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Last Updated: Thursday, 27 April 2006, 13:06 GMT 14:06 UK
Chinese action to slow investment
A new deep water port being built in Shanghai
China wants to reduce its economic growth this year
Beijing has taken action to take some of the heat out of its breakneck economic growth, by attempting to curb investment and tighten lending.

The central bank raised its one-year lending interest rate to 5.85% from 5.58% - the first rise in 18 months.

Rapid credit and surging investment levels has helped drive economic growth to 10.2% in the first quarter.

Beijing wants 8% growth in 2006, down from 9.9% last year, amid concerns unbridled growth could fuel inflation.

'Positive step'

The boom in credit and investment China risks destabilising the world's fastest-growing major economy.

Ben Simpfendorfer, a strategist with Royal Bank of Scotland in Hong Kong, said the interest move had been "unexpected".

But he added: "It's a positive step in so far as it should help take some of the steam out of investment demand. It also signals a proactive central bank."

Tim Condon, of ING Financial Markets in Singapore, said the last increase in lending rates - in October 2004 - did little to cool the economy.

"So I am kind of sceptical this one will either, but it does show the authorities' determination to rein in some of that liquidity," Mr Condon added.

Tackling poverty

Until now Beijing has avoided raising interest rates - despite worries about the economy overheating.

However, it is trying to gradually shift the balance of economic growth away from investment to consumption.

President Hu Jintao recently expressed concerns about the blistering pace of economic growth, saying the government wanted to focus more on improving the lives of China's poorest.

And recently the authorities called on banks to screen potential borrowers more thoroughly in an effort to reduce lending.




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