China's fixed asset investment rose 32.7 percent during the first seven months of this year, the National Bureau of Statistics said yesterday.

Fixed asset investment, a key gauge of domestic demand, amounted to 1,875.3 billion yuan (US$225.9 billion) between January and July, the bureau said in a statement.

Of the total investment, 965.4 billion yuan (US$116.3 billion) was spent on infrastructure projects, a year-on-year increase of 30.1 percent.

Spending on renovation and upgrades rose 40.1 percent year-on-year to 365.8 billion yuan (US$44.1 billion), while that on real estate development rose 34.1 percent year-on-year to 469.8 billion yuan (US$56.6 billion).

Fan Gang, director of the National Economic Research Institute, said the fast growth in fixed asset investment could cause the country's rapidly growing economy to overheat.

China's economy grew a year-on-year by 9.9 percent in the first quarter of this year and 8.2 percent in the first half of this year.

"If there were no SARS (severe acute respiratory syndrome) outbreak, the country's economy would have grown more than 10 percent this year," Fan said. "If the economy grows more than 10 percent, it will overheat."

Investment in some industries such as real estate, steel and cars has become overheated, he said.

National Development and Reform Commission Minister Ma Kai warned last week that an overheating of some industries including the steel, aluminium, cement and automobile sectors could have a serious impact on the economy.

"If it is not cooled, the investment fever in some industries will heavily affect China's robust economic growth," Ma said.

Excessive growth in some sectors is putting a strain on the transportation and power supply sectors, driving up the prices of raw materials and damaging industries across the country, he said.

Many of the newest projects rely on outdated technology and equipment, affecting their ability to control pollution, he said. They also have a tendency to consume high levels of energy.

Lin Yueqin, an economist with the Chinese Academy of Social Sciences, said the automobile sector is a typical example of the unpredictable situation, with existing producers competing with each other to expand their production capacity.

Small-scale and weak independent development capabilities were some of the problems, with between 70 and 123 plants capable of producing whole vehicles manufacturing fewer than 10,000 units each per year.

Meanwhile, local governments are all eager to launch new auto-related projects, Lin said.

Small iron and steel works, which were previously closed by local governments because of pollution and inefficiency, had resumed products, but their products remained of poor quality, while productions such as cold rolling sheet steel and galvanized sheet steel were in short supply, Ma said.

(China Daily August 19, 2003)