China's Premier Pledges to Control Real Estate Bubble, Holds Firm on Yuan

Chinese Premier Wen Jiabao said the government will cool property prices, resist pressure for the yuan to appreciate and keep inflation at "reasonable" levels.

"Property prices have risen too quickly in some areas and we should use taxes and loan interest rates to stabilize" them, Wen said yesterday in an online interview with the official Xinhua News Agency. China will "absolutely not yield" to calls for currency gains, he said.

China's property prices climbed last month at the quickest pace since July 2008, adding to concern that record lending and inflows of money will inflate asset bubbles in the world's fastest-growing major economy. Central bank adviser Fan Gang said Nov. 18 that the nation needs to be on alert for stock, real-estate and commodity bubbles as global capital flows into emerging economies.

"It's difficult to see how serious the government is about cooling the property market," said Andy Xie, former Morgan Stanley chief Asian economist. "The issue isn't about introducing new measures but enforcing existing measures."

The Shanghai Property Index of 33 stocks gained 1 percent as of 12:34 p.m. local time. The gauge has doubled in 2009.

In November, real-estate prices in 70 major cities rose 5.7 percent from a year earlier, compared with 3.9 percent in October. Wen reiterated plans to build more low-cost housing and said the government would crack down on illegal activities such as land hoarding that drive up prices.

End of Deflation

China should anticipate inflation because of factors including rising global commodity costs, Wen said, pledging to keep price increases in a "reasonable range."

Consumer prices climbed 0.6 percent in November from a year earlier, snapping a nine-month run of deflation.

The government will maintain a "moderately loose" monetary policy and a "proactive" fiscal stance, Wen said, adding that it would be a mistake to withdraw stimulus measures too quickly.

"China will keep its loose stance at least in the first half of next year as inflation is expected to stay within tolerable levels," said Shen Minggao, chief economist for Greater China at Citigroup Inc. "There won't be significant changes to maintain policy stability but some industries with excess capacity have seen credit tightened."

On Dec. 25, China raised its 2008 growth estimate to 9.6 percent from 9 percent and said this year's quarterly figures will also increase, narrowing the gap with Japan, the world's second-biggest economy.

Too Much Lending

A record 9.2 trillion yuan ($1.3 trillion) of loans in the first 11 months of this year drove China's recovery after the global crisis slashed export demand. It also added to the risk of bad loans. The premier said yesterday that it would be better if lending weren't on such a large scale.

Wen reiterated the government's stance on the yuan after last month rejecting a call by visiting European officials, including European Central Bank President Jean-Claude Trichet, for a stronger currency. China has held the yuan at about 6.83 per dollar since July last year, shielding its exporters from the slump in global demand.

"Maintaining a stable yuan has made an important contribution globally," Wen said in the Xinhua interview. "We will absolutely not yield to pressure to appreciate."

He added that nations calling for a stronger yuan are also taking "protectionist" measures against China.

Twelve-month non-deliverable yuan forwards slipped 0.1 percent to 6.6580 per dollar as of 11:41 a.m. in Hong Kong, according to data compiled by Bloomberg. The yuan gained about 21 percent in the three years after a fixed exchange rate was scrapped in July 2005.

A $586 billion, two-year stimulus package and subsidies for consumer purchases helped the economy expand 8.9 percent last quarter, the fastest pace in a year. China is poised to replace Japan as the world's second-biggest economy next year, according to International Monetary Fund projections.

—Irene Shen. With assistance from Kyunghee Park in Hong Kong. Editors: Richard Dobson, Paul Panckhurst, Kevin Costelloe.

To contact the Bloomberg News staff on this story: Irene Shen in Shanghai at ishen4@bloomberg.net