Fan Gang, a member of the People’s Bank of China’s (PBoC) monetary policy committee, said that asset bubbles are "the real worry" for China’s economy, while praising Beijing’s attempts to reduce liquidity.
The remarks are yet another indication of mounting concerns in official circles about the impact of rapid credit expansion on asset prices. Exact data on bank lending in January have not been made available, but reports in domestic media say new loans reached US$234 billion. According to the PBoC, property prices in first-tier cities are already above their 2007 peaks. Most discussion has focused on property prices; the stock market remains well below its all-time high of 5,903.26 points in October 2007.
We can expect bank lending to gradually slow in response to continued government pressure, but Beijing still needs to balance tightening access to credit with ensuring a sustainable recovery. Broader tightening is therefore unlikely over the next few months. More targeted cooling measures aimed at property speculation are already being applied, and could be accelerated in response to the recent worries; the property tax mentioned by Fan Gang is one option. Such moves could hit property and related stocks in the short term, but fundamental demand for property in China will remain robust.