|
|
|
|
|
China puts the brakes on red-hot economic growth
18 July 2010
Government leaders usually like to take credit for speeding up economic growth, while few would pride themselves on slowing it down.
Yet the latter was precisely the reaction of China’s government last Thursday, when new data was released that showed a significant drop in economic growth over the last three months.
According to the National Bureau of Statistics, China’s economic expansion slowed substantially in the second quarter of the year, slipping to a still red-hot pace of 10.3 per cent growth, but some way below the sizzling 11.9 per cent recorded in the first quarter.
Contrary to conventional wisdom, that was actually good news for the country’s economic planners, who have been tinkering under the hood of the country’s economic engine in recent months in an effort to moderate the nation’s tearaway growth pattern.
Speaking last Friday, premier Wen Jiabao said the slowdown was ‘‘primarily a result of active regulation and control’’ and pledged that the government would not ease its macro controls.
‘‘We will maintain the consistency and stability of policy and carry on adopting active fiscal policy and moderately relaxed monetary policy," Wen said.
The country has been in the throes of a growth binge over the last 18 months, fuelled primarily by Beijing’s multitrillion dollar stimulus package, as well as record levels of bank lending and surging investment in the property sector.
That free flow of cash has helped the country to ride out the global financial crisis, but has also sent key economic indicators ticking dangerously close to the red zone.
Analysts have warned of the risks of rapid inflation, numerous asset bubbles in the property sector and a looming debt crisis among potentially over-leveraged banks and local governments.
The property sector, in particular, has been a source of major concern.
House prices have been rising at a jaw-dropping pace as speculators have thronged to the market, prompting fears of a massive bubble.
In Beijing, house prices have risen by almost 11 per cent over the last year. In the city of Haikou on the popular tourist island of Hainan, meanwhile, prices have rocketed by more than 50 per cent in 12 months.
Domestic investors, who have a limited number of investment options, have been snapping up holiday homes in anticipation of a travel boom.
At the same time, observers have warned that, as the bubble grows, the country’s banks have left themselves over-extended and exposed, as borrowing and lending on potentially overpriced housing projects has risen exponentially.
Since the end of last year, Beijing has been exerting an ever-stronger and increasingly direct influence over the market in an effort to bring growth back down to sustainable levels.
Regulators have been busy shutting off the money taps - banks have been ordered to limit lending and mortgages, down-payments for house purchases have been raised, and new taxes have been slapped on real estate investments.
Those measures would appear to be having an effect, with property prices falling in June for the first time in over a year - even in hyperventilating markets like Haikou, where prices dropped by 1.5 per cent.
But despite the indications of a slowdown, analysts warn that much uncertainty still pervades the market.
In a report released earlier last week the credit ratings agency Fitch cautioned that signs of a cooling-off could be deceptive.
The agency speculated that banks might be deliberately understating their exposure to liquidity risk by moving loans off their books and into complex and opaque investment vehicles, measures that would ensure the banks did not fall foul of the government’s new tighter controls.
That admonition did little to dampen global investor enthusiasm for a new IPO in Hong Kong by China’s fourth largest bank, the Agricultural Bank of China.
The state-owned lender, which itself has been dogged by a chequered record of nonperforming loans, raised $20 billion in one of the biggest listings in history.
At the same time, observers caution that Beijing cannot yet afford to completely turn off the stimulus funds tap, for fear of impacting the property sector and bringing the entire economy to a shuddering halt.
‘‘A moderate slowdown in growth in April and May has segued into amore rapid deceleration in the final month of the quarter," said Tom Orlick of Stone & McCarthy Research Associates.
"[The findings] will test the resolve of the government on pricking the real estate bubble, and the withdrawal of the monetary stimulus."
|
|
|
