During the first quarter of 2016, one of the trends in the Chinese economy was a boost in investment and explosive growth of newly started investment projects.

China's fixed-assets investment (FAI) in the urban areas during the first two months of 2016 increased by 10.2 percent year-on-year, data from the National Bureau of Statistics showed, exceeding market expectations of around 9 percent. The figure is 0.2 percentage point higher than the annual growth of 2015. Over the same period, the value of newly started investment projects increased by 41.1 percent year-on-year, indicating that investment will continue to pick up for a certain period of time. 

Two fixed mindsets on the role investment plays in economic development must be avoided. Some argue that China's rate of investment is too high, while investment efficiency is comparatively low, which raises concerns that the FAI recovery will bring the Chinese economy back to the investment-led, export-driven growth. And those who favor investment-led growth believe that China's economic development needs to fully rely on investment at present.

In fact at this stage, maintaining a certain pace of FAI growth is quite necessary, and investment itself shouldn't be demonized. It is of pivotal importance to properly adjust investment directions, refine investment mechanism and improve investment efficiency.

It is advisable that credit flows should be directed into the real economy to avoid a situation where projects are half-finished.

It's true that the quantity of newly started investment projects is large, and if bottlenecks in funding are not cleared, we are likely to end up with half-finished projects. At the policy level, more capital should be diverted to areas such as reducing regional disparities in development, resolving problems associated to agriculture, rural areas and farmers, promoting energy conservation and environmental protection, and strengthening network of underground pipelines in urban areas. On the other hand, investment in industries with overcapacity and excess inventories such as housing should be discouraged.

Meanwhile, more efforts should be directed to resolving the problem of investment drop in Northeast China. It is estimated that if the rate of investment expansion in the northeast region is equal to the national level, this would elevate the country's FAI growth by 0.5 percentage point, and would increase China's GDP by 0.2 percentage point. To solve the problem of investment decline in Northeast China, at the central government level, measures such as transfer payments, tax deduction and exemption, as well as certain industry guidance should be adopted to enhance investment in infrastructure, industrial upgrade and re-employment, making sure that the development policies are fully implemented. At the local government level, a more market-based environment should created. Local governments also need to loosen their grip on the economy so that local enterprises are forced to find ways to deal with problems on their own.

The article was compiled by Global Times reporter Wang Wei based on a recently released report on economic and financial outlook by Bank of China. bizopinion@globaltimes.com.cn