The world's 6th biggest economy is gradually beginning to respond to repeated attempts by the Chinese government to tap the brakes on excess investment.

Official figures say investment in construction and factory equipment, contributing greatly to the country's overheating economy, slowed its pace --down 8.8 percentage points from March to an annualized growth of 34.7percent in April.

The increase of investment in property was declining apparently in tandem with the slower growth of bank lending, while construction of new projects was initially reined in, said the National Bureau of Statistics.

Liu Shucheng, director of the economic research institute of the Chinese Academy of Social Sciences, a think-tank for the government, predicted China's economic expansion would be successfully lowered to around 8.5 percent this year from 9.1percent in 2003.

China has set a target of 7 percent for 2004's economic growth, but the first-quarter increase, driven largely by investment, soared a revised 9.8 percent.

Macro-economic control and its effects could be felt step by step and help curb to some extent the overheating in a raft of industries, though investment would, overall, still grow on a fast track in the whole year, Liu told Xinhua.

He pointed out that "the ongoing macro-control was virtually a kind of adjustment targeting some runaway industries, over a climbing period in a new round of economic cycle."

China's central bank has ordered --three times in a row since last September --commercial banks to keep more money in reserve instead of lending it and allowed them to raise lending rates --up to 1.7 times benchmark rates --in a bid to curb loans.

The Ministry of Commerce has reduced tax rebates that enterprises can get from their export business. What's more, the State Council, China's cabinet, has raised the demand for capital-to-cost ratios for projects in the sectors of steel, aluminum, cement and real estate.

Very importantly, steel and aluminum prices responded by plummeting down, while coal output and electricity generation, two areas hampered by supply bottlenecks, stepped up pace.

In April, China's trade deficit widened to 2.26 billion US$ from 540million in March, as higher demand for raw materials imports and oil costs padded the country's monthly import bill, customs figures show.

And value-added industrial output slowed for the third consecutive month in April to 19.1 percent growth from a year earlier.

One of the leaders in providing widely recognized financial data and analytical research and investments, Standard &Poor's Ratings Services recently said it saw no immediate need to revise the positive outlook on its sovereign ratings on China.

It said while a hard landing could not be ruled out, a soft landing was the more likely outcome for the country's high-flying, but apparently earthbound, economy.

The view was echoed by Stephen S.Roach, chief economist of Morgan Stanley, who expressed his confidence that China could avoid a hard landing since the leadership has accumulated much experience arising from a number of macro-controls in the past.

In the eyes of foreign investors, China's market remains a "big cake": actual foreign direct investment rose 10.07 percent from a year earlier in the first four months of 2004,up from a rise of 7.49 percent in the first quarter.

China's economic policy makers are also encouraged by sustained increases of enterprises'profits and the nation's fiscal income, a narrowing gap in the growth rates of urban and rural residents' income, as well as a quickly recovering world economy.

A recent central bank report noted that the economy, however, was still be leagued by some "more apparent contradictions and worsening problems", citing that inflation, despite being modest, rose to 3.8 percent in April --the highest level in seven years --on the back of soaring food prices, compared with the 3 percent annual target for 2004.

The State Development and Reform Commission has required local provinces to suspend projects that might raise consumer prices when inflation hits 1percent a month or a 4percent annual rate over a three-month period.

The People's Bank said its prudent monetary policy stance will be tilted towards "moderate stringency" in the near term, vowing to take measures to mop up liquidity in the country's financial system to prevent loan growth which was still in the fast lane, while promising no "one-size-fits-all cut" in credit and loan extension lest the economy sees a boom and bust.

The central bank noted its annual targets --letting both the broad money M2 and narrow money M1grow 17percent and commercial banks'lending add 2.6 trillion yuan (US$313.3billion)--could be reached.

Additionally, a joint statement by three State Council departments said industries earmarked for belt-tightening would be expanded to machinery, petrochemicals, light industry, textile, pharmaceuticals and publishing.

The market keeps speculating on whether the central bank would raise interest rates to further cool the economy. "It depends on the data in the future. We need to observe them," said Governor Zhou Xiaochuan of the bank on Wednesday.

(Xinhua News Agency May 24, 2004)