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Last Updated: Monday, 14 June, 2004, 07:08 GMT 08:08 UK
China's Wen stresses growth curbs
Chinese banknotes
Beijing says reckless lending to industry must stop
China's Premier Wen Jiabao has stressed the need for local officials to implement policies designed to cool down China's overheating economy.

Mr Wen said moves to curb bank lending were starting to prove successful in checking inflation and other "unhealthy factors" in China's booming economy.

However, data showed foreign direct investment - a major contributor to inflation - is continuing to pour in.

FDI rose 11.3% in the first five months of 2004 against a year ago.

The level of FDI during the first five months totalled $25.9bn (14.2bn), figures from the Ministry of Commerce showed.

Early signs of progress

But since Beijing began its crack-down on reckless spending by local governments on new factories and office blocks, the pace of growth in fixed asset investment has slowed down.

A young woman talking on a mobile phone in Beijing
Foreign investment is rising

It grew by 18.3% in May to 439bn yuan ($59.5bn; 29.2bn), compared to 34.7% in April, the National Bureau of Statistics said.

Mr Wen said "macroeconomic control remains an extremely arduous task", the People's Daily newspaper reported on Monday.

Local officials must "understand and implement the central authorities' decisions....in a comprehensive, correct and positive manner", he said.

He was speaking during a tour of the central Chinese province of Hubei last week to explain the policy to local officials.

'Correct policy'

Mr Wen said the central government's macroeconomic control policies were proving "timely, correct and effective".

Too-rapid growth in investment had been curbed and increases in money supply and credit had slowed, which was beginning to lower production prices, he said.

But some economists remain wary, pointing out that it is too soon to judge the impact of a policy drive which had only begun in earnest during April.

"There is no conclusive evidence that a landing has been initiated or that the touchdown will be soft," wrote Carl Weinberg of High Frequency Economics in a note commenting on the Chinese leader's speech.

The New Fushun Steel Works in the town of Fushin, Liaoning Province
Rapid growth is inflating prices for raw materials

He noted that the Chinese authorities have failed to release figures for the growth in international currency reserves for April and May.

Although vital to China's growth, foreign investment pouring into China's manufacturing sector has also helped to fuel inflation in factory gate prices for industrial raw materials such as cement, steel, and aluminium.

The authorities have tried to crack-down on unnecessary new projects by domestic firms and those with bad debts.

China's rapid growth has led to other problems too, with surging demand for energy causing black outs. Shanghai's mayor on Monday assured big foreign investors in the city that they would be "priority targets" to receive electricity.

Contracted FDI, which monitors pledges to investment which have not yet been implemented and acts as a barometer of future trends, leapt nearly 50% in the first five months of 2004.

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