Source: Shanghai Daily

12-27-2007 14:01

China will tighten funding rules for new projects to curb investment and worsening pollution in the world's fourth-biggest economy, according to an official from the nation's top economic planning agency.

China will "soon" reduce the amount of debt companies can use for projects in industries that have excess capacity, pollute heavily or use too much energy, said Luo Guosan, of the investment department of the National Development and Reform Commission. The official, interviewed on a government Website on Tuesday, didn't detail the planned capital requirements.

Investment is driving an expansion that's the fastest of any major economy and forecast by the government to be 11.5 percent this year. China wants to prevent economic overheating, reduce the environmental toll from serving as the world's manufacturing and assembly hub, and cut the risk of bad loans and sinking profits in a slowdown, Bloomberg News said.

"The measure should be a further constraint on investment growth," said Wang Yuanhong, an economist with the State Information Center, a government research institute. "It can slow investment by companies that have smaller profits by cutting their reliance on bank loans, and will reduce lenders' exposure to the risk of excess investment."

Increased capital-ratio requirements force companies to use more of their own money for projects, curbing borrowing from banks. The ratio is 40 percent for the steel industry, 35 percent for aluminum, cement and property, and 20 percent to 35 percent for other industries, the State Council said last year.

China this quarter told banks to slow lending, raised interest rates to a nine-year high and increased banks' reserve requirements by the largest amount in four years.

It's also ordered state-owned firms to pay as much as 10 percent of profit as dividends to soak up more of the money that could fuel investment.

Fixed-asset investment in urban areas climbed 26.8 percent in January through November from a year earlier, up from the 24.5 percent pace for all of 2006. Spending on new projects soared 28 percent.