CHINA renewed its vow to curb runaway property prices and keep a watch on excessive lending, while investors rushed to cut exposure to risk on Wednesday, a day after the central bank tightened bank reserve requirements. Concerns a bubble was forming in Chinas hot property market was one of the reasons why policymakers have repeatedly drained excess cash from the financial system and tried to cool off borrowing, and on Tuesday raised the amount banks must keep in reserve by a half percentage point. Shanghais composite index fell 3% and led Asian equities lower, with investors caught off guard by how quickly the central bank acted. Banks and property developers were especially hard hit by fears borrowing costs in Chinas booming economy would rise.
Chinas banking regulator warned of the risks of excessive borrowing among land developers, and a housing official said property prices in the rich coastal cities were too high, indicating the government remained concerned about asset price inflation.
We must recognise that housing prices in some major Chinese cities, especially in coastal big cities, are excessively high, vice minister of Housing and Urban-Rural Development Qi Ji said.
This week, official statistics are expected to show a marked drop in year-on-year growth of money supply and credit in December . However, bank lending surged in the first week of January, sources said, suggesting uneven loan demand. The market is also expecting figures for 2009 foreign exchange reserves, forecast to have grown to $2.4 trillion from $1.95 trillion at the end of 2008. Economists say further growth in reserves this year and associated with it rise in money supply will force the central bank to further tighten its policy. Meanwhile, housing demand could simmer down after the central banks increase in the reserve requirement ratio to 16 percent , the first rise since June 2008 when it peaked at 17.5%, though lending rates will play a decisive role for the market. It will be an interest rate hike, especially on mortgage rates, that will be the most determinant factor on whether the property market will be driven down as a result, said Eric Wong, head of Asia real estate research at UBS in Hong Kong. In the meantime, I think demand will likely take the back seat while people wait for a stream of policies to stabilise.
Loan quality among Chinas biggest banks so far continued to improve, especially compared with US and European peers, where bad debts triggered the financial crisis. Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission , said the amount of non-performing loans in Chinese institutions was stable though he said there are risks if propertyrelated lending continues to grow quickly.
Until now, loans to developers and to mortgage borrowers combined account for about 20% of Chinas new lending as well as the outstanding loans, he said.
The State Council, Chinas cabinet, on Sunday warned of the negative impact of letting hot money flow into domestic real estate markets and inflating prices further.
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