Wen Says Curbs Needed to Avoid China Property ‘Chaos’: Economy
“We must not slacken our efforts in regulating the housing sector,” Wen said at a press conference in Beijing today, according to an English translation. A bursting property bubble would hurt the entire economy, and the government wants “long- term steady and sound growth” in housing, he said.
Chinese stocks slumped on concern that prolonging the government’s crackdown on real-estate speculation will deepen a slowdown in the world’s second-biggest economy. Wen’s comments mean the government will probably maintain property curbs for most of this year at least, said Cui Li, a Hong Kong-based economist at Royal Bank of Scotland Plc who previously worked at the International Monetary Fund.
“Wen seems determined not to relax as long as he’s in charge,” said Tim Condon, chief Asia economist at ING Financial Markets in Singapore who previously worked at the International Monetary Fund. “The authorities can use their discretion to fine-tune where needed to support growth, but the persistent housing restrictions may be a stiff headwind” for Chinese shares.
At the same time, easier monetary policy since November is likely to support growth and help reduce risks of a deeper slowdown, Condon said.
The Shanghai Composite Index closed 2.6 percent lower, the biggest decline since Nov. 30. In a sign that the government may be taking more steps to support growth, China is easing restrictions on lending capacity at three of the nation’s four biggest banks, officials at the lenders with knowledge of the matter said.
Wen said that if the government loosened property restrictions, “past gains will be lost and there will be chaos in China’s housing sector.”
China’s factory output in the first two months rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months, data showed last week.
Wen also said that the yuan may be near an equilibrium value and that policy makers will allow greater movement in the exchange rate. The currency is down 0.7 percent this year against the dollar after gaining 4.7 percent in 2011.
The yuan “may possibly have reached an equilibrium level” based on trading in Hong Kong since September, Wen said at the press conference, according to the English translation. The government will “continue to enhance reform of the exchange- rate mechanism, especially to allow relatively wider, two-way fluctuation,” he said in Chinese.
“The currency will be more volatile” this year even as “modest” gains are still likely, said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “This explains this week’s yuan moves,” especially as Wen highlighted a current-account surplus that dropped to 2.8 percent of gross domestic product last year, Kowalczyk said.
The yuan weakened as much as 0.3 percent today to 6.3471, the lowest level against the dollar since Dec. 20 and the third straight decline, before trading little changed at 6.3323 at 4:30 p.m. in Shanghai.
Elsewhere in Asia, Sri Lanka left benchmark interest rates unchanged today while South Korea said that the number of people with work rose in February for the first time since October. The nation’s jobless rate was 3.7 percent.
India reported today that wholesale price inflation accelerated more than forecast last month to a 6.95 percent rate, from 6.55 percent in January.
The European Union’s statistics office may say euro-area inflation picked up in February to 2.7 percent, a survey indicated. European industrial production fell for a second month in January, the statistics office may say.
In the U.S., a Labor Department report is forecast to show prices of imported goods rose in February for the third time in four months, while the Mortgage Bankers Association will release data for loan applications. The Commerce Department may say the U.S. current-account deficit widened in the fourth quarter to $115 billion, a separate survey showed.
China’s home sales declined 25 percent in the first two months of the year after surging 26 percent in January and February of 2011. The government’s two-year effort to control the property market included measures from raising down-payment and mortgage-rate requirements, imposing property taxes for the first time in Shanghai and Chongqing, and home purchase restrictions in about 40 cities.
Adrian Mowat, JPMorgan Chase & Co.’s Hong Kong-based chief Asian and emerging-market equity strategist, said he’s “scared stiff” about what’s happening in the Chinese property market. China’s economy is in a “hard landing,” Mowat said at a conference in Singapore today.
In a March 5 speech, Wen said the government “will strictly implement and gradually improve policies and measures for discouraging speculative or investment-driven housing demand, build on progress made in regulating the real estate market, and bring property prices down to a reasonable level,” he said.
Wen’s comments are “bad news” for developers with high proportions of debt, said Pan Shiyi, chairman of Soho China Ltd. (410), the biggest developer in Beijing’s central business district. “If developers who are highly geared can’t raise prices and sell homes quickly they would face a lot of problems with their cash flow,” Pan said today at a press conference in Hong Kong.
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