Newspaper article International Herald Tribune

China Bank Has Worries Different from the West's

Newspaper article International Herald Tribune

China Bank Has Worries Different from the West's

Article excerpt

The central bank is keeping interest rates low partly to discourage speculators from pushing even more money into China. But low mortgage interest rates have set off further surges in home prices.

While developed economies have worried whether international investors will keep showing up at their bond auctions if their central banks keep printing money, China has had a different worry.

So many speculators want to move money into China that its biggest problem has been how to keep them out.

In the United States, the European Union and Japan, central banks have struggled with hangovers from past housing bubbles, anemic or no economic growth and, in the case of Japan, even deflation. In China, a possible housing bubble is going strong.

The central bank is keeping interest rates low partly to discourage speculators from pushing even more money into China. But low mortgage interest rates -- as little as 5.2 percent, in an economy with consumer price inflation running at 2 percent to 4 percent a year -- have set off further surges in home prices.

After a sharp slowdown last summer, economic growth rebounded vigorously last winter in China. But an unexpected weakening of growth in recent weeks has created a problem that the People's Bank of China, the central bank, is just starting to acknowledge.

Further monetary stimulus -- which might seem to be the answer for a slowing economy -- could drive housing prices higher. Rising home prices are a source of tremendous anxiety across China because very few young people can afford to buy an apartment when even a unit of 75 square meters, or 800 square feet, can cost 35 times a young college graduate's first-year salary.

China's banking system has been awash in credit for years, with one result being that financing has been provided for even seemingly uneconomical projects like skyscrapers in third-tier cities or high- speed train lines to economically depressed areas. But the government's response to economic weakness in recent weeks has been to encourage the state-controlled banking system to engage in another round of heavy lending at low rates. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.