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BEIJING: China should raise interest rates further to help rein in the property market, a top Chinese banker said in comments published on Tuesday, June 7, amid talk of an imminent rate rise.
"It's necessary for China to raise interest rates because there are some bubbles in the Chinese property market," the China Securities Journal quoted Guo Shuqing, chairman of Construction Bank Corp, as saying.
Guo cautioned against potential risks in the property market in major cities of Shanghai, Beijing, Shenzhen and Guangzhou.
In the longer term, China must keep raising nominal interest rates to correct the negative real interest rates, which could distort resource prices, Guo was quoted as saying.
With inflation remaining stubbornly high, speculation is rife that the central bank could raise interest rates as early as this week.
China's annual inflation rate is expected to have edged up to 5.4% in May from 5.3% in April and match a 32-month high seen in March, partly due to the severe drought in some of the country's key farming regions, which is helping to push food prices higher.
The central bank has raised bank reserve requirements — its preferred tool to mop up excessive cash in the economy — eight times and raised interest rates four times since October.
Guo, former head of the State Administration of Foreign Exchange (SAFE), has been mentioned as a possible candidate to succeed central bank governor Zhou Xiaochuan, who is due to retire next year.
Chinese banks would be able to cope with any declines in property prices because about half of housing loans in China are secured by collateral, Guo was quoted as saying.
He also played down risks to the banking system from the huge amounts of loans to financing vehicles run by local governments.
The offshore yuan market will continue to grow "very rapidly" in the next five years and China is showing progress toward making the yuan currency convertible on the capital account, Guo added. — Reuters
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