China's machinery industry notched up 32.23 per cent growth in the first half of the year, fuelled by the nation's strong economic growth, said top officials from the China Machinery Industry Federation (CMIF).

"The growth of the sector is expected to slow down in the second half due to the central government's tightening measures, with the annual growth of the sector standing at about 20 per cent," said CMIF Vice-President Cai Weici. The CMIF is a quasi-governmental institution that oversees the growth of China's machinery sector.

China's economic growth surged to 10.9 per cent in the first six months, driven by fixed-assets investment that rose 29.8 per cent in the same period.

The machinery industry, which supplies machines for other industrial sectors, has benefited from the investment spree as demand for construction machines and power-generation equipment increased during the period.

The machinery industry's total output reached 670.07 billion yuan (US$83.76 billion) in the first half of 2006, up 32.23 per cent year-on-year, according to statistics from the CMIF.

The construction equipment and mining equipment manufacturing sectors have been the bellwether of the 13 sectors CMIF oversees, with growth rates of more than 40 per cent year-on-year.

Meanwhile, the machinery industry reaped 127.61 billion yuan (US$15.95 billion) in profits during the first half of 2006, a year-on-year rise of 43.92 per cent.

In terms of machinery, China's foreign trade deficit shrunk to US$1 billion in the first half of the year, about one-sixth of the same period last year, CMIF said.

The sectors' exports rose 36.15 per cent, compared with a 21.6 per cent rise in imports.

"The product structure of the machinery industry was further optimized during the first half of the year, as domestic enterprises continue to upgrade their technological level and adjust their product portfolios," said Cai.

For example, 103 million smaller-engine cars were sold in the first half of 2006, up 87.28 per cent year-on-year.

The central government has recently been promoting the use of more fuel-efficient cars, and required local governments to scrap restrictions on their use in built-up areas.

However, analysts caution that the huge investment poured into the sector, coupled with the central government's tightening measures, may lead to overcapacity and result in a downturn.

Fixed-assets investment in the machinery industry skyrocketed by 52.89 per cent in the first half of the year, compared with an increase of 29.8 per cent in overall fixed-assets investment during the same period.

"The central government's move to cool the economy, especially the sectors already showing signs of overheating, will trigger a gradual slowdown in the machinery industry," said Cai.

The government has taken measures to slow down some overheated sectors. The central bank raised its benchmark interest rate last April to curb money oversupply and recently ordered banks to set aside more reserves, reducing the amount of money available for lending.

Source: China Daily