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China to Cut Spending on Major Projects - 2003-12-25

China says it will cut spending on major projects in a bid to keep its economy from overheating. There are concerns among Chinese leaders and some economists that the country's surging economy may be overheating, which could trigger runaway inflation.

Members of the Chinese Cabinet, known as the State Council, met in Beijing this week to announce a set of measures. The state-run news agency, Xinhua, on Thursday quoted Finance Minister Jin Renqing as saying China needs to change the direction of its investment.

Officials say the measures include plans to slow down approvals for projects such as highways and other fixed assets. Over the past few years, the government has used such projects as a way to fuel economic growth, and create jobs.

The government says it increased spending on infrastructure projects this year by about 23 percent. This was meant to offset the economic shocks caused by the outbreak of the Severe Acute Respiratory Syndrome, which killed hundreds of people in China earlier in the year.

The finance minister says the government intends to keep spending on projects to sustain economic growth, but the focus will now be more on economic restructuring and balancing development. He says the government plans to increase spending on revamping of state industries, building public health facilities, irrigation projects and other measures to improve conditions in China's largely impoverished rural areas.

There will be a strong focus on the west of the country, where annual incomes are generally much lower than in the more prosperous and industrialized East. Economists have warned that too much investment on projects to stimulate business activity could cause a spike in inflation. They say that between 1993 and 1994, rapid economic expansion meant that retail prices shot up by 28 percent.

The government forecasts that the economy this year grew by eight percent, although some foreign economists say growth could be well above that.

The measures announced Thursday include plans to relieve shortages of coal, oil and electricity ahead of next month's Lunar New Year festival, China's biggest holiday.