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China tightens property finance, keeps ’easy’ policy
Published on: 2010-04-26
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April 26 (Bloomberg) -- China tightened real-estate financing by requiring developers to submit fund-raising plans for review, stepping up efforts to prevent a bubble even as the central bank pledged to maintain an “easy” monetary policy.

The China Securities Regulatory Commission has sent financing requests from 41 companies to the Ministry of Land and Resources for reviews of land-use compliance, according to a statement posted on a government Web site on April 24. Central bank Governor Zhou Xiaochuan said in a statement at an International Monetary Fund meeting in Washington the same day that China will keep its “relatively easy” monetary policy.

The two statements reflect policy makers’ aim of both damping a surge in domestic property prices and sustaining an economic rebound amid uncertainty about the strength of a global recovery. The latest move adds to curbs on loans for third-home purchases, increased down-payment requirements and higher mortgage rates announced this month.

“The government only wants to curtail the excessive gains in some areas,” Li Daokui, an adviser to the central bank, said in an interview last week. “Measures to increase home supply will follow.”

Any declines in property prices would add to a slump in equities in hurting returns on savings. China’s one-year bank deposit rate has also fallen below the pace of inflation, eroding households’ purchasing power.

Stocks May Benefit

The real-estate “crackdown” will spur “large pools of funds to enter the stock market,” analysts led by Yu Jun at Beijing- based Citic Securities Co., China’s largest brokerage, said in a report. An estimated 400 billion yuan ($59 billion) may flow out of property into equities, with consumer-related shares with small capitalizations among those benefiting, Citic says.

Property prices in 70 cities by 11.7 percent in March, the most since comparable records began in 2005, and China’s economy expanded 11.9 percent from a year earlier in the first quarter, suggesting tighter policies are needed.

Chinese banks lent a record 9.6 trillion yuan ($1.4 trillion) last year, and introduced a 4 trillion yuan stimulus package, to bolster growth through the global financial crisis. Officials remain unconvinced that the sustainability of the world economic recovery is assured.

Zhou’s Concern

“The outlook for the global economy faces many uncertainties,” Zhou said in his statement. “We will continue to implement a proactive fiscal policy and a relatively easy monetary policy, and will continuously improve the policy package to respond to the international financial crisis to maintain good momentum of the economic recovery.”

China’s equities have fallen this year because of concern ending government stimulus along with measures to curb inflation will hurt economic growth. The Shanghai Composite index is down 9 percent in 2010, the world’s eighth-worst performer. A gauge of property stocks in Shanghai has declined by more than 18 percent.

Companies planning to invest in real estate through equity financing are subject to the reviews. Companies with real-estate business that are planning to pay back bank loans or boosting operating capital are also required to submit equity financing plans to the ministry, China’s securities regulator said.

The ministry will provide official comment on the companies’ financing plans to the stock regulator after reviewing whether land purchases were made legally, according to the statement. It will also review whether there are cases of real estate being left idle and changes in the use of properties.

Asset Bubbles

Developing nations with faster growth rates need to maintain “good recovery momentum while also preventing the accumulation of asset bubbles, requiring the timely consideration of an exit from stimulus policies,” Zhou said.

China will continue with “stable and relatively rapid” growth this year, while balancing “inflation expectations,” Zhou said. The central government projects gross domestic product growth of about 8 percent and an inflation rate of 3 percent this year, the statement said.

People’s Bank of China Deputy Governor Yi Gang said on April 24 that China should take “early signs of inflation seriously” amid “robust” economic growth.

Paring Stimulus

China’s policy makers raised the bank reserve ratio twice this year to contain inflation and slow loan growth. To cool the housing market, China on April 20 ordered developers not to take deposits for sales of uncompleted flats.

While Zhou made no specific comment on China’s currency policy in his statement, Zhou Qiren, a central bank adviser and Peking University professor, said yesterday the nation should be more flexible about exchange rates to help promote stable growth.

Monetary policy was “extremely” loose in 2009, and the country must deal with the aftermath, Zhou Qiren said at a forum in Beijing.

China has kept its currency almost unchanged since July 2008, prompting some U.S. lawmakers to accuse Premier Wen Jiabao’s government of keeping the yuan artificially cheap to gain an export edge. The yuan has stayed around 6.83 per dollar since July 2008.

While the Group of 20 nations also didn’t comment on the Chinese currency in its communiqué on April 23, U.S. Treasury Secretary Timothy F. Geithner said that it’s in China’s interest to allow the currency to trade more freely.

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