China’s central bank to monitor property market in 2010

BEIJING: China's central bank said on Jan 6 it will pay particularly close attention to the property market in 2010 while managing inflationary expectations, according to a Reuters report.

The central bank's focus on housing prices makes clear its intention to consider asset markets in its formulation of monetary policy at a time when many analysts have warned that the country's property sector is approaching bubble territory.

The People's Bank of China, after a planning meeting for 2010, said it would maintain ample credit in the financial system but would encourage banks to lend more evenly, while strictly implementing credit policies in the housing sector.

"We should closely watch changes in the property market and strictly implement property credit policies to promote healthy development of the real estate sector," it said in a statement on its website.

About one-sixth of China's nearly 10 trillion yuan (RM5.07 trillion) in new loans last year flowed into the property sector.

Concerned that an asset bubble could stir social and economic instability, Beijing has vowed to combat overly fast price increases, although its moves to date, such as a less generous property tax break, have been relatively mild.

The central bank broke little new ground in laying out its other objectives for the new year, repeating many of its policy statements from the past few months, but it emphasised how determined it was to control bank lending after the record surge of credit last year.

"We will guide financial institutions to maintain a good rhythm of credit issuance and prevent abnormal swings in lending at month-end and quarter-end," it said.

The central bank also warned commercial banks of the dangers: "We should be more vigilant on credit risks, especially at a time when credit issuance is growing fast."

The government is expected to trim new lending to 7 to 8 trillion yuan next year and it has vowed to better guide lending flows, to ensure loans are not misused for property speculation or extended to industries already suffering from overcapacity.

The central bank also said that it had inflation in its sights, along with supporting economic growth.

"We should stabilise price levels and effectively manage inflation expectations," it said.

It reiterated long-standing wording about the yuan, saying it would maintain a stable exchange rate. It added that it wanted to promote multi-polarisation of the international monetary system and promised to expand yuan business, including bond issuance, in Hong Kong.

"We will keep the yuan exchange rate basically stable at a reasonable and balanced level," the statement said.

China has effectively re-pegged the yuan at 6.83 to the dollar since its exports dropped precipitately with the worsening of the global financial crisis in mid-2008.

A sustained recovery in exports, which have still been declining in year-on-year terms, is seen as a key precondition for Beijing to let the yuan resume the gradual path of appreciation that it followed from mid-2005 to mid-2008, when it rose about 21%. -- Reuters