SHANGHAI: China is risking property-market “bubbles” to encourage growth in the world’s third-largest economy, according to former Morgan Stanley Asian economist Andy Xie.

“People are looking at the bubbles as a way to gain economic growth in the short term,” Xie said in a Bloomberg Television interview in Hong Kong on Oct 22. “They are not sure of long-term damages that they may suffer.”

Property sales and values have surged as the government implemented a US$585 billion (RM1.99 trillion) stimulus package and banks extended a record US$1.27 trillion of credit. China’s economy expanded 8.9% in 3Q from a year earlier, the statistics bureau said on Oct 22, while home prices rose at the quickest pace in a year in September, government reports showed last week.

Soho China Ltd, the biggest property developer in Beijing’s central business district, said Oct 20 that pre-sales will surpass RMB10 billion (RM5.1 billion) for the first time this year “largely” because of the government’s stimulus plan.

“Land prices have become so elevated,” said Xie, who correctly predicted in April 2007 that China’s equities would tumble. “The economy has become so dependent on property and the prices are so high and it carries a lot of risk for the country going forward.”

The country’s cabinet said it will continue with monetary and fiscal stimulus measures even after the economy exceeded officials’ expectations for the first nine months of the year.

China will “maintain the continuity and stability of macro-economic policies”, the State Council said in a statement on a government website late on Oct 21. China faces increasing difficulty in managing liquidity and the structure of loans is “not rational”.

A measure of property developers on the Shanghai Composite Index has more than doubled this year, compared with the 68% gain by the broader gauge.

China Vanke Co, the nation’s largest developer by market value, increased average apartment prices last month, charging RMB10,168 per sq m, 26% more than a year earlier and 4% more than the previous month, the developer said last week.

“Actual consumption depends on government consumption and enterprises,” said Xie, now an independent economist based in Shanghai. “The only thing they can think of they could get it up is property, and so they are going for that.” – Bloomberg LP

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