China Must Prevent Rebound in Property Prices, Wen Says

Chinese Premier Wen Jiabao said downward pressure on the economy is still “relatively large” and the government will intensify fine-tuning of policies even as measures taken since April are helping stabilize a slowdown.

Wen’s comments, four days after the central bank announced the second interest-rate cut in a month, were made during an inspection tour of eastern Jiangsu province, the official Xinhua News Agency reported yesterday. The premier also pledged to “unswervingly” continue property controls and prevent prices from rebounding, Xinhua said.

Asia’s largest economy probably grew at the slowest pace in three years in the second quarter, underscoring the risks to a global recovery already threatened by a worsening crisis in the euro area and faltering employment gains in the U.S. The International Monetary Fund next week will cut its world-growth estimate this year, with Managing Director Christine Lagarde warning the outlook has “regrettably become more worrisome.”

“The big downside risks to economic growth increase the pressure for monetary easing,” economists Peng Wensheng and Zhao Yang from Beijing-based China International Capital Corp. said in a July 6 note. “Based on the recent developments in the global economy, we believe major central banks will take more conventional and unconventional measures in coming months to loosen monetary conditions and encourage bank lending.”

China’s inflation probably slowed to 2.3 percent in June, the lowest since January 2010, according to an analyst survey ahead of a government report due today at 9:30 a.m. in Beijing.

Reversing Slowdown

The People’s Bank of China also last week allowed banks to offer bigger discounts on loans, stepping up efforts to reverse a slowdown in the world’s second-biggest economy. The moves coincided with the European Central Bank’s decision to reduce borrowing costs to a record low and the Bank of England’s expansion of asset purchases.

China’s benchmark stock index fell for a third week on concern the government isn’t doing enough to stem an economic slowdown that will hurt company earnings. The Shanghai Composite Index rose 1 percent on July 6 after the PBOC announcement, paring the week’s decline to 0.1 percent.

The pace of China’s growth is “within the expected target zone set at the beginning of the year,” Xinhua reported Wen as saying during his tour from July 6 to July 8.

“In April this year we announced we would put stabilizing growth in a more prominent position and we intensified efforts to preemptively fine-tune policies,” Wen said. “Currently these measures have already seen some results and the economic slowdown has stabilized.”

Proactive Policy

The premier in March set a goal of 7.5 percent expansion for 2012, down from an 8 percent target in place since 2005.

Growth may have slid to 7.7 percent in the second quarter from a year earlier, according to the median estimate of 33 analysts in a Bloomberg News survey as of July 6. The data are due on July 13. The economy expanded 8.1 percent in the first three months, the fifth quarterly slowdown.

The government will “continue to intensify preemptive fine-tuning and implement a proactive fiscal policy, especially with a focus on improving the structural tax reduction policy,” Wen said, according to Xinhua. Authorities will “continue to implement a prudent monetary policy and effectively solve the structural contradiction between the supply of and demand for credit,” he said.

Even as Wen pledged to support growth, he reiterated that property controls will continue. Restricting speculative demand and investment in property must be made a long-term policy, Xinhua said in its reports of the premier’s visit.

Price Rebound

“We must unswervingly continue to implement all manner of controls in the property market to allow prices to return to reasonable levels,” Wen was quoted as saying when he met residents and local government officials in charge of affordable housing on July 7. “We cannot allow prices to rebound, or all our efforts will come to naught,” he said.

Market expectations about property prices are changing and citizens are worried prices will rise again, he said. Signals in the market are “chaotic” and misleading and speculative information must be stopped, Wen said, according to Xinhua.

Local governments that introduced or covered up a loosening of curbs on residential real-estate must be stopped, he said.

China’s new-home prices rose for the first time in 10 months in June, according to SouFun Holdings Ltd. (SFUN), owner of the nation’s biggest real-estate website.

‘Arduous’ Task

“As long as there are no new curbs to come and it’s only the implementation of existing policies, home prices will still rise,” Du Jinsong, a Hong Kong-based property analyst at Credit Suisse Group AG, said by telephone on July 7.

Property controls are still in a “critical period” and the task remains “arduous,” Xinhua reported Wen as saying in its July 7 report.

The government must “promote the study and implementation of changes to the property-tax mechanism, and to speed up the establishment of a comprehensive long-term mechanism and policy framework for controlling the property market,” Xinhua cited Wen as saying.

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at bchua14@bloomberg.net; Henry Sanderson in Beijing at hsanderson@bloomberg.net.

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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