China Factory Spending Rises 24.3%, Fueling Concern Economy Is Overheating

China's factory and property spending grew 24.3 percent in January and February even as the worst snowstorms in half a century disrupted projects.
Fixed-asset investment in urban areas rose to 812.1 billion yuan ($115 billion) from a year earlier, the statistics bureau said today. That was more than the 24 percent median estimate of 21 economists surveyed by Bloomberg News and the 23.4 percent pace in January and February 2007.
The government may hasten gains by the yuan, raise interest rates and increase banks' reserve requirements to prevent the world's fastest-growing major economy from overheating. Inflation surged to the highest level in 11 years in February and Premier Wen Jiabao said last week that the government is concerned at the ``strong possibility'' of an investment rebound.
``The underlying growth momentum of fixed-asset investment has been robust and stable,'' said Liang Hong and Song Yu, at Goldman Sachs Group Inc. in Hong Kong. The economists expect ``further tightening measures in the coming months.''
A Bloomberg News survey of economists this week showed rates and reserve requirements will both rise this year. The yuan will gain 12 percent versus the dollar in the next 12 months, compared with a 7 percent increase in 2007, forward contracts show. Currency appreciation cuts import costs.
Yuan, Borrowing Costs
The yuan traded at 7.0885 versus the dollar, the highest since a fixed exchange rate ended in July 2005, as of 10:29 a.m. in Shanghai from 7.0900 yesterday.
China's economy, the world's fourth largest, expanded 11.4 percent in 2007 from a year earlier, the fastest pace in 13 years, on exports and investment. The key one-year lending rate is 7.47 percent. Urban fixed-asset investment rose 25.8 percent for all of last year.
Coal investment jumped 31 percent in the first two months from a year earlier after rising 24 percent in all of 2007, the statistics bureau said. Spending on non-metal minerals surged 61 percent after gaining 51 percent.
Investment in oil and natural gas rose 9.8 percent after a 22 percent increase. Spending on electricity production fell 3.7 percent after climbing 8.7 percent.
The investment numbers are the final data for January and February. Figures were distorted by the blizzards, making it harder to gauge the effects of what the government terms a ``tight'' monetary policy.
Producer Prices
Inflation surged 8.7 percent in February from a year earlier. Producer prices, the cost of goods as they leave the factory, rose at the fastest pace in three years. Retail sales climbed by the most in nine years, partly on rising prices.
``Curbing the scary level of inflation has surpassed other concerns to become the government's top priority,'' said Tim Condon, head of Asia research at ING Groep NV in Singapore.
Weaker export growth illustrated the threat to China from a slowing global economy. Overseas shipments rose last month by the least in five years, cutting the trade surplus, as U.S. demand waned. Money-supply growth slowed. Industrial production expanded in the first two months by the least in a year.
``Inflation has become hard to control as energy and commodity prices surge and China needs to import those raw materials for its booming economy,'' said Chris Leung, senior economist at DBS Bank Ltd. in Hong Kong. ``What China needs is to allow its currency to appreciate faster to reduce costs.''
Total SA, Ford
The worst blizzards since 1954 swept across provinces including Hunan, Hubei, Guizhou, Jiangxi and Anhui in January and February, killing 129 people.
The storms disrupted the projects or manufacturing of companies including Total SA, Europe's biggest oil refiner, Ford Motor Co., the world's third-largest automaker, and Aluminum Corp. of China Ltd., known as Chalco, the nation's largest producer of the metal.
Fixed-asset investment will be boosted this year by rebuilding after the snowstorms, said Henry Li, an economist at Core Pacific Yamaichi International Ltd. in Hong Kong.
The People's Bank of China lifted borrowing costs six times in 2007 and has pushed banks' reserve requirements to 15 percent, the highest ever