China's Internal Investment Heating Up

Trade surplus declining, as country becomes more self-reliant.

Investment in China is picking up while the trade surplus is declining, data showed August 15, suggesting the world's fourth largest economy may be increasingly relying on itself for growth momentum.

The country's urban fixed-asset investment -- spending on productive capacity in the cities -- rose 27.3% in the first seven months of 2008 compared with a year earlier, the National Bureau of Statistics said. "In July, fixed-asset investment again accelerated to a certain extent," the statistics bureau said. "That will help in tackling the issues arising from a weakening in external demand."

"Urban fixed-asset investment has maintained a growth level of about 25% every month," the statement said. "That's an important accomplishment."

In recent months, fixed-asset investment has received a boost from massive government spending on the Beijing Olympics and reconstruction projects after the earthquake that hit the southwest in May, analysts said.

By contrast, recent data showed China's trade surplus declined 9.6% in the January-July period from the same period last year, confirming the impact of the U.S.-led global economic slowdown.

China's exporters have also seen their competitiveness eroded somewhat by the rise in the local currency, the yuan, against the U.S. dollar over the past three years, analysts said. "Domestic demand will certainly have to play the leading role (in creating economic growth)," Wang Qian, JP Morgan's economist in Hong Kong, said.

Retail sales -- the prime gauge of domestic consumer spending -- helped boost domestic demand, rising 23.3% in July from a year earlier, according to government figures released earlier this week.

But despite robust growth in investment and consumer spending, chances are the economy as a whole is shrinking. Economic growth in China slowed to 10.4% in the first half from 11.9% for all of 2007.

"As the authorities appear to have now shifted their top priority from curbing inflation to fuelling economic growth, investors keen to enter the Chinese market have been given an injection of confidence," said Sherman Chan at Moody's Economy.com. "Investment will likely continue to grow at a breakneck pace in coming months."

Copyright Agence France-Presse, 2008

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