Borrowing costs and access to funding are the key obstacles to private investment in China, a senior official at the top economic planning agency said on Monday, after private investment growth shrank to a record low. A government spending spree and housing boom helped China's economy grow 6.7 percent in the second quarter, but a sharp slump in private investment is pointing to a loss of momentum and worrying policymakers. Growth in investment by private firms, which accounts for over 60 percent of total investment in China, fell to a new record low in the first half of the year as businesses retrench in the face of a sluggish economic outlook and weak exports. Executives at China's private sector are now adopting a "wait and see" approach on investment, Zhang Yong, the deputy chair of the National Development Reform Commission (NDRC) told reporters in Beijing. Xu Kunlin, the head of the NDRC's investment office, said at the same news briefing that difficulty in obtaining financing is the most common and prominent problem that companies face now. "Loan tenors are relatively long, the cost is relatively high and if you want to roll over a loan you run into lots of problems," said Xu. "Some companies aren't able to smoothly roll over loans so they have no choice but to turn to other fundraising avenues where the costs are even higher and that's when many companies run into lots of problems. So this really is a serious issue." Zhang added that China should increase government investment, while adding that government investment should not compete with that of the private sector. Chinese banks typically prefer the security of state-owned borrowers. Private firms had to pay 6 percentage points more in interest for bank loans in the second quarter versus the public sector, analysts at investment bank CICC estimate. An increasing reliance on state firms to support economic growth is also making investment in China less efficient. From 2003 to 2008, when annual growth averaged more than 11 percent, it took just one yuan of extra credit to generate one yuan of GDP growth, according to Morgan Stanley calculations. This year it has taken six yuan to produce one yuan of growth, Morgan Stanley said, twice even the level in the United States during the debt-fuelled housing bubble that triggered the global crisis. Sheng Songcheng, director of the Survey and Statistics Department at the People's Bank of China (PBOC), said recently that China has already fallen into a "liquidity trap" where increased money supply is being absorbed by firms that are not in turn investing the cash. While monetary policy is effective, it is limited and requires coordination with a proactive fiscal policy. And Sheng said China has room to increase its fiscal deficit ratio to between 4 and 5 percent to more effectively boost the economy. China's cabinet last week unveiled detailed measures, including widening financing channels for firms and establishing new equity funds, to support investment and economic growth.