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China's Fixed-Asset Investment Booms


China's spending on fixed assets has surged in the first five months of this year and Beijing has announced it will cut tariffs on cars and auto parts.

Chinese investment in fixed assets such as buildings and factories surged 30 percent in the first five months of this year compared with a year earlier.

The fixed-asset investment figure is one of China's key economic indicators and suggests that Beijing's efforts to slow the economy have not yet taken effect.

But Li Hui, China economist at the C.L.S.A. investment bank in Hong Kong, says it is premature to call the invest boom worrisome. Beijing recently introduced a number of measures to cool the property market and she says once those kick in, investments could slow down.

"With the government's efforts to moderate this fixed asset investment, the growth rate could actually stop a bit going forward, because this property policy was only announced less than 3 weeks ago so I think it will take some time to factor it into the future investment," said Li.

As a reaction to the rise in investments, which has fueled renewed fears of an overheated economy, China's central bank vowed to slow the rapid increase in bank lending.

China will lower taxes on imported cars and auto parts from July first. Tariffs on cars and minibuses will be cut to 25 from 28 percent, while tariffs on imported auto parts will be lowered to 10 percent from the current rate of 14 to 16 percent.

The move was made after the European Union and the United States complained that some of China's rules on car import tariffs did not comply with World Trade Organization regulations. Beijing joined the WTO in 2001.

In other news from China, the country's flag carrier Air China signed an order for 24 Airbus 3-20 planes for about $1.7 billion. The deal is part of an agreement for 150 planes signed by the Chinese government and the European plane manufacturer last year. Airbus gave China significant discount on the planes.

Airbus, based in France, wants to end U.S. rival Boeing's dominance on the lucrative Chinese market.

Singapore Airlines, however, has ordered 20 Boeing 787 planes for about $4.5 billion, with an option to buy 20 additional planes.

Singapore Airlines plans to use the new planes on routes to North Asia, the Indian subcontinent and the Middle East. The announcement of the deal came after Singapore Airlines complained about delays in Airbus' delivery of its "super jumbo" jet.

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