[photopress:Real_estate_bubble.jpg,full,alignright]A recent report from top research body the Chinese Academy of Social Sciences (CASS) Beijing echoed warnings which are resounding around the world about real estate bubbles. The report said the government should keep its interest rate high and the real estate sector cool.
CASS economists said in the report, 2006-07: World Economy Analysis and Forecast, that it was necessary to keep the interest rate high and real estate cool to avoid the risk of a crisis such as the one Japan weathered in the 1990s. It said, ‘China should not increase domestic demand on the price as it could risk enlarging the real estate bubble.’
It drew parallels with the Japanese real estate bubble the grew and exploded in the 1980s. Then Japan’s low interest rates caused domestic demand to rise so much it eventually created a huge real estate bubble for the economy.
The report said China is different in that the government has adopted many macro regulatory measures in the sector since 2005, with good results. It added, ominously, ‘However, the measures have not dealt with all the possible risks. China still has a lot in common with Japan at that time.’
Source: People’s Daily Online