Money

China's central bank sees new asset bubbles emerging

(Agencies)
Updated: 2010-04-03 17:01

China's central bank said asset bubbles are emerging in parts of the world and in certain industries that may burst unless supported by real economic recovery.

Rapid asset price increases in major markets since 2009 have been pushed by "ultra-loose" monetary policies by governments around the world and "don't mean real economies have recovered or will recover strongly," the People's Bank of China (PBOC) said in a report posted on its website Friday. Such gains "unless they receive sufficient support from macroeconomic fundamentals, may lead to a new round of asset bubbles that may burst," the Beijing-based bank said.

The comments reflect concerns by policy makers in the world's third-largest economy about risks facing the global recovery as governments debate when to withdraw stimulus implemented to fight the financial crisis. Chinese Premier Wen Jiabao faces the same dilemma as he seeks to restrain inflation and curb property bubbles while maintaining growth.

"Central banks all face the pressing task of containing asset bubbles and inflation while ensuring economic recovery," the Chinese central bank said in its 2009 report on international financial markets. A surge in liquidity in global financial markets may push up inflation once economies recover, it said.

Unbalanced recovery

Governments worldwide have spent more than $2 trillion in fiscal stimulus to spur growth and may face difficulty coordinating exit strategies because of the "unbalanced global recovery," the central bank said. The withdrawal of support, together with the threat of inflation and the risks surrounding the sovereign debt of some economies complicate the process, the PBOC said.

Asset bubbles are the "real worry" as China emerges from the global financial crisis into a "boom time," former central bank adviser Fan Gang said Feb 1. Economists at the government- backed Chinese Academy of Social Sciences warned Jan 11 that the nation's gross domestic product could expand as much as 16 percent in 2010 unless policy makers withdraw stimulus.

Still, Premier Wen Jiabao on March 5 pledged to maintain a "moderately loose" monetary policy this year to cement China's recovery, while keeping inflation at around 3 percent. The People's Bank of China is targeting a drop of 22 percent in new lending this year from last year's record 9.59 trillion yuan and has told banks twice this year to set aside more cash as reserves to curb excessive liquidity.

Bankers' concern

Consumer prices rose 2.7 percent in February and property prices in 70 major Chinese cities climbed the most in almost two years, prompting the government to order lenders to tighten loans to the real-estate industry.

The PBOC's comments Friday echoed those of other international central bank officials. Donald Tsang, Hong Kong's chief executive, said Nov 13 that he was "scared" that money flowing into Asia because of low interest rates in the US could lead to another crisis in the region. World Bank President Robert Zoellick told Australian Financial Review on Jan 13 that a liquidity-driven world recovery faces the risk of asset price inflation.