China Bubble Risks May Be Masked, World Bank Says

By Bloomberg News

Jan. 25 (Bloomberg) -- China’s property-market data may be masking the degree that speculation is driving prices in some of the larger cities, a World Bank economist said.

Official data “may actually under-represent what’s going on,” Ardo Hansson, the development bank’s chief economist for China, said in an interview after a press briefing in Beijing today. “It’s people buying because they think next week or next month it will be even higher.”

Government data this month showed Chinese real-estate prices climbed the most in 18 months in December, highlighting a struggle to rein in speculation while sustaining an economic rebound. Hansson indicated that Premier Wen Jiabao’s government may have to take further steps after the central bank already told lenders to boost the assets held as reserves.

“It’s good to try to nip these trends a little bit in the bud,” Hansson said of property prices outpacing fundamental demand and supply dynamics.

Residential and commercial real-estate prices in 70 cities increased 7.8 percent from a year earlier in December, topping a 5.7 percent gain in November.

Values of some luxury units in Shanghai doubled last year, Lee Wee Liat, an analyst at Nomura International Hong Kong Ltd., said in an interview this month. He cited 100,000 yuan ($14,600) per square meter sales in December at Casa Lakeview, a project developed by Hong Kong billionaire Vincent Lo’s Shui On Land Ltd.

Sales Rise

China property sales also jumped 75.5 percent to 4.4 trillion yuan last year, led by the eastern cities of Zhejiang and Shanghai. The boom follows an unprecedented 9.59 trillion yuan of new loans being extended last year, flooding the economy with cash.

“Excess liquidity in the system is planting the seeds of surging inflation and asset bubbles,” Diwa Guinigundo, the Philippine central bank’s deputy governor, said in an interview in his office in Manila today. “More and more, China is realizing they have to moderate public spending, or else they will have the problem of high inflation later on.”

Premier Wen pledged Dec. 27 to stabilize property prices, crack down on speculation and keep housing affordable, adding that tools may include taxes, “differentiated interest rates” and land regulations.

The central bank on Jan. 12 increased banks’ reserve requirements for the first time since June 2008 and has also guided bill yields higher at auctions this year.

China’s economy expanded a more-than-forecast 10.7 percent in the fourth quarter from a year earlier, the fastest pace in two years, adding to the case for policy makers to pare back stimulus measures.

Investor Mark Mobius said he still doesn’t consider China to be experiencing a property bubble. “If a property bubble means too-high prices, you can see much higher prices in Australia or Hong Kong,” Mobius, who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd., told investors today in Bangkok.

--Kevin Hamlin, Karl Lester M. Yap, Anuchit Nguyen. Editors: Chris Anstey, Lily Nonomiya

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net