capital transfer and investment and the adjustment of interest rate according to market’s supply and demand. The capital market should be adjusted on a more healthy supply and demand relationship.