China Must Curb Speculation Amid Bubble, Top Official Says

  • ‘We need to defuse a flurry of risks,’ Yang Weimin tells forum
  • Annual Central Economic Work Conference concluded on Friday

Residential buildings stand in Beijing, China.

Photographer: Qilai Shen/Bloomberg

China must do more to deflate a property bubble that expanded this year by "strictly" controlling speculation while also stepping up the fight to rein in excessive corporate borrowing, a top economic official said a day after leaders announced plans for next year.

"We need to give a higher priority to preventing and controlling financial risks," Yang Weimin, deputy director of the Office of the Central Leading Group on Finance and Economic Affairs, said Saturday at a forum in Beijing. "We need to defuse a flurry of risks, contain asset bubbles, and improve oversight to ensure there won’t be a systemic financial risk."

Yang spoke a day after China’s top policy makers said they plan prudent and neutral monetary policy next year to sustain a steady expansion with breathing room for reforms. Preventing and controlling financial risk to avoid asset bubbles will be a priority, officials said in a statement Friday after the three-day Central Economic Work Conference.

"Houses are built to be inhabited, not for speculation," the post-meeting statement said. It proposed using finance, land, taxation, investment and other instruments "to establish a fundamental and long-term system to curb real-estate bubbles and market volatilities," according to a report Saturday from the official Xinhua News Agency.

Policy makers are shifting their focus to risk management after economic growth this year proved resilient, with President Xi Jinping saying they are on track to meet objectives. Threats to maintaining rapid expansion still loom ahead of a crucial party congress late next year, including potential trade tensions with U.S. President-elect Donald Trump and the Federal Reserve projecting a steeper path for interest rates that may add pressure on the yuan.

Read more: PBOC Switches to Selective Tightening to Curb Financial Risks

The easing cycle by the People’s Bank of China since late 2014 has been accompanied by a buildup in borrowing. Outstanding credit at year-end is on pace to be about 265 percent of gross domestic product, up from 247 percent at the end of 2015, according to a recent report by Tom Orlik, chief Asia economist for Bloomberg Intelligence in Beijing.

Credit taps are still flowing freely. The broadest measure of new lending jumped last month by the most since March, boosted by borrowing for home loans and a resurgence of shadow-banking activity. The main categories of shadow finance -- bankers’ acceptances, entrusted loans and trust loans -- all increased significantly while longer-term household loans accounted for more than two-thirds of total new yuan loans.

Read more: China Economy Defies Prophets of Doom as 2017 Risks Loom

Yang, who helped draft Friday’s statement, sits on the Communist Party’s elite financial and economic panel led by Xi that is shaping policies to help support growth. The director of the panel’s general office is Liu He, one of Xi’s top advisers.

Maintaining stability doesn’t mean inaction, Yang said at an event sponsored by the China Center for International Economic Exchanges. He said the economy’s structure is improving and that cutting overcapacity will extend to more industries in addition to steel and coal.

Ning Jizhe, chief of the National Bureau of Statistics, told the forum that this year’s targets for reducing excess steel and coal capacity have been met. In coastal regions, new industries and business models make up a big share of the economy, said Ning, who’s also deputy chairman of the National Development and Reform Commission, China’s top economic planning body.

— With assistance by Miao Han, and Kevin Hamlin

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