Closer control

From “Chinese property market outlook 2008” by Fitch Ratings, January 17:

The widening demand-supply gap in recent years has resulted in rising property prices. Although Fitch Ratings recognizes that undersupply related to land shortages and land hoarding has been blamed for the soaring prices, real demand “overdrawn” in advance and investment-driven demand also play important roles due to the expectation of rapid price increases, which creates a self-fulfilling cycle. The market will consequently face stricter regulation, and credit tightening will become normal practice in the sector. The cumulative effects of the regulations and policies will narrow the demand-supply gap and thereby curb price rises. However, in some cities where property prices grew dramatically during 2007, there will be considerable property price volatility. Nevertheless, Fitch does not expect property prices to drop materially nationwide as the government’s core supply policies will take time to be effective.

From “Reserve requirement ratio increased” by Jing Ulrich, China equities chairman, JPMorgan Securities, January 16:

China’s central bank raised the reserve requirement ratio (RRR) by 50 basis points to 15%, effective January 25, 2008. The timing of this move underlines China’s determination to curb liquidity and deter excessive investment … While many other countries are worried about an economic slowdown, Beijing is clearly more concerned about overheating and inflation. China raised its reserve ratio on a day when global markets – including China’s – fell sharply amid concerns of a global credit crunch … China’s aggressive series of RRR hikes is unfavorable to smaller banks with weaker deposit franchises … [but] the bigger banks are relatively sheltered. Higher RRR levels, combined with other macro tightening measures, will slow bank lending in 2008, which will result in a moderation in GDP growth.

From “Closer cooperation between China and India” by Sherman Chan, economist, Moody’s Economy.com, January 16:

Two items worth highlighting are: China urging India to relax restrictions on direct investment by Chinese firms; and India pushing for more fruit and vegetable exports to the mainland. These proposed ideas will likely benefit both India and China. For instance, cash-rich Chinese firms may help to improve India’s inadequate infrastructure and boost overall economic activity going forward. Meanwhile, if China allows more agricultural imports from India, the increase of food supply on the mainland will help to contain inflationary pressures which are currently threatening social stability … An increase in trade between China and India will help both economies to partially reduce the impact of weakening demand from the US – their biggest export market at present.