China keeps focus on property; markets fear tighter money

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BEIJING: China renewed its vow to curb runaway property prices and keep a watch on excessive lending, while investors rushed to cut exposure to risk yesterday, a day after the central bank tightened bank reserve requirements.Concerns a bubble was forming in China’s hot property market was one of the reasons why policymakers have repeatedly drained excess cash from the financial system and tried to cool off borrowing,  and  on     Tuesday raised the amount banks must  keep in  reserve by  a  half  percentage point.

Shanghai’s composite index fell 3 per cent and led Asian equities lower, with investors caught off guard by how quickly the central bank acted. Banks and property developers were especially hard hit by fears borrowing costs in China’s booming economy would rise.

China’s banking regulator warned of the risks of excessive borrowing among land developers, and a housing official said property prices in the rich coastal cities were too high, indicating the government remained concerned about asset price inflation.

“We must recognise that housing prices in some major Chinese cities, especially in coastal big cities, are excessively high,” Vice Minister of Housing and Urban-Rural Development Qi Ji said.

This week, official statistics are expected to show a marked drop in year-on-year growth of money supply and credit in December. However, bank lending surged in the first week of January, sources told Reuters on Monday, suggesting uneven loan demand.

The market is also expecting figures for 2009 foreign exchange reserves, forecast to have grown to US$2.4 trillion from US$1.95 trillion at the end of 2008. Economists say further growth in reserves this year and associated with it rise in money supply will force the central bank to further tighten its   policy. —  Reuters