MercoPress. South Atlantic News Agency

Chinese markets prepare for tighter and costlier credit

Chinese spending on factories, roads and other fixed assets has risen by 27% this year suggesting official efforts to restrain the economy are failing and a new hike in interest rates can be expected.

Expenditure of 1.2 trillion US dollars between January and October was well ahead of expectations and despite government pledges to cool investment, flagship projects for the 2008 Olympics continue to eat up money. Investment in October was the fastest growing since September 2006 and 30.7% over the same month a year ago. Chinese markets and the currency fell back on Friday on investors' fears that the Chinese central bank was preparing the sixth hike of interest rates so far this year. The bank also on nine occasions ordered the banking system to increase their reserves in an attempt to cool credit. The increase in the one-year benchmark lending rate, currently standing at 7.29%, is expected in the next few days according to market analysts. The key borrowing rate is already at a nine-year high but inflation has still risen to a 10-year peak, increasing fears that the economy is in danger of overheating. Market analysts in Shanghai are estimating a rise of 27 points. However monetary measures seem to have done little to moderate domestic capital spending, which accounted for 42% of China's economic output last year. To prevent the economy overheating not only have banks been urged to cut lending but land conversion regulations have been tightened up to stem the flow of industrial projects. With China hosting the Olympics next August the number of schemes continues to spiral with developments in Beijing, including a new airport terminal and a massive road building program, costing 65 billion alone.