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August 7, 2009

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Quality of investment needs scrutiny

CHINA'S economy may be able to meet the target of an 8-percent growth this year, but the country has to improve the quality of its investment to sustain development, said the State Information Center yesterday.

The SIC, a research unit under the National Development and Reform Commission, China's top economic planner, forecast the nation's gross domestic product to expand 8 percent this year from a year earlier, with the agricultural industry gaining 3.5 percent, manufacturing rising 8.5 percent and services up 8.6 percent.

"The pace of China's economic growth will accelerate quarter after quarter this year, thanks to the buoyant domestic demand while the decline in exports may moderate in the second half," the SIC said in a report.

China's GDP expanded 7.1 percent in the first half on an annual basis. It grew 7.9 percent in the second quarter after hitting a 17-year low of 6.1 percent in the first three months.

The SIC anticipated domestic retail sales to maintain the first half's growth rate of 15 percent for the whole of this year because purchases of household appliances would be a driving force to shore up people's spending following the government's subsidies on items, including refrigerators, air-conditioners and washing machines.

It forecast exports would fall 17.5 percent this year, from the plunge of 21.8 percent in the first half, thanks to measures such as export tax rebates and the use of the yuan to settle transactions in some overseas markets.

However, the SIC said the quality of the investment may become a source of concern for the country.

It said the effect coefficient of investment, an index to measure the effectiveness of investment, hit a 13-year low of 0.1 in the first half of this year, after investments were made in unnecessary projects or flew into the stock and property markets.

In sharp contrast, the investments jumped nearly 39 percent in the first half, a record high since 1997.

Urban fixed-asset investment soared 33.6 percent in the first six months, also a record high since 1997.

"The country may face excessive capacity and growing inventory in the near future if it does not take action to control the quality of investment," the report said.


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