The Washington, DC-based World Bank does not see a real estate bubble forming in China. But it does suggest the Premier and his cabinet should raise interest rates "to help contain the risk of a property bubble."
Analysts at Morgan Stanley say higher reserve requirements for China’s bank may be "imminent" and interest rates could start to climb in April. Banks lent an unprecedented $2.8 trillion last year to back the government’s stimulus program.
Citigroup Inc. has warned that in a "worst case scenario" the non- performing loans of local-government investment vehicles could climb to $35 billion by 2011.
The lender’s confidence in China’s "healthy growth prospects" contrasts with warnings from investors such as New York City hedge-fund manager James Chanos. Chanos warned in January that "pockets of overheating" suggest the Chinese economy is "getting ready to throw a piston."
Real Estate Channel reported the central bank of China has twice raised banks’ reserve requirements this year and the government is targeting a 22% reduction in new lending.