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China’s economy on verge of overheating: report

China’s economy remains on the brink of overheating following another 12 months of soaring industrial output and money supply, a central government report said on Wednesday.

By June this year, industrial production had been overheated for seven months in a row, said the report from the State Information Center, under the National Development and Reform Commission. Industrial added value in the H1 rose 18.5% year on year, up 0.8 percentage points over the rise in the same period of last year. Industrial production will continue to rise rapidly in the latter half of the year but its growth rate was likely to slow down slightly due to government restrictions on exports in sectors involving high energy consumption and heavy pollution, said the report. Fueled by the brisk consumable market, light industry will expand steadily, said the report.

M1, a narrow measure of money supply including cash and demand deposits, became overheated in March, with its balance rising 20.9% year on year to 13.6 trillion yuan ($1.77 trillion) by the end of June. Bank lending showed a continuous tendency to overheat throughout the last 12 months, with new Renminbi loans adding up to 2.54 trillion yuan ($330 billion) in the first six months of the year, up 368.1 billion yuan ($47.9 billion) from a year ago. After maintaining a relatively stable level in the January-April period, fixed asset investment began to bounce back in May as the January-May figure soared 25.9%, compared with 25.5% in the first four months and 24% for the whole of 2006.

The report said the consumer price index, the country’s inflation rate, remained “normal” over the 12 months although rising food prices pushed the index above the government’s target of 3% for four consecutive months. To keep prices stable, the government should continue to subsidize farmers, postpone price reforms on water, power and gas and tighten supervision of commodities related to people’s livelihood, including food, education and medical care, said the report. The government should also increase the minimum living allowance of low-income families and set up a temporary assistance system in order to prevent their living standards from falling as prices rise, it added. (